OMC Bankruptcy Sets Consumers Adrift

Boat/US Magazine, March, 2001 by Caroline Ajootian

Like an outboard engine heaving its last gasp, the marine industry legend Outboard Marine Corp. (OMG) filed for bankruptcy in late December, leaving an oil slick of debt and a boatload of consumers choking on the fumes. Although the Waukegan, IL, conglomerate had been losing power financially since 1997, few in the boating community were prepared for just how abrupt and complete OMC's breakdown would be.

Shortly after filing for Chapter 11 bankruptcy in the U.S. Bankruptcy Court in Chicago on Dec. 22, OMC announced that it would no longer warranty any of its products. This left tens of thousands of consumers without protection if their boats or engines failed and thousands of OMG dealers with large inventories no longer backed by their manufacturers.

According to Katherine Gleason, the federal trustee assigned to the case, OMC intends to liquidate its assets completely by selling off its boat and engine divisions. The resulting funds will be used to first pay off secured debts, like mortgages and liens, then debts held by unsecured creditors, including those of consumers.

In response to questions about the warranty status of new OMG products, Gleason said that she's never seen funds set aside in other bankruptcy cases for possible warranty claims in the future. She pointed out that consumers with outstanding warranty claims today would be able to file proof of claim forms with the court. These claims will be paid -- but probably not in full -- when OMC's assets are released.

Companies that buy assets sold in bankruptcy auctions are not legally obligated to assume warranty liability for products made by the predecessor company, according to Larry Katz, a Washington, DC, bankruptcy lawyer. Establishing warranty coverage can add millions of dollars to the cost of acquiring a failing firm.

Some companies may do so, however, to maintain customer goodwill, Gleason explained. She said it's possible this could happen in the OMG case.

At its height, OMG claimed a third of the boat and engine market in the U.S., selling as many as 100,000 engines in 2000. The company was an outgrowth of early Evinrude and Johnson outboard engine production that began nearly 100 years ago. In later years, OMG acquired a dozen boat manufacturing companies, including Chris Craft, Four Winns, Hydra-Sports, Seaswirl, Stratos, Javelin and Lowe.

OMC's Ficht fuel injected engines were introduced in 1997 in response to EPA requirements for cleaner-burning, fuel-efficient marine power. Ficht engines, however, were plagued with problems that OMG has admitted helped put them in the red due to numerous costly "upgrades" and engine redesign. The resulting customer ill will led to decreased sales even though later models were redesigned and improved.

Industry insiders predict that OMC's boat companies will sell quickly and easily but that the Johnson and Evinrude operations will have less appeal, largely because of the problems with Ficht technology.

At least one member of the marine industry blamed OMC's bankruptcy in part on the rigor of meeting federal Clean Air Act emission reduction requirements. George Buckley, chairman and CEO of Brunswick Corp., says the EPA rushed engine makers to meet requirements that couldn't be met in the time frame given.

"U.S.-owned marine engine companies faced not only the emission issues and competitive threats from Japanese manufacturers, but also a consolidating dealer body, huge price increases on sterndrive engine blocks and the emergence of the Internet," Buckley said

In addition, OMC now faults its decision to outsource parts to independent contractors who were unable to make timely deliveries.

Customers Adrift

BoatU.S. has heard from plenty of boating consumers who are angry.

Gary Lee of Fort Myers, FL, is a good example. He describes as "nightmarish" his experience with the twin 150 hp Ficht outboards he purchased in 1998. Like many other Ficht engines, Lee's haven't run right since he took delivery. Neither his dealer, another OMG mechanic nor OMG factory technicians could find the remedy.

Lee wanted OMG to participate in BetterBOAT, a consumer dispute resolution program established by Boat U.S. and the marine industry. Lee hoped that through BetterBOAT he could get the company to replace the engines. Late last year, OMG asked that the BetterBOAT panel allow them more time to get the engines running.

In December, Lee was finally promised complete repairs. The technician who inspected the engines was confident he could make the right fix. At the same time, OMG's corporate attorney told Boat U.S. that OMG would provide replacement powerheads.

Two days later, however, OMG filed for bankruptcy. The technicians who worked with Lee over the years lost their jobs along with thousands of other OMG employees and the attorney hasn't responded to phone calls or e-mails from BoatU.S.

OMC repair shops are also feeling the pinch, but are able to operate. Jeff Luten, owner of Jeff's Outboards in Jacksonville, FL, said that although he can get parts from OMG's warehouse, he must pay in advance by certified check. "We can't get parts as fast as we normally did," Luten said, "but they're coming in."