Trump Tariffs Wreck Boat Builder Business (#GotBitcoin?)
American companies that spent years trying to build a foothold in Europe are being torpedoed by the EU’s retaliatory tariffs. Trump Tariffs Wreck Boat Builder Business (#GotBitcoin?)
For workers at the Formula boat factory, it’s pretty easy to know when one of the vessels they’re assembling is destined for a European buyer.
Higher-voltage electrical systems are required. So are unique stability measurements. Plywood and vinyl are changed to satisfy environmental standards, and drains or door sills may need installing.
It’s the classic exercise in checking regulatory box after regulatory box, but well worth the fuss. For years, Europeans have routinely paid more than half-a-million dollars for Formula’s boats and yachts.
Unfortunately, tweaking a boat for sale in Europe is increasingly uncommon in northeast Indiana. Scott Porter, Formula’s president, told me this week the company has shipped one unit across the Atlantic since the European Union’s retaliatory tariff raised the price of an American boat there by 25%. That was a year ago, when EU officials assembled a long list of U.S. targets in response to President Trump’s steel and aluminum tariffs.
The duty, which adds between $25,000 and $400,000 to the price of a Formula boat, is in addition to a value-added tax of roughly 20%. And that’s on top of delivery charges that can tack on thousands of dollars more.
Before the tariffs, Mr. Porter typically sent as much as 10% of his production, or 35 boats, to Europe each year. That’s important income for a decades-old family firm that employs 350 people in labor-intensive and pressure-packed jobs. Providing good benefits, a steady stream of tasks and job security is critical in an era when workers can easily find another place to earn a paycheck.
Formula’s problems are shared by a significant chunk of the U.S. boatbuilding industry, where shipments to the EU have declined 30% since the tariffs were enacted, according to the National Marine Manufacturers Association. EU sales had previously sizzled. Thom Dammrich, the trade association’s president, said some boat makers have iced expansion plans or cut workers as a result of an abrupt slowdown.
“It’s like someone flipped a switch,” Mr. Porter said, sitting at a conference table in his office Monday. Formula hasn’t cut jobs. Neither has Rob Parmentier, the CEO of Wisconsin-based Marquis Yachts. But he says Europe had represented about 15% of the company’s sales.
“Our international business is gone,” Mr. Parmentier said. He’s optimistic some of Marquis’ international sales will return after Canada recently removed a tariff on U.S. boats.
Messrs. Porter and Parmentier blame a trade war that is showing little sign of abating. Both suggest it may be time for the Trump administration to slap similar tariffs on big-ticket items from Europe. It’s unclear whether that will happen.
Mr. Parmentier, whose most expensive yachts exceed $4 million, has seven European orders ready to be filled when the tariff disappears. While he waits, hard-fought market share is drifting away.
The Trump administration has argued that its tariffs on aluminum, steel and other foreign goods may raise raw material costs or consumer prices today, but that short-term pain is worth the long-term pursuit of fairer trade. But the retaliatory penalties that Europe, China and others have countered with show that the short-term pain can be considerable—and maybe not so short term.
“When you’re out of a market for a long time, you lose your steam,” Mr. Porter said.
The nightmare scenario looks like this: Big dealers in foreign markets might forget you; big regional boat shows go on without you; buyers eventually ditch you, opting for German, British, Italian or French alternatives that aren’t subject to similar border taxes.
It won’t be impossible to recover. U.S. brand names have long thrived in Europe, with icons like McDonald’s , Marlboro, Coca-Cola and Ford earning strong reputations. Fashion brands have shown particular resilience. But that’s as much the exception as it is the rule.
There are plenty of examples of the difficulties and failures of American companies trying to establish themselves or keep pace in the European markets. Currency fluctuations, fragmented markets, state subsidies for local players and fickle tastes often bar the door to success.
Starbucks Corp. has been trying to make deeper inroads in Europe for two decades, but can’t match its U.S. success. Amazon.com Inc., the U.S. e-commerce heavyweight, is wrestling with a similar problem. Walmart Corp., Best Buy Co. and General Motors Co.’s Chevrolet brand are among the many American firms to suffer high-profile and costly missteps. Some ended up bailing on Europe entirely.
Not all brands embroiled in the current trade confrontation willingly accept market-share erosion. Take Harley-Davidson Inc., Jack Daniels, or Levi Strauss & Co.—three of the most popular brands targeted by the EU’s retaliatory tariffs. These companies don’t want to lose buyers, so they are paying the duties themselves in a move that is equivalent to sacrificing profit for a sale.
Lawson Whiting, chief executive of Jack Daniel’s maker Brown-Forman Corp. , calls this “eating the cost of these tariffs to invest in consumer momentum.” Harley pays out a $2,000 subsidy per bike, equating to $100 million in annual trade-fight subsidies. Brown-Forman is spending about $125 million this year. Both companies pull in more than $3 billion in annual revenue, a sum that most boat makers would need a decade to achieve. In other words, a big balance sheet makes eating tariffs a little easier to do.
Harley eventually plans to move its production of European bikes out of the U.S. as a long-term solution. At least one major boat maker, Sea Ray owner Brunswick Corp. , employs a strategy like this. Nearly every boat it sells on the Continent is made there.
Mr. Parmentier says most domestic boat makers don’t have the resources or appetite to open factories outside of the U.S. Besides, “Made in the U.S.A.” can carry some weight even in distant ports of call. “The world recognizes American builders as quality,” he says. They are also among the world’s most efficient and cost-effective, capable of producing in a month what foreign manufacturers can in a year, according to trade officials.
Some boat builders are among the companies willing to dip into profits to keep a foot in the European market. Bill Yeargin, CEO of Florida-based Correct Craft Inc., says in some cases the company will help dealers cover the cost of the tariffs. But this is costing Mr. Yeargin millions and isn’t sufficient to maintain his sales levels. The company’s European business, which had been about $20 million annually, has fallen by a third.
“We’re in 70 countries and have invested a lot of money in developing distributors around the world,” he said. It’s important to keep a lifeline to dealers in foreign markets, because “once you lose one it’s really tough to get them back.”
but Formula Boats attributes some of the decline to a petering out of underlying demand.
In the initial days after the tariffs were enacted, U.S. demand was robust and this blunted the impact of troubles in Europe. “It had been excellent,” Mr. Porter said. “I want to emphasize ‘had.’ It’s still good, but there are some signs of a slowdown.”
For executives like Mr. Porter, a second-generation boat builder, a life raft can’t come soon enough. Trump Tariffs Wreck Boat, Trump Tariffs Wreck Boat,Trump Tariffs Wreck Boat