Contracts between dealers and boatbuilders establish territories, inventory requirements, sales goals and compensation for warranty work. Although many boat builders have written contracts with their dealers, some still rely on handshake agreements to govern relationships that can involve hundreds of thousands of dollars in inventory and an untold amount of customer goodwill.

Dealers believe these business contracts should be mandatory, the manufacturers’ group does not.

How tightly or loosely dealers and builders are allied has a significant effect on the quality of service consumers receive, so even though this may appear to be an inside-the-industry fight, consumers have a big stake in the outcome.

“Passing laws to require dealer agreements guarantees protection for the lowest common denominator dealer, rather than rewarding outstanding dealers,” said Monita Fontaine, vice president of government relations for NMMA. She maintains that a model dealer act considered in Florida this summer spells out the minimum level of service dealers and manufacturers must provide, while in reality, many boat manufacturers impose far higher standards on dealers — and reward them accordingly.

“At present, the vast majority of states do not have these franchise agreements because of the uniqueness of the product and of the industry,” she told BoatU.S. The trade group is actively fighting proposals for mandatory dealer agreements in Florida, New York and Michigan.

From the dealer’s perspective, the view is quite different.

“We believe that customer service in the boating business needs to be improved dramatically,” said Joe Lewis, president of the Marine Industries Association of Florida and owner of Mt. Dora Boating Center near Orlando. He believes that dealer agreements will force boat builders to treat dealers fairly and in turn this goodwill will be passed along to customers.

“The manufacturers are the feudal lords and the dealers are the serfs. The lords are not going to allow the serfs to have any advantages,” Lewis told BoatU.S. Magazine.

Lewis says that many manufacturers pay dealers only 60% to 75% of shop labor rates for warranty repairs to correct factory defects. Because of this, many dealers are unwilling to work on boats they didn’t sell. This is a major hassle for boaters cruising far from their homeports or for owners who take advantage of low prices from a long-distance dealer and then seek warranty service from a local company.

Builders counter that when dealers are paid full shop rates, they have no incentive to do better work. NMMA instead advocates a customer service index program that rewards dealers who get high marks for workmanship, training and knowledge.

The dealers also want multi-year rather than the current one-year contracts. And, they want protection from cancellation clauses that they believe benefit only the manufacturers. For example, dealers complain that many manufacturers don’t buy back unsold boats for the same price paid by the dealers.

According to Van Snider, president of the Michigan Boating Industries Association, “The overall picture is, can a dealer afford to invest money in training, inventory, reputation and relations with his customers when there’s a possibility of [having his dealership] cancelled in an unfair and unjust way?”

Manufacturers, on the other hand, want to keep contracts short, so they can drop dealers who are not selling enough boats or about whom they receive a lot of complaints.

Right now, with no state laws mandating dealer agreements, there is no standard for the industry and contracts vary considerably from company to company.
NMMA’s Fontaine told BoatU.S., “Because of the nature of this business, it’s important that both sides are educated and that they negotiate the best contracts for themselves.” She advises dealers, “If you don’t like the terms that a manufacturer has in its contract, then don’t sell that line.

Some dealers don’t follow this advice. For example, Florida dealer Joe Lewis told BoatU.S. that he has no contractual agreement with one of the three boat manufacturers whose products he sells. “So far, it’s worked,” he says. And even though dealers complain about warranty reimbursement rates and lack of factory support, many continue to sell the same makes of boats year after year.

In what now appears to be a major turning point, the dealers’ groups say they are prepared to go to their state legislatures if NMMA and the builders they represent do not accept a model dealer agreement they’ve drafted. States laws governing car dealer agreement establish a precedent for similar laws for boat dealers, they say.

“The boating business is in deep trouble and NMMA is in a state of denial,” says boat dealer president Joe Lewis, referring both to the lagging boat sales that have dogged the industry for years and to the decreasing numbers of people who are buying boats for the first time.

Like it or not, consumers look for the same level of service from boat dealers that they’ve come to expect when they buy a car, be it a Mercedes or a Kia. It’s not hard to see why. Prices for even modest vessels exceed the cost of many family cars, while the average 30-ft. cruiser can easily cost as much as a house.

But NMMA argues against comparisons with the auto industry, pointing out that boats are still largely hand-built and that automated assembly lines are the exception, not the norm. In addition, unlike comprehensive bumper-to-bumper car warranties, boats are sold with separate warranties for the boat and for the engine, as well as a host of warranties for other equipment on board.

But the dealers say state franchise laws dating back to the late 1940s and early 1950s have governed the auto industry. As one boat owner and former car dealer told BoatU.S., “These regulations…have not presented any problem for the reputable automobile dealer or independent repair shop,”

“In fact, they have helped level the playing field, by removing many unscrupulous operators,” he said.

Describing bad customer service experiences as a boat owner, he concludes, “It is time for similar regulations in the marine industry.”

“Although I am a staunch supporter of the free market and less government intervention, I see no other solution.”

(c) Copyright BoatUS Magazine, November 2003