News & Notes Archive - December 2008
Is Fleetwood in a death spiral? Can this once mighty RV and MH builder survive, and if not, what will its demise mean for home shoppers?
Fleetwood Enterprises, Inc., for decades arguably the most recognized brand name nationally in both the RVs and MH industries, has had a terrible ten years, and as 2008 draws to a close, its prospects for returning to profitability are down to the slimmest of odds. This once mighty Fortune 500 company, a dominant manufacturing presence in the Inland Empire region east of Los Angeles since the 1960s, has been devastated by the twin catastrophes of rising oil prices and an MH industry that was on a grim slide even before the mainstream housing crisis struck with a vengeance earlier this year, dragging MH down with it.
Actually, Fleetwood’s problems began well before these two economic storms appeared on the horizon. In the late 1990s, in a stab at vertical integration, Fleetwood made a fateful move, going on a spending spree buying up scores of retailer dealerships (244 by the end of 2000), and way over-paying for them. At one point a total of 1800 dealers (company owned and independent) were selling Fleetwood homes. The result was a disaster: pitting long time Fleetwood dealers against a host of newcomers, bringing turmoil to Fleetwood’s distribution network. Moreover, the spree all but wiped out the company’s half-billion cash reserves that Fleetwood’s late founder John Crean had created over the years as a hedge against hard times. According to one knowledgeable insider, Crean, who had retired but was still a board member, was so opposed to the board’s decision to okay the acquisition strategy—he shouted that the move would end up destroying Fleetwood—that he had to be physically escorted from the board meeting.
All this happened just as the MH industry began to seriously tank. During the severe downturn of 1999-2004, the company took a beating, its MH production falling by 65%, mirroring the industry’s overall MH contraction. In 2001, with chattel lending drying up, Fleetwood created a subsidiary financial services company, HomeOne Credit Corp., to provide finance and insurance products to its retail operations. But the move failed to spark a return to profitability.
In the spring of 2005, with losses continuing to mount, Fleetwood abruptly changed course (and CEOs) and within months sold all but 12 of its chain of 135 company-owned retail sales centers, plus its finance company’s loan portfolio, to Clayton Homes. Despite valiant efforts, Fleetwood’s fortunes have continued to go South. As I write this, Fleetwood’s work force is now less than 6,000 (down from 21,000 nationally in the go-go 90s when the company boasted of an astonishing 25% share of the RV market). Last month it announced it would close seven MH factories (leaving 18 still operating, barely). Its market capitalization is under $8 million, it’s stock is selling at less than 20 cents, and the New York Stock Exchange days ago announced Fleetwood would be de-listed from the exchange early next month. Sad.
What does this mean for home shoppers? Regrettably, I’ve been advising my clients, for now, if at all possible, to shop for brands other than Fleetwood due to the possibility that the company may be out of business by the time they purchase a Fleetwood home. Reason: if that home needs substantial warranty service that requires factory-level repairs during the one-year warranty period, the new homeowners could be out of luck. I hasten to add that a number of possible outcomes to Fleetwood’s current crisis could change my recommendation. Two examples: the company’s MH side could be acquired by an established MH builder who would provide the continuity of warranty service. Barring that, the dealer who sells you a Fleetwood model could provide a written guarantee that the dealer will pay for any and all warranty repairs, regardless of cost.
These are tough times, and I wish Fleetwood the best. To its credit, the company’s current management team is experienced and very savvy. If anyone can turn the company around, they can, but my guess is it’s already too late.
Interview: 15 minutes with...Steve Hullibarger
Note: In my role as an industry observer and consumer advocate I speak with people at all levels of the manufactured home industry (MH) to gain insights I share with my readers to help them be better informed. Some I have interviewed for a one-page column that runs in an industry trade publication. In return the magazine runs an ad for the Grissim Guides. No money changes hands. I insist on this. Aside from book sales, I neither solicit nor accept a dime from the industry, and my readers have my assurance I intend to keep it that way. Here’s this month’s interview:
Steve Hullibarger, principal, The Home Team
Who: Founder and principal, The Home Team, a Sacramento, California-based consultancy providing expertise nationwide on all aspects of MH to manufacturers, developers, lenders, attorneys, redevelopment agencies and non-profit housing corporations.
Background: Age 60. Born in Los Angeles in ’48, raised in the nearby coastal community of El Segundo. “A great place to grow up—I managed to get to the beach a lot” (and develop a lifelong passion for surfing). Graduating from high school in ’66, attended Cal State at Long Beach. While there, met and married Gail, his wife of 40 years—the couple have a son, Michael, 26. After earning a BA in business administration (marketing emphasis) in ’71, accepted a sales job with major homebuilder Kaufman & Broad, “thinking I was going into stick-building.” Instead, he was put into K&B’s national subsidiary that produced pre-HUD mobile homes. “I spent two years making 20 calls a day to dealers to generate sales and help with service problems. It was a wild and wooly time, with new MH parks being built everywhere. But it was horribly stressful. Construction quality at the time wasn’t great, and it was rough dealing with finger pointing between the factories and the dealers—I was smoking three packs a day.”
