Brunswick boss forecasts boating growth

Mark Schwabero, 63, is the Chairman and CEO of Brunswick Corporation, the biggest marine company in the world today. He has an executive background in automotive and commercial vehicle industries. But he seems more like a chummy uncle than a ‘suit’ from the boardroom.

When we catch up, it’s the last day of the 2016 Sydney International Boat Show, where family boaters have returned to the local industry in good numbers.

Behind closed doors, the 'Boss of Brunswick' shares his take on the global marine industry and what the future holds for the 20 marine boat brands — from Bayliner to Boston Whaler, Harris to Rayglass, Meridian to Sea Ray and, of course, Mercury — in his portfolio.

1. Can you share a few key figures regarding the size of your operation, the number of boats sold, how many marine engines are produced, that kind of thing?
Mercury is 77 years old, Brunswick is 171 years old, so I think we’ve seen a few things, reinvented ourselves and definitely demonstrated the ability to be survivors. But we don’t give out the exact numbers.

Let’s talk about the marine engine business. We’re number one in the US in outboards and number two in outboards in
the world. And then on sterndrive engines, we’re number one in the
world.

Engines are about half of Brunswick’s output [that is, half of around $4 billion in net sales in total], two-thirds of which head to US, and one third is for the rest of the world.

Boats make up another 25 per cent of the company. It’s a similar mix with boat sales, with two thirds for the US, and one third for the rest of the world.

2. So what are your growth targets internationally with (a) engines and (b) boats.
We went out to an investors’ meeting in November [2015] and we laid out what we see for next three years.

We believe the marine industry is going to grow 3-5 per cent per year in units. We think the US will be at the high side of that 3-5 per cent, it’s been rolling at the 5-6 per cent range, and we said the rest of the world will probably be at the lower side of the 3-5 per cent.

3. Australia is a small market against all that, an absolute drop in the ocean, so how small are we?
It’s obviously less than 10 per cent. When we look at Australia we kind of think of it as Australia and New Zealand and it has attributes that look more like a US recreational market, it's got that fishing element, whereas some other markets might have a lot more commercial to them.

4. You have said pontoons, aluminium boats, and centre consoles are strong for your business. Why is that?
The buyer of aluminium fishing boats and pontoons tends to people that might go ‘down’ a little sooner in the cycle and they come back a little sooner in the cycle. They’re people who feel good about the economy when they’re getting some overtime, they’re seeing people being hired, they’re seeing houses being built on the street, and they feel good about their own home.

When you move up and get to 10-12 metre boats, you have not only the buyer, the cost and price element, you also have the difference between new and used. It might make more economic sense to buy used than buy new. And so those markets tend to have a little different recovery rate to them than some other markets.

5. Given the success your banner brand Boston Whaler, was it a mistake closing Trophy? Do you need a small affordable centre console in your range?
Boston Whaler is the most iconic brand in the world. There are a lot of different people playing out there on the value side of centre consoles. That’s not where Whaler is positioned. You look right here at the show, at the value end, and we have a nice little centre console in the Bayliner line-up now, within the Element platform, but with the centre console. For people in the entry level [market] looking at centre consoles it will more likely come through that [Bayliner] brand than reactivating an old brand like Trophy.

6. Bowriders look like they might be coming back. The Sea Ray SLX is excellent. Full marks for that new range. What about the Bayliner line-up?
Well, the Bayliner brand has a clearly defined role. It’s more the entry-level value area for bringing people into the market. We’ve been bringing out a new product like the Element in the centre console.

You’re likely to see some continuing things around the Bayliner brand versus us going out and creating lots of new and different brands. It’s an entry-level product for us.

As you mentioned, we’ve had phenomenal success with the Sea Ray SLX. It’s been a real home-run for us. So we’ll more likely stay inside the brands than create new ones. You’ll continue to see evolutions in new products.

7. So how do you energise other boating styles like the sportscruiser? Its sales are subdued. Is this a sterndrive thing, a middle class thing due to a lack of disposable income, or a time poor thing? Or all of those things?
It gets back to my earlier comment. I would say first of all: it’s not a sterndrive thing. Sterndrives are great engines, there’s a place for them. The new 4.5L and 6.2L are great products.

But you go back pre-recession and there were more than 10,000 [Brunswick-built] cruisers sold a year. And now there’s 700-800 cruisers, so all those cruisers are still kind of floating through the system. Today, you look at pontoons and they’re your family boat, with carpet, leather, recliners, bars and 300hp engines on the back.

I think there’s the used [boat] thing, plus I think there’s another boat product [pontoons] that can be seen as an alternative.

