Matt Gurnsey
New member
For those that don't know- As a side job I have written for various boating magazines (Sea, Go Boating, Boating World, Boat Journal and Nor'westing). So I thought I would give some additional insight into issues that affect buyers and help explain why dealers may do what they do.
Case in point- Trade ins.
In the last few weeks, I have been approached by potential C-Dory buyers who want to trade in a late model boat (C-Dory or some other brand; doesn't really matter).
The last one I talked to seemed to think we were trying to take advantage of him or rip him off by paying too little for his trade.
So here's the deal.
Most dealers don't own their inventory. It is financed with a finance company, either local or national. These are called floor plans, or referred to as "flooring". For every item that is in stock on the floor plan, the dealer pays a monthly interest payment on the money they borrowed to have that item (boat, motor, trailer) in his inventory.
When the dealer sells a floored item, he must immediately pay off the amount borrowed to the flooring company.
Items that are in inventory past a certain point, usually one year, have their interest rate increase, so the cost of having the item in stock increases, as does the dealer's desire to sell the item.
In these economic times, the flooring companies are raising their rates, shortening the time before rates increase, or getting out of the business entirely.
What does this have to do with late model trade ins?
When we sell a boat, we have to pay off the flooring company. This payment comes out of what we are paid for the boat. Any trade we take is that much money that we don't receive, so we have to come up with money out of our account to pay off the sold item.
In other words, we buy the trade in, with the hope of making that money back when it sells. If we sell a boat for $20,000, and it cost us $17,000 to purchase, that $17,000 comes from the sale of the new boat. If we take a trade in valued at $10,000, that means we have to come up with at least $7000 to pay off the boat we sold. If the buyer owed $5000 on his old boat, we have to come up with $12,000 just to make the deal happen. (This doesn't take into account commissions paid, taxes, fees or costs involved in the service department)
Even when the buyers doesn't owe money on his trade, we have to take the trade in at below market value, so we can make a profit, getting a return on our investment. In this market, there is more risk of sitting on a trade in longer, and boats are selling for less than what the did a year ago when they do sell.
When we are contacted by someone who has a late model trade, we are often asked what we would allow for their trade. In the recent example, I was told it was a 2006 brand X, model Z with trailer.
Well that boat has 5 listings in the value books, based on which engine it has. Plus adding for optional equipment. Is the trailer galvanized or painted? Roller or Bunk?
So in my e-mail reply I expressed a number for the value of the trade. Because I had no idea what engine or other details, I had to be very conservative and go with a low number. More details would help, but wouldn't have made a ton of difference- the bottom line was that as a trade, this gentleman's 4 year old sport boat was worth around half of what he paid for it in trade.
Is that us trying to rip him off? No, it's a case of the market radically changing in the last few years, economic downturn and other factors affecting the prices at which boats sell. And how easy they are to sell.
So when I am asked "Do you take trades?" the answer is: maybe. Let's talk and find out what your goals are, and how we might be able to get you into the next boat you want.
I hope this is helpful to some of you, enlightening to others, and at least interesting to read for those that made it this far.
Case in point- Trade ins.
In the last few weeks, I have been approached by potential C-Dory buyers who want to trade in a late model boat (C-Dory or some other brand; doesn't really matter).
The last one I talked to seemed to think we were trying to take advantage of him or rip him off by paying too little for his trade.
So here's the deal.
Most dealers don't own their inventory. It is financed with a finance company, either local or national. These are called floor plans, or referred to as "flooring". For every item that is in stock on the floor plan, the dealer pays a monthly interest payment on the money they borrowed to have that item (boat, motor, trailer) in his inventory.
When the dealer sells a floored item, he must immediately pay off the amount borrowed to the flooring company.
Items that are in inventory past a certain point, usually one year, have their interest rate increase, so the cost of having the item in stock increases, as does the dealer's desire to sell the item.
In these economic times, the flooring companies are raising their rates, shortening the time before rates increase, or getting out of the business entirely.
What does this have to do with late model trade ins?
When we sell a boat, we have to pay off the flooring company. This payment comes out of what we are paid for the boat. Any trade we take is that much money that we don't receive, so we have to come up with money out of our account to pay off the sold item.
In other words, we buy the trade in, with the hope of making that money back when it sells. If we sell a boat for $20,000, and it cost us $17,000 to purchase, that $17,000 comes from the sale of the new boat. If we take a trade in valued at $10,000, that means we have to come up with at least $7000 to pay off the boat we sold. If the buyer owed $5000 on his old boat, we have to come up with $12,000 just to make the deal happen. (This doesn't take into account commissions paid, taxes, fees or costs involved in the service department)
Even when the buyers doesn't owe money on his trade, we have to take the trade in at below market value, so we can make a profit, getting a return on our investment. In this market, there is more risk of sitting on a trade in longer, and boats are selling for less than what the did a year ago when they do sell.
When we are contacted by someone who has a late model trade, we are often asked what we would allow for their trade. In the recent example, I was told it was a 2006 brand X, model Z with trailer.
Well that boat has 5 listings in the value books, based on which engine it has. Plus adding for optional equipment. Is the trailer galvanized or painted? Roller or Bunk?
So in my e-mail reply I expressed a number for the value of the trade. Because I had no idea what engine or other details, I had to be very conservative and go with a low number. More details would help, but wouldn't have made a ton of difference- the bottom line was that as a trade, this gentleman's 4 year old sport boat was worth around half of what he paid for it in trade.
Is that us trying to rip him off? No, it's a case of the market radically changing in the last few years, economic downturn and other factors affecting the prices at which boats sell. And how easy they are to sell.
So when I am asked "Do you take trades?" the answer is: maybe. Let's talk and find out what your goals are, and how we might be able to get you into the next boat you want.
I hope this is helpful to some of you, enlightening to others, and at least interesting to read for those that made it this far.
.