Luxury tax, recession are hurting industry


October 09, 1991|By Michael Pollick

ANNAPOLIS -- The 160 luxurious sailboats are being floated into their preassigned dock spaces, and the gala tents are being set up for 350 land-based purveyors of electronics, marina space, insurance, boat loans and sailing schools.

The 22nd annual United States Sailboat Show, one of the biggest in the country, is about to get under way, bringing upward of 60,000 boat lovers to this quaint, waterfront town.

If past years are any indication, they'll spend at least $15 million outside the gates of the show, providing a big boost for area restaurants, bars and shops.

But behind the festive veneer is an industry in trouble. The double whammy of recession and luxury taxes have left few bright spots, unless you count the fact that it is a buyer's market.

"My sales have been, to be honest with you, almost non-existent for the past year," said one of the exhibitors, Eric Woods, owner of Migrator Yachts Inc.

Like many sailboat makers, Mr. Woods does not run a huge business. In his best year, 1987, he sold five of his beautifully outfitted yachts. But he sold no boats in 1990.

In the past two months, though, he has sold two. He has high hopes for this year's show and for a return on the $2,900 he has spent to show off his boat for five days.

Sailboats account for a small portion of all boats sold. In a good year, they can generate $300 million in sales nationwide, vs. $3.5 billion for powerboats.

But in Annapolis, sail is king, in part because of pioneer efforts such as the Annapolis Sailing School and the Annapolis boat shows, and in part because the Chesapeake Bay's waters provide a nearly ideal weekend cruising ground.

Mr. Woods' Massachusetts-based company builds one kind of boat, a classy-looking cruising monohull called the Block Island 40. Equipped and delivered, it costs about $200,000.

It's easy to dismiss a luxury item like this, and even Mr. Woods admits "nobody needs a boat."

But it is just these kinds of beautiful yachts that Maryland's marine-related businesses rely on. And like Mr. Woods', other businesses' sales peaked between 1987 and 1988.

U.S. sales of auxiliary sailboats -- the kind big enough to have inboard engines -- peaked at 4,000 in 1988 and fell to 2,400 by 1990, according to the National Marine Manufacturers Association.

Those figures track roughly the same course as overall boat sales, which peaked at 724,700 in 1988 and last year fell back to 1982 levels of about 500,000 units, the association said.

People in the industry are livid about the 10 percent luxury tax that went into effect at the beginning of this year for new boats costing more than $100,000.

Coming as it did after a year and a half of economic recession, the tax simply did in some manufacturers and retailers who were hoping to hang on until an economic recovery.

National groups such as the manufacturers' association and state groups such as the Maryland Marine Trades Association are fighting to get the tax repealed. But they would rather you didn't postpone your purchase while they are trying.

It is the buyers of the more expensive yachts who spend the

most on "ancillary services" -- food, liquor, clothing, restaurants, electronics, repairs and so on, said Mick Blackistone, executive director of the Maryland Marine Trades Association.

The association's membership has dwindled to about 300, down from 500 at its peak in 1987-1988, Mr. Blackistone said. The decline was so severe that this summer Mr. Blackistone was laid off as a full-time lobbyist, although he continues to run the group part-time.

"In Maryland we will probably lose 4,000 jobs this year," said Mr. Blackistone. He attributes the loss mostly to the luxury tax, using the argument that the recession took its toll mostly in the previous two years.

A survey of seven of the largest sailboat and powerboat dealers in Annapolis seems to confirm his contention.

Despite the recession, in the first half of 1990 the seven dealers sold 86 boats that cost more than $100,000, for total sales of $15.3 million.

In January 1991, "we're in the same recession, but we have the luxury tax imposed," Mr. Blackistone said.

In the first half of the year, the same seven dealers sold 28 boats costing more than $100,000, for a sales total of $3 million.

For the first half of this year, unit sales of smaller boats were down 20 percent to 25 percent at these seven dealers.

One segment that is bucking the trend is the multihull sailboat -- whose light weight resting on two or three hulls causes it to fly across the surface of the water rather than cut through it. Its wide surface also means it can pack in a lot more interior living area than a monohull of the same length.

In fact, one of the few Maryland success stories that Mr. Blackistone could point to for this year's show is Performance Cruising Inc. of Mayo, just south of Annapolis.

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