Soaring fuel costs, sagging home values, and tightening consumer credit standards have hurt marine and recreational vehicle sales and threaten to crimp bankers' loan portfolios this year.
During the housing boom many Americans used the equity in their homes to get loans for boats and motor homes and helped drive sales to record levels in 2006. But with the economy in a funk and the price of diesel fuel, which boats and RVs use, now hovering around $5 a gallon, demand has plummeted.
First-quarter shipments of motor homes and boats each fell about 20% from a year earlier, according to the Recreation Vehicle Industry Association.
Bankers say lending for high-end vehicles remains steady, and retiring baby boomers could produce a wave of borrowing when the economy rebounds.
For now conditions are deteriorating.
MarineMax Inc. of Clearwater, Fla., the nation's largest boat retailer, reported last month that sales for its fiscal second quarter, which ended April 30, fell 28%. Winnebago Industries Inc. of Forest City, Iowa, the leading maker of motor homes, reported in March that profits in its fiscal second quarter, which ended Feb. 29, fell 67%.
"There are certainly serious challenges caused by macroeconomic conditions and specifically fuel costs," Bill Katafias, the national product manager who oversees RV and marine lending at Wachovia Corp., said in an interview last week. Wachovia's portfolio, worth more than $1 billion, is one of the nation's 10 largest.
The fact that many boat owners, in particular, took out six-figure loans between 2000 and 2006 that they can no longer repay has driven up repossessions, especially since last fall.
Robert Ferreira, finance director for the maritime financial group at National Liquidators in Fort Lauderdale, Fla., the nation's largest boat repossession specialist, said in an interview last week that its delinquencies and repossessions have doubled over the past eight months.
"Based on all the repos we've been doing, something significant is happening, and I think it's only going to escalate," said Mr. Ferreira, who works with some of the nation's largest boat and RV lenders, including U.S. Bancorp, KeyCorp, and Bank of America Corp.
KeyCorp and U.S. Bancorp executives did not return calls for interviews. But executives at each company said in presentations last month that consumers' spending power has diminished this year.
"I can tell you we are undoubtedly seeing slowdown in the consumer activities," Richard Davis, U.S. Bancorp's chief executive officer, said last month.
Ellsworth Clarke, the president of B of A's dealer financial services group, would not put a dollar figure on his RV and boat loan portfolio is, but he said that it was the nation's largest, and that its loan volume is declining.
"Demand has tapered off, and we are seeing fewer applications," Mr. Clarke said in an interview last week.
Donald Parkhurst, the senior vice president of SunTrust Banks Inc.'s marine and RV division, said business in the sector is steady at the high end — luxury motor homes and yachts — but demand for loans to buy ordinary fishing boats and small RVs is dropping quickly.
"When things slow down, it's the discretionary sales that dry up quickly," Mr. Parkhurst, who is also a director of the National Marine Bankers Association, said in an interview last week. "The very wealthy aren't necessarily affected by a downturn, but the people who buy the smaller boats and the vehicles at the lower end of the spectrum are affected. And for them, a boat is a discretionary purchase."
Precise industry data is impossible to gather, since banks do no break down their revenue and profits at the marine and RV level, he said.
SunTrust's portfolio has been essentially flat this year at roughly $1 billion, in part because of a focus on higher-end customers, Mr. Parkhurst said.
Conditions will be tough the rest of the year, he said, and some boat and RV loan portfolios are shrinking.
Analysts said the problem could become significant enough to warrant a highlight in third- or fourth-quarter earnings reports.
"It's just a matter of time," Mark Fitzgibbon, head of research at Sandler O'Neill and Partners LP, said in an interview last week.
Mr. Parkhurst noted that some companies are getting out of the business. General Electric Co.'s GE Money, a top 10 RV and marine lender in 2007, closed the business last month, citing weak economic conditions.
As with auto lending, many marine and RV loans are made through partnerships with dealers.
National City Corp. in Cleveland, stung by bad loans made in partnership with mortgage brokers, shuttered various businesses that involve indirect lending.
"We have exited the indirect auto business, the indirect marine lending, RV lending businesses," Peter Raskind, Nat City's chief executive officer, said at a conference in London last month.
But Mr. Parkhurst predicted that many of the leaders in RV and marine lending will stay the course. After the economy rebounds, the massive numbers of baby boomers who will retire over the next 15 years will fuel a resurgence in demand for RVs, he said. These people will have "the money to buy and the time to use" boats and RVs, Mr. Parkhurst said. "That's a good story."
Mr. Clarke agreed: "There will be plenty of growth opportunity out there once the economy settles down."
