In the past two years, Bruce Hawthorne has cut his boat dealership staff by half, watched sales plummet and seen his interest payments skyrocket.

“It’s ugly,” said Hawthorne, the owner of Camano Marine, a dealership that sells recreational fishing boats, trailers and parts. “I’ve been in the industry over 30 years and this is the most challenging time.”

Hawthorne isn’t alone. Boat dealers and manufacturers across the region are experiencing the same lethal combination of lower consumer demand and restricted credit caused by the subprime mortgage crisis that has impacted companies ranging from retail stores to restaurants.

Like many sectors, the marine industry relies heavily on the availability of credit. Dealers get financing to buy boats from manufacturers, pay down the loans as boats are sold and then purchase more stock. But lenders including Textron Financial, Wachovia, National City and others have gotten out of marine inventory lending over the past year.

The few remaining lenders, which include GE and Bank of America, have significantly scaled back lending, reduced or eliminated lines of credit and increased fees. The restriction of credit to dealers has led to a drop in manufacturing, virtually locking up the distribution chain.

“The impact this is having on dealers is pretty severe,” said Mat Dunn, legislative director for the National Marine Manufacturers Association.

“This type of capital is totally essential to the marine industry. If the dealer cannot finance the purchase of a new boat and put it on a showroom floor, that’s a huge problem. If they’re not able to make money, they have to shut their doors.”

Dunn said commercial marine financing is relatively specialized, requiring sophisticated collateral monitoring systems that prohibit most small banks from participating. “It’s not like (dealers) can just go find another lender or just go to their local bank,” he said.

Lenders frequently require manufacturers to buy back inventory when dealers go out of business. For many manufacturers, coming up with the required capital is a struggle. The NMMA estimates that recreational boat manufacturing dropped 40 to 60 percent nationally between 2007 and 2008 and about 135,000—40 percent—of marine industry jobs were lost during the same time period.

Those impacts have been felt locally. Seattle-based dealership Passage Maker Yachts recently closed its doors and Olympic Boat Centers, a multi-location dealership based in Redmond, went out of business after filing for bankruptcy protection last summer. Several Puget Sound-area boat manufacturers contacted by Three Sheets Northwest did not respond to requests for an interview.

Dealers are now competing with manufacturers offering repurchased inventory at low prices and other dealers slashing prices to get rid of excess stock, eroding profit margins while the cost of financing has gone up.

“We lose money on every boat we sell,” Hawthorne said. “We’re in survival mode. We’re just trying to get rid of anything we’ve got.”

Bill Baker, owner of Bakes Marine, a dealership and boat consulting business in Issaquah, said the marine industry fell victim to the same lax lending practices that caused the subprime mortgage crisis. Lenders extended credit at favorable terms, prompting dealers to buy too many boats that were then left sitting when the economic downturn hit in 2007.

“There was all this inventory in the field, and there’s still excess inventory,” he said. “While dealers are digging ourselves out of the hole, manufacturers are not going to see that for another six months. You’ve got to get down to the correct inventory level and then you’ll start buying product again.”

A hopeful sign came with the announcement in late March that marine inventory financing will be included in the federal Term Asset-Backed Securities Loan Facility (TALF) program. Launched in November, the program is intended to unfreeze credit for asset-backed securities such as car and boat loans, credit card debt and student loans by attracting investors to buy those securities from primary lenders, such as GE.

The Treasury and the Federal Reserve will lend up to $1 trillion to investors who buy that debt and provide credit protection that insures them if borrowers default.

Dunn said TALF’s success will depend on whether the program terms set by the government are appealing enough to attract investors and in turn, help decrease the cost of financing for boat manufacturers and dealers.

“We hope the government responds favorably to concerned outlines by some in the financial industry with respect to the program’s current requirements and costs,” he said.

But Baker was skeptical that any benefits of TALF will trickle down to dealers.

“I think it’s going to make GE stay in the industry, and that’s a good thing,” he said. “But whether we’re going to see lower interest rates or better deals or more freedom to (finance) the same amount we were before, I don’t think we’ll see any of that.”