8. Given that Sea Ray and Bayliner were big sportscruisers brands, and that market is subdued, how do you plan to evolve their cruiser offerings?
There won’t be a Bayliner cruiser. We’ve pretty much defined how things are going to go there. We’ve got some things we’re working on with the Sea Ray side of things… how do we evolve that cruiser business a little bit? We’re taking some of what’s going on in the marketplace through consumer insights and working with that. You’ll see some stuff in the future on that.

9. Boats are getting bigger. Are you going to produce bigger boats? Say, beyond the Sea Ray L650 Fly?
We’ve got the 650 products, the 590s, other great new products that we will be releasing at Lauderdale [Fort Lauderdale International Boat Show 2016, November 3-17]. There’s always the desire to chase bigger and bigger products, but our strategy around the Sea Ray is to keep that product age around 2.5 years. That says we’ve got to be replacing product at a 5-year interval [allowing 2.5 years in development]. We’re getting into the age now, at 2.5 years, where we have to work on new products again and freshen it to keep that new product current. And we have to differentiate ourselves in the market.

10. Do you plan to expand your international boatbuilding facilities, e.g. Quicksilver in Europe and Rayglass in New Zealand?
We’ve never tried to play currency when we set up manufacturing. There are things you can do with hedging practices to negate the currency. We tend to look more at the product for the market. So you take Rayglass and there’s value in keeping it for that domestic market. They do very well in the New Zealand.

We wouldn’t rule out Australian-based boat building, but when you look at the big pieces of this market, they are around aluminium boats, and there are probably enough players in that space right now. You take that off the table and look at the rest of the market. Do you have enough here to really make it advantageous?

Also, we have great customers over here and we have great relationships with OEMs. A lot of people think a lot of the engines we are selling are going to Brunswick companies, but it’s a much, much smaller per cent. The vast majority of engines we sell are going to customers other than Brunswick.

11. Regarding Mercury, what is your commitment to traditional carburetted two-stroke technology?
The two stroke, I’m going to use the term, it’s a legacy product. We’ll continue to offer that product where geographies still accept it and where the economies of scale still make sense. But fundamentally for us the train’s left the station. The US is predominantly four stroke, Europe’s a four-stroke market, and other markets are transitioning and moving to four strokes.

12. Will you ditch the Verado name (supercharged four-stroke outboards) and just have one line-up and that will be all FourStroke in due course?
You have to go back to 2004, 12 years ago, when we launched Verado. But if you look at the new 150, it’s a Mercury FourStroke, if you look at the 75, 90 and 115, it’s a Mercury FourStroke. The Verado launch was 12 years ago. The oldest product in our FourStroke line-up today is the Verado. That tells you how great the product line is.

13. Other marine engine companies are looking at hybrid power. Do you have something in your top drawer?
We actually showed hybrid marine power at Miami boat show four or five years ago. I think if there was a resurgence in the cruiser segment there would probably be more appetite and consideration for hybrid power in that type of boat.

What we’ve said strategically, and this has been made public, is I think you’re going to see us be much more of a systems’ supplier than an engine supplier. So if you look today, you think about Verado, but then you’ve got Active Trim, Digital Throttle and Shift, Glass Dash, you can have digital switching, power steering, the list goes on and on, and all the things that can happen with sensors and technology today.

People are going to be looking more at certain types of boats and expecting it to be like their car, their home, their appliances. So what you’re going to see Mercury doing longer term is doing propulsion and more marine systems solutions for consumers.

14. What other integration and systems control technology do you think is relevant going forward?
The marine industry doesn’t tend to be early adopters of technology. It’s probably a case of seeing technologies in other places and at a point there’s scale there, and things are making sense, then [adopting it]. We have suppliers who have strong ties to automotive and so we can follow that.

In the US there are 17,000,000 cars, last year was 170,000 boats. That’s one per cent. So marine’s not going to be the tail wagging the dog. It’s likely to get developed some place else and then we look at how to apply that.

15. How can you keep costs in check and make boating accessible with your products in Australia?
I think this is one of the critical things for the marine industry, to attract new boaters, and we have the Element series for that. It’s really about having products down there that people can buy new and afford and have great experiences. We think it’s important to have product positioned there so people can cost effectively get into the market. It’s important to understand the customer, we are more and more customer focussed.

So a lot of boating is around fishing. The other part is around family time. And, y’know, it’s a way you can all eat together, it's a way you can all spend time together, and it’s a great way to create memories.

More on Brunswick Corporation's boats, engines and marine accessories in Australia at www.mercurymarine.com.