In ’72. Hullibarger moved to Fleetwood’s Woodland, CA plant to work in factory sales, then in ’74 returned to K&B where he spent the next 11 years, moving from sales manager to plant purchasing manager where he excelled, making many improvements. “I learned a huge amount about specs, materials, the whole dynamic of providing critical materials for 150 factory workers every day.” K&B was so impressed they sent Hullibarger around the country overseeing projects. In ’80, when a landmark CA law passed allowing HUD-code homes on private property, management tasked Hullibarger with finding developers and selling them on K&B’s MH products. For several years he courted subdivision developers in CA, and later TX and FL, but the going was slow. “We thought stick-builders turning to customized upscale MH would be an instant phenomenon, but it never proved to be so.”
In ’83, K&B asked him to be GM of the company’s Sacramento HUD plant, a role he held for two years, interspersed with side trips to the Southeast to liquidate several factories closed in the wake of the oil industry collapse.
Hullibarger left K&B in ’85 to follow his own entrepreneurial path, and for the next seven years worked variously: buying (with a partner) urban infill lots in Oakland, developing them with HUD homes, and selling them; consulting for a multi-lot Bay Area dealership; and working with Fleetwood as their subdivision development manager (“We did two very successful California developments in Livingston and Poway—55 and 65 homes”). In ’92, Hullibarger struck out on his own, founding The Home Team. “Best thing I’ve ever done, but it wouldn’t have succeeded had I not spent all those years in the trenches, hitting my head on the chassis.” (laughs).
- Q: In your 16 years consulting you’ve had some big clients such as Pulte Homes, you’ve worked everywhere on projects, and even become a sought-after expert witness. What’s got you excited these days?
- A: I’m really getting involved with nonprofit housing corporations, and it’s fascinating. About five years ago I was contacted by an organization heavily involved working with non-profit housing providers in California and around the country, groups that get a lot of grants and subsidies from local, state and federal funding sources. And it dawned on me that there’s a lot of business opportunity there. I realized, too, that our industry, on both the HUD and modular sides, had never taken time to look into those opportunities.
- Q: Why haven’t they?
- A: Part of the reason stems from the industry’s longstanding boast that it is the only form of unsubsidized housing in America today, which fostered the erroneous view that we don’t belong in the subsidized housing field. People in our industry don’t do well working outside their friendly little loops of factory-to-dealer and dealers-to-customers. They don’t understand the non-profit landscape, where the money comes from, how things work. A lot of manufacturers see “non-profit” and think they’re going to be non-profit, too. They don’t understand there’s plenty of building contractors who make a good living building houses for non-profits. So, I provide services to bridge the interface between the MH industry and the non-profit housing corporations.
- Q: Any non-profits in particular?
- A: There’re two large national organizations through which I channel my activities. One is Neighborworks America — www.nw.org. It’s Congressionally funded and helps constituents all around the country. They frequently hold huge five-day training institutes around the U.S. involving 140 classes for 2,200 people. Roderick Knoll, principal of Boulder-based Manufactured Housing Resources Group, and I teach a two-day workshop on developing with MH. The other is the Corporation for Enterprise Development— cfed.org. They have an initiative called I’M HOME—for Innovations in Manufactured Housing—that offers tech and financial support to non-profits around the US who want to build with MH. I’m CFED’s principal MH technical advisor with that program.
- Q: What’s your experience been working with these folks?
- A: I love it. The people are fabulous. It’s been interesting working with people who are capitalists with a small c, who want the best value for their grant dollar but who also have a humanistic goal, trying to beat back poverty or community decline. What’s fascinating is, those goals sometimes trump the goal of being financially successful. This kind of work adds diversity to my usual for-profit work, and it’s one reason why I’ve resisted offers from time to time to go back into the industry. I treasure the freedom and the diversity of my work.
- Q: You’ve been a passionate supporter of HUD homes’ great potential, quite apart from modular homes.
- A: Yes, I’m a stand-up, soap box yelling advocate for the HUD code, and I get frosted every time I hear “Well, we had a good run, we need to escape upward with modular.” Modulars aren’t the solution to our problem. We have to fix our industry’s business behavior problems first, and stop selling our houses like cars. There’s nothing wrong with the HUD-code, and the homes have tremendous potential.