Thursday, December 23, 2010

SMALL FACTORIES WILL HAVE A TOUGH 2011

Modular Home manufacturers that have less than $10M in sales in 2011 might be headed for that last roundup.  The shakeout in our industry is still going to take a few more factories down before it levels out.

The problem for the smaller factories is three fold.  First, there is a slight resurgence in the used housing market because the banks want to unload these beasts before they start taking on more debt for new housing.  Any factory that is on the brink right now will not have a whole lot to look forward to in 2011 except more fixed expenses eating away at their financial reserves.



The second strike against the smaller factory is the rising costs of raw material such as drywall, lumber and products made with petroleum based materials.  The cost of freight will also start to effect sales against site builders.  They do not enjoy the economy of scale that the big factories have, thus making it tougher to compete against them for the dwindling builder base.

The third strike is the huge "shadow inventory" of houses sitting on the sideline waiting for the banks to release them into the market.  Estimates range from 1M to 3M of these shadow homes could enter the market in 2011 along with the 4-6M homes that normally come up for sale.  Competing with these older homes, which are carrying low price tags, will be tough.  Also the market for commercial projects will slow down in 2011 and even though the modular industry is successfully entering this market, only the factories with proven track records and deep pockets will continue to get them.  Smaller factories will have to continue to rely on small builders to stay in business.

But there is some encouragement for the small modular manufacturer.  While their bigger competitors are actively seeking more and more commercial projects, the small factory can be honing their skills in going after the builder base that will be overlooked by the big boys in 2011.  Sales training will have to include strategic planning, sales skills improvement and learning how builders market and sell their homes. These are skills that have been overlooked in our industry.

If the small factory goes after this small "new to modular builder" market in 2011, they have an excellent chance of being around in 2012 when the glut of used homes starts to get back to more traditional levels.

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