Cobalt Boats Stays Afloat In Rough Economy

After finding its high-end niche, Cobalt's 2007 sales rose 12 percent over 2006, while other boat manufacturers foundered.

NEODESHA, Kan. (AP) — Sean Callan held up his watch to the mold of a boat hull and explained proudly that you can read the second hand in the glossy surface. ''That's the finish we're looking for,'' he said with a smile.
That gloss is the result of what Callan and his boss, Chief Executive Paxson St. Clair, call the ''Cobalt magic,'' the small-town culture of the company and its workers.
Cobalt Boats makes 12 models of inboard-engine speed boats ranging from 20 to 32 feet at its plant in Neodesha. Last year it introduced 37- and 46-foot power yachts.
Cobalt has made boats in Neodesha — 100 miles east of Wichita and 20 miles from any sizable body of water — for nearly 40 years.
But 2007 was a year of unusual highs and lows for Cobalt.
On one hand, the company capped its run of record sales years with about $130 million in revenue.
On the other, it suffered a painful setback in its first attempt to build boats outside Kansas. The company parted ways with a top executive, shut down its plant in Tennessee and laid off 110 workers there.
And now, as the boat show season cranks up across the country the industry faces what looks to be a lousy year.
The company's history is pure small town.
St. Clair's father, Paxson ''Pack'' St. Clair, was in the lumber wholesale business in nearby Chanute in 1968 when he got excited about building giant kiddie slides.
But kids started breaking their arms on the slides and the insurance company dropped them. So St. Clair, a passionate boater on Grand Lake, Okla., turned his fiberglass workers to building boats and moved the operation to Neodesha.
After a few years of mediocre sales, the elder St. Clair had the revelation that there was a high-end niche not being filled.
The rest has been the long, slow building of the culture that has figured so prominently in the quality that lets the company price its boats 15 or 20 percent above its competitors.
Last year, the company made about 2,500 boats and had about 6 percent of the market for runabouts.
What separates Cobalt from its lower-cost competitors is its attention to detail, said Kelly Miller, owner of Crestview Marine and Wichita's Cobalt dealer. He sells an upgraded version of the company's bottom-of-the-line Cobalt 202 for $43,699.
''It's not one big thing,'' Miller said. ''It's a lot of small things. Every small detail is given the same passion.''
The younger St. Clair and Callan, his brother-in-law, take visitors through the plant in Neodesha nearly every day. Customers, suppliers, members of the media, you name it, they're happy to show off how they make boats.
The quality begins with the high gloss finish on the hull and deck. And that begins with the drudgery of cleaning the fiberglass molds after every use.
The mold is a boat hull in reverse. Workers build the hulls in the molds by applying wax first, then gelcoat and then applying layer after layer of fiberglass strips impregnated with epoxy that harden to create the hull and deck.
Many boatmakers use the molds several times before undertaking the arduous cleaning process. Cobalt does it after every use.
The process of cleaning the molds is time-consuming and, therefore, expensive.
Workers can't just wipe them out because that would drag dust across surface, scratching the glossy finish. Cobalt workers use electrical repulsion, blowers and chemicals in a seven-step process to clean and prepare the mold.
''It really is an art form,'' Callan said. ''It can't be done by robot. It's a you-get-what-you-pay-for thing.''
The result is not only a high gloss, but the different colors of the boat hull are built as a single piece beneath the gelcoat. As a result, Cobalt won J.D. Power & Associates' overall customer satisfaction survey for runabouts six years in a row.
Because quality is high and volume is low, workers make almost everything: the control panels, the steel accents, even the upholstery.
The company does outsource some components, but more to leverage the size of its work force beyond what it can recruit in Neodesha than to cut costs.
But what can't be compromised is the ''Cobalt magic,'' the culture of precision among Cobalt's small-town workers, St. Clair said.
The St. Clairs reinforce the message of how much they value their workers through gestures such as eliminating assigned parking. If one of the St. Clairs is late for work, he parks at the end.
''It's that person out there turning that screwdriver or applying that fiberglass that makes Cobalt what it is today,'' St. Clair said.
Never was that more clear to the St. Clairs than last year.
In 2005, the St. Clairs bought a factory in Vonore, Tenn., on Lake Tellico to start a line of yachts in a separate company, Cobalt Yachts, under President Constantinos ''Cos'' Constantinou.
But the company ran into delays and cost overruns. Most importantly, workers lacked the culture of quality and the company didn't have the time or resources to develop it.
''We could not replicate the culture that was developed here over the last 40 years,'' St. Clair said. ''While (my father) started Cobalt, the culture is created by all 800 people and everybody plays a role.''
In August, Constantinou quit — ''by mutual agreement,'' St. Clair said — and the elder and younger St. Clair tag-teamed management of the new plant. Daily exposure to the plant was decisive. In November, the St. Clairs announced they would close the plant.
The state of Kansas provided incentives to bring the yacht line to Neodesha. The company will outsource more when the yacht lines arrive, but core operations will remain at the plant.
''We are going to keep the boats that come off the line right here under our noses in Neodesha, Kansas,'' St. Clair said. ''I will not make that mistake again.''
In 2007, not only did Cobalt sales rise 12 percent over 2006, but it gained while other boat manufacturers foundered.
That's largely because of the company's luxury market position, St. Clair said. Its customers can better afford to shake off high fuel costs and the squeeze on borrowing caused by the decline in home values.
''We feel the ups-and-downs of the economy, but we are a bit more insulated with a premium product,'' he said.
Still, he expects sales this year to remain flat with 2007.
Whatever the future holds, Cobalt's leaders seem confident.
The younger St. Clair — tall, trim, hair graying, elegant in pressed khakis and button-down shirt and looking like a small-town aristocrat — said that Cobalt's secret remains Neodesha.
The town's values produced a dedicated work force and a focused group of executives.
''It's not about the business end of this,'' he said. ''It's about the boats.
''It's about the passion for boating, passion for our customers and the long-term focus.''
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