OMC Bankruptcy Sets Consumers Adrift
an outboard engine heaving its last gasp, the marine industry
legend Outboard Marine Corp. (OMC) filed for bankruptcy in
late December, leaving an oil slick of debt and a boatload
of consumers choking on the fumes. Although the Waukegan, IL,
conglomerate had been losing power financially since 1997,
few in the boating community were prepared for just how abrupt
and complete OMC’s breakdown would be.
Shortly after filing for Chapter 11 bankruptcy in the U.S.
Bankruptcy Court in Chicago on December 22, OMC announced that
it would no longer warranty any of its products. This left
tens of thousands of consumers without protection if their
boats or engines failed and thousands of OMC dealers with large
inventories no longer backed by their manufacturers.
According to Katherine Gleason, the federal trustee assigned
to the case, OMC intends to liquidate its assets completely
by selling off its boat and engine divisions. The resulting
funds will be used to first pay off secured debts, like mortgages
and liens, then debts held by unsecured creditors, including
those of consumers.
to questions about the warranty status of new OMC products,
Gleason said that she’s never seen funds
set aside in other bankruptcy cases for possible warranty claims
in the future. She pointed out that consumers with outstanding
warranty claims today would be able to file proof of claim
forms with the court. These claims will be paid — but
probably not in full — when OMC’s assets are released.
Companies that buy assets sold in bankruptcy auctions are
not legally obligated to assume warranty liability for products
made by the predecessor company, according to Larry Katz, a
Washington, D.C., bankruptcy lawyer. Establishing warranty
coverage can add millions of dollars to the cost of acquiring
a failing firm.
may do so, however, to maintain customer goodwill, Gleason
explained. She said it’s possible this could
happen in the OMC case.
At its height, OMC claimed a third of the boat and engine
market in the U.S., selling as many as 100,000 engines in 2000.
The company was an outgrowth of early Evinrude and Johnson
outboard engine production that began nearly 100 years ago.
In later years, OMC acquired a dozen boat manufacturing companies,
including Chris Craft, Four Winns, Hydra-Sports, Seaswirl,
Stratos, Javelin and Lowe.
OMC’s Ficht fuel injected engines were introduced in
1997 in response to EPA requirements for cleaner-burning, fuel-efficient
marine power. Ficht engines, however, were plagued with problems
that OMC has admitted helped put them in the red due to numerous
costly “upgrades” and engine redesign. The resulting
customer ill will led to decreased sales even though later
models were redesigned and improved.
insiders predict that OMC’s boat companies
will sell quickly and easily but that the Johnson and Evinrude
operations will have less appeal, largely because of the problems
with Ficht technology.
one member of the marine industry blamed OMC’s
bankruptcy in part on the rigor of meeting federal Clean Air
Act emission reduction requirements. George Buckley, chairman
and CEO of Brunswick Corp., says the EPA rushed engine makers
to meet requirements that couldn’t be met in the time
"U.S.-owned marine engine companies faced not only the
emission issues and competitive threats from Japanese manufacturers,
but also a consolidating dealer body, huge price increases
on sterndrive engine blocks and the emergence of the Internet," Buckley
In addition, OMC now faults its decision to outsource parts
to independent contractors who were unable to make timely deliveries.
BoatUS has heard from plenty of boating consumers who are
of Fort Myers, FL, is a good example. He describes as “nightmarish” his experience with the twin 150
hp Ficht outboards he purchased in 1998. Like many other Ficht
engines, Lee’s haven’t run right since he took
delivery. Neither his dealer, another OMC mechanic nor OMC
factory technicians could find the remedy.
Lee wanted OMC to participate in BetterBOAT, a dispute resolution
program established by BoatUS and the marine industry to
resolve consumer disputes. Lee hoped that through BetterBOAT
he could get the company to replace the engines. Late last
year, OMC asked that the BetterBOAT panel allow them more time
to get the engines running.
