Sunday, November 24, 2019

A Builder’s Question Points Out A Major Modular Industry Problem

I just received this powerful email from a modular home builder in the Mid-Atlantic region where custom homes are the norm. Please help by answering his questions.

"Modcoach – I’m really pissed off. The economy is kicking ass, and I’m suffering!

I just got the “shock” of just how pandemic the backlog problem is for SFH builders is today. My main modular home factory put me on their 12 WEEK production backlog list. If my many year relationship and paying on time for every house, generates this kind of service, can you imagine what other Mod builders are getting?

I contacted other factories: 12 weeks or more.

My question is:
How on earth can any modular factory beg to attract stick builders when they can’t even deliver to existing Mod builders of many years, in less than 3 months?
The capacity problem in our industry is just as acute as the affordable housing problem. BUT, here it’s worse: existing production capacity is chasing modular MF and leaving small custom builders behind.

Attracting new stick builders right now would be akin to an invitation to Texas Hold’em with no one left standing. Like asking a stick builder to stick his/her head in the sand and just take it.
Coach, current capacity better improve and it better happen NOW. Otherwise, I’ll order a lumber package and stick build onsite (in a very dry year) a custom home in HALF THE TIME that I can get delivered a custom SFH modular home from most East Coast factories right now.

Hopefully VC vultures are circling and see my passion. They have a bird in hand if they can figure out which management team to invest in for INCREASED HOUSING PRODUCTION. Now.

I’ve been a loyalist for modular for 1-1/2 decades. But yeah – I’m pissed off. Can I hear feedback from my fellow custom modular home builders?"


Anonymous said...

I can't decide if this builder is a harbinger of the demise of single family modular housing or simply asking why factories aren't doing more to make modular housing great by increasing volume and training new modular builders.

If the modular housing industry does nothing, it will lead to the demise.

William aka "Little Bill" said...

The great news out of this is that factories are busy this time of the year. Its better than your plant going under.

Bill Hart said...

Last week: From my previous comment quote:"Some people live and learn, some people just my old latin teacher love to say. The off site franchisee industry was born east of the rockies by folks like national homes' jim and george price, gene kurtz's inland homes, kingsberry our of ft paine, alabama. They had exclusive territory protected vertically integrated disposition. Over the years..however.. greed by the local builder cherry picking manufacturers and then later mod companies tried that the same problem then too got greedy and simply avoid the exclusivity aspect by just making multi brands in one site so they could "franchise" three builders in the same area! Fast forward Coach..Yogi said it well..Gosh its deja vu all over again. Anyone wanting still more words of wisdom from old guys s email me. I dont frequently know exactly just what to do..but sure as hell know what no to do" unquote..

Today I say:Coach, perhaps one possible solution lay in new exclusively SFR dedicated new or resurrected plants that have from the gitgo..prearranged with a vertically integrated exclusive territory franchisee..having granted same to well funded builders in meaningful locations volume-wise; yes,franchised in the true legal sense of the word type arrangements! As you can recall Coach this worked beautifully in some areas back then, but then again we didnt not have to deal with large multifamily projects competing for line time. So today its gotta be One product per plant not a two or three mix!bill

November 18, 2019 at 10:03 AM Delete

Anonymous said...

The industry is profitable for existing factories who have sunk costs in their infrastructure. Not profitable enough (or too complicated) for new capital to enter to industry with a new factory. Existing factories are very (maybe overly) cautious about expanding. They are all owned/run by people who remember 2008. The result is a status quo situation where small builders have to wait 12 weeks like this guy who can't negotiate shorter fulfillment times.

Outlook is probably dim for small modular builders. I don't really know any bigger builders looking to expand with modular other than Express Modular. Not a cheery situation unless you are a factory who is running near capacity

Anonymous said...

As Coach has indicated for some time when discussing market expansion for modular building there is not enough capacity in existing plants to meet any demand exceeding 3-5% of the market. Existing plants adding multi-family to their mix has further exacerbated the problem for the small custom builder who lacks the capital or skill set to change to a production mindset providing attainable shelter not just custom homes.

One can understand the factory moving to multiple repeatable units to one location to increase the plants ROI which is something our cousins in manufactured housing have done for years.

As to the idea that we as a group have trouble competing with a site builder on a 12-15 week delivery is a straw man argument as most small site builders are quoting 3-6 months backlog to start a home much less discuss on site completion time.

Builder co-op agreements in limited geographical areas may put pressure on plants to meet their demand but I don't see this happening any time soon. The franchise concept is still to early to tell whether there will be enough geographical demand placed with one factory to entice a plant to focus on this production. Most site building franchises in addition to marketing and design bring site development and lots like the national or regional builders to the franchise as well.

Anonymous said...

Coach as a rep and a consultant I have been advising my builder clients to view modular as a production home component to add to the custom side of their business. Of course, this requires a capital commitment to source and buy localized lots for their spec production homes while they deal with the custom on their lot buyer for the 5-7 homes contracted for in a year. Of course, you must want to expand your and grow your business ow you stay satisfied with your income from the 5-7 custom homes you do in a year.

Anonymous said...

Dear pissed off:

Order up the lumber package and build a spec/custom home on site. This will remind you of the management head aches associated with site building but it will put coin in your pocket.

Or, better yet order a custom home and then a spec home when you get state approvals for the custom home. This way you are potentially adding cash flow and sales to your business without the associated management headaches.

It does not have to be all or nothing as a modular builder. I would refuse to let the production capacity or lack there of from a plant dictate to me the cash flow in my business.

Modmentor said...

I think that it is somewhat ironic that this complaint comes up while the industry is flying again. Anyone with any experience in this industry knows that the bad times follow the good times and the bad times can get really bad. After any recession in this country, finding the builders that survived the downturn and did not leave the industry to find something else that would help them put food on the table was a difficult task for the "surviving factories". Asking owners to build more factories to supply a temporary demand, that by the history of the building industry and the economy alone is not something that they are going to readily jump into. There is the cost both emotional,physical and financial basis of shutting a plant down for economic reasons that just doesn't fit in with most operators.
Our only hope as an industry, is that while it continues to become more and more difficult to find qualified personnel to build homes in the field, more and more builders turn to the systems built approach as their answer to their building needs. And let's not forget that the majority of single family homes built in this country are not built by the 1-4 house a year guys but by the Big Boys (Pulte K Hov, Horton and such) in the industry. And for some strange reason they seem to be able to build without any problems. Yes, they have all looked at the industry with the idea that they could improve their productivity and closings, but other than a few that have gone to panelization, they are not busting down modular factory doors to order homes.
The commercial boom seen in the modular business has help many manufacturers to improve their bottom line and given them funds to improve their processes , but this same boom has hurt the single family home builders that depend on the industry for their supply of homes for their business.
It is somewhat impossible to build single family custom homes in the plant while the factory has taken on a 200 module job and not push out delivery times.
The good news is that there are a few factories out there that limit the commercial jobs they will be willing to manufacture based on the number of modules in the job, keeping in mind that they do have single family builder/customers to satisfy.
So , for "I Am Pissed" go find one of those manufacturers and find out if they can supply you with the same quality and service that you need to run your business. I realize that this is not a easy process, but in his case it is most likely a necessary one.
Sorry , but the problem is not a simple one to solve.
And if someone has the thought process that says that we need some VC guys to come in and revolutionize the way the industry thinks, look into the history of the industry and you will find out that it has been tried and not met with much success.....