Simplex Open House

Tuesday, May 31, 2016

How the IBS Bankruptcy Has Changed the Modular Home Industry


Last November I began hearing from modular home builders all over the East Coast that something was wrong at most, if not all, of the IBS factories. Shortages of interior trim, windows, siding, cabinets and other things. The builders were concerned but they merrily kept on buying new homes from IBS.

Then service and reimbursement for repairs started to fall further and further behind and still many modular builders kept buying new homes from IBS.

There are several reasons why builders kept going back to their IBS factory to purchase homes.

Sales reps: Most builders have tremendous loyalty to their reps. It took a long time to develop such a relationship and leaving their rep would almost feel like a death in the family.

Factory people: Second to the sales reps, builders came to know the key people at the factory including the folks in engineering that finally understood exactly what the builder wanted in their homes.

Good quality: The IBS brands have always been known for quality construction and their willingness to do just about anything the builder threw at them. Not every factory would or even could do some of the special requests from the builders.

The three things are why builders stayed loyal to one factory in particular. Loyalty, dedication and quality. Three outstanding items every builder looks for.

Today, almost a month after the IBS bankruptcy notification, all their former builders have moved on to other factories. They have taken it on the chin and like the great builders they are, they are slowly and methodically working to build the homes caught in this mess. That is the biggest strength of the modular home builders. Hard work and honestly with overwhelming loyalty to their customers.

But there was a little shock when these builders went shopping for a new modular factory to replace their IBS factory.

Little or no discounts: IBS and the companies that owned the factories before IBS bought them offered huge discounts to builders. And good basic pricing. What was not to like about that. However, knowing the margins most factories make on their product, these discounts cut deeply into the factories’ bottom lines. After discounting, most IBS factories were really only lowball specialists. Today those huge discounts are gone, replaced with either a good price or a volume discount from the factory for loyal builders. What a rude awakening when the IBS builders began shopping their homes.

Factories running near capacity: When IBS modular home builders from Iowa to Maine to North Carolina began looking for new factories to supply them with modules, two factors reared their ugly heads. First it was Spring and the other factories were being hit with Winter and Spring new home orders from their current builders. No special treatment for the IBS builders in most cases. Your homes had to be redrawn by the new factory and put onto the production lines behind the factory’s regular builders. Bummer.

Rain, rain and more rain: What can only be called a perfect storm occurred when most of the biggest modular home markets were inundated with rain. Carriers began backing up at the factories, foundation couldn’t go in and many builders hid all sharp objects.

But in spite of all this, the modular home industry is surviving quite well. Orders for new homes are being placed, commercial projects are running ahead of schedule and becoming even more popular with developers. Many of the IBS factory and sales personnel were absorbed by the other factories.

The IBS bankruptcy was a major bump in the road that will not go away for years but it will have little long term effect on our industry.

The people we need to keep in mind in all of this are the employees that worked on the production lines, engineering, shipping and even middle management that will now have to look for work in other industries because the remaining factories just couldn’t absorb almost 1,000 people.

Bottom Line: We are a strong industry with a new association, the MHBA, a new marketing campaign being developed and the best new home builders in the US.

We are "Modular Strong"

14 comments:

Anonymous said...

Coach i don't disagree often but i have two things to say.
One you should have reported the information you had. You could have save people a lot of pain and money.
Two IBS's discounts were a dishonest way of doing business. They charged 300% of what normal option pricing should have been. In one instance $8500 of ungraded windows were billed at $22,500. They lied to their builders by pretending to give then discounts while they were merely giving them back their own money. They gave some builders discounts while other got nothing. When you lie to your customers its only a matter of time before you get caught. IBS's builders are finding out the truth about the pricing game now that IBS is not around.

I really think you should have blown the whistle and not tried to protect IBS. I understand it was a hard call.

Anonymous said...

Coach,

Major manufactured housing supplier Universal Forest Products executive Bob Lees charged with fraud. Do you think this is going to effect the supply chain?

Here's the article:
https://www.justice.gov/usao-sdny/pr/former-senior-executive-universal-forest-products-robert-lees-found-guilty-white-plains

Anonymous said...

Coach,

I hope the owner, president, and management team of IBS read that UFP article. I have a feeling that it is a prelude of things to come for them.

Anonymous said...

I wouldn't blame coach for not "blowing the whistle." We were all being fed information that everything would be "okay and we will get through this." The shocking part of the failure of IBS is how confident they felt that they were going to get out of this mess when in reality there was never a shot. Lies, lies, and more lies. Blame the owners and upper management for lying through their teeth when they knew what reality was and failed to let anyone know.

I would be shaking in my boots if I was anyone in upper management or one of the owners reading that article with the UFP executive. Atleast they are still in business! IBS impact on the employees, the builders, and the home buyers has ripple effects that are unimaginable.

Anonymous said...

Coach,

This was a landmine waiting to happen. I will say that they had some very good and loyal employees. Their sales staff was able to develop a customer loyalty that was admirable. When the rest of the industry's every day price was lower than the EXCEL price, the sales staff was able to get their builders to ignore any quotes submitted by any other factory and that says a lot. There was a time when product quality was foremost in the company and they were somewhat untouchable, but as that waned their builders kept drinking the COOL AID and ignored the warning signs that this posed. You even wrote articles about the warning signs of a company about to fail and this was one of them.
Further what made anybody think that by constantly buying companies that could not be successful on their own and making them part of the IDBS Family would somehow magically make them top rate and successful?
What was everybody thinking when they had more higher layers of management than the federal government and somehow they could give these huge discounts and still be a success? Is everyone's memory so short that they forgot the other companies that followed that path and failed miserably?
The old saying that "History Repeats Itself" is very appropriate once again.
It is a damn shame that the builders, consumers and the industry have to take this on the chin.