Lee was finally promised complete repairs. The technician
inspected the engines was confident he could
make the right fix. At the same time, OMC’s corporate
attorney told BoatUS that OMC would provide replacement powerheads.
later, however, OMC filed for bankruptcy. The technicians
with Lee over the years lost their jobs along with
thousands of other OMC employees and the attorney hasn’t
responded to phone calls or e-mails from BoatUS
shops are also feeling the pinch, but are able to operate.
Luten, owner of Jeff’s Outboards in
Jacksonville, FL, said that although he can get parts from
OMC’s warehouse, he must pay in advance by certified
check. “We can’t get parts as fast as we normally
did,” Luten said, “but they’re coming in.”
OMC dealers tell a grimmer tale. Just weeks before OMC filed
for bankruptcy, dealers were encouraged to place large orders
for 2001 inventory. They were promised significant rebates
that will apparently no longer be honored.
Help of a sort may be available through a service contract
program set up by Genmar Corp., the owner of Wellcraft, Larson,
Hatteras and Trojan, among others.
“We were concerned that there would be a meltdown in
the industry” if OMC customers were suddenly left without
warranties,” George Sullivan, vice president of Genmar,
told BoatUS He said Genmar has no interest in buying a piece
of OMC, but added the bankruptcy “created a very unstable
situation and we wanted to shore up public confidence.”
First Protection Corp. of Wayzata, MN, underwrites the Genmar
plan, which is similar to extended service contracts purchased
by retail customers. It is being offered to any dealers who
handle OMC engines, regardless of what make boat the engine
is mounted on.
program is available only for new Evinrude and Johnson outboards
sold to retail customers since
October 1, 2000, according to James Beltz, First Protection
president. The company may eventually expand coverage for older
engines, he said. Boat owners should check with their local
OMC dealers to find out whether they are participating.
lasts for one or two years, depending on what OMC’s
original warranty would have covered. Engine owners have the
option of buying a four-year extension, Beltz told BoatUS
With the plan, dealers have the security of knowing they will
be paid for their labor.
is confident that there are enough OMC parts available to
allow dealers to make repairs. In fact, Sierra
International, a manufacturer of marine engine and drive parts,
has set up an OMC Dealers Support Program to ensure “an
uninterrupted flow of parts to OMC dealers left stranded,” according
to John Bender of Sierra. Mercury Marine has also offered to
help dealers with repair parts.
contracts cost 7% to 8% of the dealer price per engine. Most
predict they will have to sell their OMC
products at rock bottom prices, since there’s no backup
from the manufacturer. Dealers burdened with large inventories
may be unwilling to take on the additional cost of a service
contract so it’s likely this cost will be passed along
to the retail customer.
to Genmar’s plan for OMC dealers, the usual
extended service contracts sold to retail customers are an
expensive option that probably don’t offer much protection
in a case like this. Normally costing 10% to 15% of the product’s
value, service contracts don’t cover manufacturer’s
defects and exclude many of the conditions a warranty would
marine insurance policies do not cover manufacturer’s
defects, although damages resulting from a defect may be covered.
The intent of bankruptcy law is to maintain stability in the
marketplace when a business or individual is unable to pay
its creditors. The law provides that secured creditors in a
bankruptcy case get paid first to avoid a ripple effect of
failures throughout the economy. Unsecured creditors share
in the remaining assets, often receiving only a few cents on
the dollar when claims are finally paid. Unsecured claims are
paid according to a priority assigned by law, with those filed
by consumer creditors at the bottom of the priority list.
a large bankrupt corporation like OMC can announce that it
to expedite the sale of its assets “to
retain their value and stature in the marketplace,” but
does not arrange for warranty continuity, consumers are given
a clear message that they are on the outside, looking into
a world of high finance that doesn’t recognize their
importance in terms of repeat business or brand loyalty.
particularly disconcerting to BoatUS Founder Richard Schwartz,
who said, “The bankruptcy auction may satisfy
OMC’s creditors, but it does little or nothing for owners
of OMC products. These are the people who gave OMC its lifeblood
and profits year after year.
“A fund should be created by the bankruptcy court,” said
Schwartz, “to protect the consumers who purchased OMC
products in good faith.”
BoatUS Magazine, March 2001