Mobile Homes Get Stuck in Slump
The slump in the nation’s manufactured-housing industry is deepening, prompting continued factory shutdowns and massive retrenchment in dealerships.
Though traditional home builders have been enjoying record sales, shipments of houses made in a factory--also called mobile homes--dropped by 28% in 2000 and have plunged by about 40% in the first four months of this year.
The industry has been slashing production and inventories, and some mobile home makers are moving more toward higher-end models, which are selling better. But with the sluggish economy and still tens of thousands of excess manufactured homes on dealer lots, analysts say it will be some time before the industry bounces back.
What’s more, repossessions of mobile homes are soaring and probably will reach 90,000 this year.
“We’re paying for our collective sins of the past,” said Walt Young, chairman of Champion Enterprises Inc. in Auburn Hills, Mich., the nation’s largest manufactured-home builder. Champion has closed 19 plants and more than 80 retail locations since mid-1999. But Young was speaking about the entire industry, which he said is suffering because “greed overcame logic.”
The industry had enjoyed rapid growth during much of the 1990s, but in more recent years manufacturers ramped up production as lenders eased credit in a competitive market.
Some banks offered no-money-down programs and extended payment terms to as many as 30 years, from the traditional 15. As it turned out, many of the buyers, who are in lower income brackets, couldn’t keep up.
The wreckage is extensive.
Last year alone, manufactured-housing companies shuttered about 80 production lines, according to Economy.com, an economic consulting firm. And over the last two years, analysts estimate that as many as 2,500 retail locations have disappeared.
That hurt builders even more because of an industry practice in which manufacturers routinely co-signed loans for retailers. So as more dealers went out of business, manufacturers were forced to buy back the unsold inventory.
Over the last two years, Riverside-based Fleetwood Enterprises Inc., the nation’s second-largest producer of manufactured homes, has laid off 6,600 workers and closed six plants. The company confirmed that those cutbacks, which included its recreational vehicle side, trimmed about one-third of Fleetwood’s manufactured-housing work force. Officials declined further comment.
Kevin Clayton, chief executive of Clayton Homes Inc. in Knoxville, Tenn., the No. 3 manufactured-home builder, is one of a handful of companies that has weathered the recent downturn without shutting down factories.
The company’s profits plunged 33% in the most recent quarter from a year earlier, but Clayton said the company kept its inventories relatively lean. And he said Clayton still expects to build 25,000 units this year, meeting its three-year average.
Clayton said he doesn’t see any quick turnaround for the industry. “It’s not going to come rushing back,” he said.
One reason is that lenders, who were burned by the defaults, have tightened credit or are ceasing to underwrite such loans altogether. Among them are Associates First Capital Corp., Access Financial and NationsBank. With lenders more cautious, the number of loans written is expected to drop by about 30% over the next year.
Some lenders also have bumped up interest rates and have shortened repayment terms.
“As an industry, we’ve raised credit standards,” said David Rand, senior vice president of Origen Financial Inc., a lender based in suburban Richmond, Va. He said the more consistent lending standards have made these loans more attractive to Wall Street.
Dealers of manufactured housing are still wondering whether the worst is truly over.
Dan Rolfes, who operates five retail locations in Cincinnati, said sales had fallen as much as 40% at one point. But he has less competition now, he said; in all of Ohio, the number of mobile home dealers has dropped by 10% to 15% in recent months. “You’re going to see more [bankruptcies],” said Rolfes, president of Holiday Homes Inc.
But Rolfes, who is also a developer, thinks there’s a way to prop up sales. And he and others are following a trend that has been growing in Southern California. As Rolfes put it: “To sell manufactured housing that doesn’t look like manufactured housing to people that otherwise wouldn’t buy manufactured housing.”
In suburban Cincinnati, Rolfes is marketing two-story manufactured homes in communities such as Prospector Place. Residents there also can choose to live in a traditional detached house, but Rolfes said that three out of four are choosing to buy manufactured homes because they’re cheaper but look more like detached homes than single-level mobile homes.
“It’s picking up,” Rolfes said of sales.
In California, sales have been steadier than in most other states. And one reason is that there are many more manufactured houses like the ones being built by Silvercrest/Western Homes Corp., a Corona-based subsidiary of Champion.
Silvercrest churns out custom detached homes up to 6,000 square feet with such amenities as Corian counter tops, stone and wood columns on porches and tile floors. The cost for the typical manufactured home and land runs $150,000 or higher and appeals mainly to move-up buyers, said Craig Fleming, vice president of Silvercrest.
“The acceptance of manufactured housing is beginning to increase because of the exteriors and interiors of the homes,” Fleming said. Increasingly, he added, the homes are becoming an alternative to site-built houses.
If that happens on a broader scale, the industry may have a better future ahead.
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Sliding Shipments
The number of manufactured- home shipments since 1992 shows a drop in sales. The first four months of 2001 reflect a 40% drop from the same period last year.
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April 2001, down 40%
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*Through April
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Sources: National Conference of States on Building Codes and Standards, U.S. Census Bureau