Anonymous said...

Amen, Coach...Some, not all, of these IBS builders are like trying to deal with spoiled kids... They did this for me, they gave me that, I got this discount, all my stuff turned in two days, etc. etc... The one thing they seem to fail to understand is that all of the rest of us (manufacturers)did not create the current problems they have, IBS did... I understand that they are in contracts based on their IBS information and that's an unfortunate situation to be in, but to be coming to alternative manufacturers with unreasonable demands is pretty ballsy... A lot of these builders would not even consider talking with other manufacturers before the collapse... It brings an old saying to my mind, Poor planning on your part does not constitute an emergency on my part... We are more than willing to try and help these builders through this dilemma and to be honest some manufacturers could use the additional business but not at the expense of our own loyal clients, our methods of doing business, our pricing, or our employees... The rest of us are not in this situation for a reason, its because what we do works for us and has made us successful... Maybe some of these builders should stop and think that possibly all the things they got or were getting from IBS were in large part the reason that IBS folded... You cannot sustain a long term business plan when you are discounting your product below a profitable level while continually adding overhead by staffing beyond a reasonable expectation to try and buy the business.

Anonymous said...

Coach, I think the class action lawsuits and personal lawsuits are about to be filed over this mess. The top management must have known for a long time that they were going to file bankruptcy because it looks like everything was already prepared for it and that doesn’t happen at the last minute.
Windows, siding and other things missing from homes when they were delivered and IBS still wanted all their money. Deposits continued to be taken right up to the last minute. Homes stuck on the production line and everybody at IBS kept telling the builders that Champion was going to take over and everything was going to be OK. Maybe IBS stands for ‘Innovative Bull Sh*t’.
Coach didn’t need to “Blow the whistle” on this mess, the sirens were going off and many builders chose not to listen to it long before it became public knowledge.

Anonymous said...

Folks,

This mess is just the tip of the iceberg, H.I.G. capital (A private equity firm) organized this bankruptcy with the following players

These entities are declaring bankruptcy protection:

Innovative Building Systems, LLC
Excel Homes of Maine, LLC
AAH of Indiana, LLC
AAH of Iowa, LLC
EHG Acquisition Co., LLC
Excel Homes Group, LLC
Excel Homes of New York, LLC
Excel Homes of Virginia, LLC
HandCrafted Enterprises, LLC
HandCrafted Holdings, LLC
Innovative Design and Building Services, LLC
Innovative Shared Services, LLC

These entities are the top 10 secured creditors in the Bankruptcy and will likely live on and claim the majority of the assets:

All American Homes of Colorado, LLC
All American Homes of Indiana, LLC
All American Homes of Iowa, LLC
HD Special Situations III, LP
Innovative Building Systems Holdings, LLC
Innovative Building Systems, Inc.
Mod-U-Kraf Homes, LLC


Bankruptcy will allow these entities to wipe away all non-secured debt off the books and pass the remaining assets along to IBS Holdings, etc for pennies on the dollar.

I'm not sure how IBS can claim ongoing negotiations failed with Senior and Junior creditors when they are all shell LLC's owned by H.I.G. capital. How the left hand can deny a loan to the right hand and claim insolvency is beyond me.

Sukie in NY said...

Coach, I really appreciate this site - and wish I'd found it earlier. I'm an end-customer - and one who was in process at Excel in PA.

Both for my builder and for me (since we are now shopping for another manufacturer), could you help us out with a checklist of sorts that might point us towards things to look for in the areas of financial strength? Most of these manufacturers are LLCs or family-owned - so there are no public financial statements to peruse. We can't do cash-flow analyses or look at capitalization.

Yes, sales people can be VERY skilled, but my builder several years under his belt with Excel, with very good results. He still got burned.

What should a builder/consumer be looking for when choosing a manufacturer (besides price)? How can we judge the stability of a manufacturer? Any help/ideas?

Thanks!

Sukie in the Hudson Valley

Coach said...

Sukie,

It sounds like you have a good builder and that's who you should trust with buying a new home. It really is up to your builder to do their due diligence about a factory they are going to send hundreds of thousands of dollars.

Family owned and private LLC corporations really don't have to share their financials with their builders but that may change after the IBS bankruptcy.

When a builder begins looking for a new factory, they should ask the factory for a list of their top 5 builders to contact and then actually call them.

A year ago I don't think many people in the industry would have ever thought that IBS would fail as dramatically as it did. That is what hindsight is for.

Good luck Sukie.

Anonymous said...

Anything on Foremost homes in PA?

Anonymous said...

Coach,
Have you or anyone have any insight to Foremost Homes in PA?

Coach said...

I was at the auction held last night (July 13, 2016) at the Foremost Homes modular factory. Most of the auction items were old pieces of equipment and surplus materials. While there I checked out their production line and only saw one module on the entire line. There were 3 finished modules of a 4 box cape in the yard and I can only assume the module on the line was the 4th module.

Anonymous said...

The only one left in there is ours should have been a rancher. Any rumors of them closing the doors? We are worried they have gotten our money but we won't have a house.