Wednesday, January 23, 2013

Inflation - What Inflation?

Inflation is running at 2% this year but everyone in the construction business knows that lumber prices are up 35% over the past year and drywall manufacturers have already said to expect a 30% jump in early 2013.

The cost of interior walls has jumped 14% since November of 2011. Adding to that in 2013 are other things such as Obamacare and higher insurance costs. Gone are the days of a sales rep being given a map, a thermos of coffee and a bag phone. Today it takes a big investment to send a rep into the field; smart phone, tablet or laptop and high travel allowances add up quickly.

Apparently there are some modular factory owners that don’t get emails, watch TV, read newspapers or talk to their purchasing department people because they have kept 2011/12 pricing and are still heavily discounting the price of the home to their builders.

Some of them may be very busy right now because they are the low price leader in modular home building but trust me, those production lines will grind to a halt when they realize that they must either increase their pricing or God forbid, reduce or eliminate the discount that a lot of builders feel they are entitled to.

We've all been in this business long enough to now that some modular home builders will jump ship for a better discount. Remove discounting, make every unit profitable, pay the reps and labor a fair wage and then let’s see who is still standing at the end of the year.

If your factory hasn't adjusted pricing enough to cover inflation and is still discounting, maybe today would be a good day to sit down and review your costing.

One big thing that modular home construction has over site builders is a pool of skilled labor which appears to be drying up for them. Good, dry working conditions and a fair wage provide modular factories with a steady stream of skilled labor on the production lines. Cutting your labor force because you’re not pricing your modules properly is a dangerous thing. Let’s not blow it because we underpriced our homes and made no profit.

1 comment:

Anonymous said...

I'm already preparing my retail customers for an increase of at least 5% on the modular portion of their price. I'm starting to hear a lot of talk from the manufacturers I deal with that surcharges and increases are on the way. I don't want to pass on a price increase, but I also don't want any more factories to go out of business.