Thursday, June 2, 2011

DO FACTORIES NEED BUILDER NETWORKS?

Why do factories use a network of builders to sell their homes?  Why can't the new home buyer purchase a home directly from the factory?  Why don't factories stand behind their builders and fix anything that goes wrong with the house after the home owner moves in?

I've received a lot of emails over the past couple of years from people that want to buy a modular home asking these questions and more.  I try to answer each of them individually and over time I've become email friends with some of them.  They tell me about their experiences which are mostly positive.  But the questions keep coming in about how modular factories do business.  So let's take a couple of minutes and answer some of these questions.

Why do modular factories use a network of builders/dealers?  There are several good reasons that the vast majority of factories use them.  First, the factory can cover a large geographical area that includes dozens of states, each with their own set of building standards.  Seismic construction needed here, hurricane building systems there, tornado protection, CO detection, automatic shutoffs and other things needed elsewhere.  Who is in the best position to know all these rules and regulations better than local home builders that have been selling and building houses in those areas.  A factory's sales rep and the engineering staff must know a lot of codes but when it comes down to local inspectors, nobody is better than a local builder.


Another reason they use a network of builders is the same one that the auto makers have.  No factory could possibly cover all that territory effectively.  There are some factories out there that do sell their own homes directly to the consumer, but they find that going more than 100 miles from the factory brings into play local conditions that they aren't prepared to work with effectively.  They build a good modular home but are uncomfortable turning over their modules to a builder to complete.  In order for a factory to turn the profits needed today, they must employ a network of approved builders.

Many factories limit the number of builders that they allow in certain areas but this is a little confusing to prospective home buyers.  Take the east coast market for example, most factories have a policy of only having one builder within a 30 mile radius.  Sounds great but that means that Boston can only have one approved factory builder serving about 625,000 people while Philadelphia, with a population of 1,625,000 can only have one builder also.  The idea that one builder can cover an entire city is ridiculous. That's why the car makers have dealers in every local population hub.  This is a discussion for another time.

Why can't the new home buyer purchase a home directly from the factory? 
Again, factories can't be expected to have the expertise or time needed to work directly every prospect knowing that they can't convert every lead into a sale.  Their expense for not closing sales would have to be added to every home that did close.  This is lost opportunity cost and must be recouped somehow.  In most cases, it is best for the buyer to work with a local modular home builder/dealer.  One big exception to that is when the customer is buying an extremely large and complicated home or it's a large commercial project.  Then the factory usually wants more control of it.

Why don't factories stand behind their builders and fix anything that goes wrong with the house after the home owner moves in?   Unlike car dealers that deliver a finished product to the end consumer through their dealer network, the modular factory can only deliver about 70-90% of the home that sets above the foundation and the rest is completed by the local builder.  Factories have little or no control over the final steps to completion but do stand behind what they produce with warranties and service departments. 

Mistakes do happen and there isn't a factory out there that won't do everything they can to make it right for the home owner.  But when the problem is something that the builder did or failed to do, then the factory must take a hands off approach or the factory could be dragged into something they had no control over.  That is why factories have such strict requirements as to who can buy from them. 

The bottom line to this is that a factory needs a strong and loyal builder network to service the home owner.

1 comment:

Anonymous said...

I have mixed feelings about dealers. I can see their importance but on the other hand, most of them are only building a couple of homes a year and use up a lot of factory resources to do it.
I don't think there is a good solution to this if a factory is going to try and sell homes in large areas like the entire south and build everything in a factory in NC.