Tuesday, April 14, 2020

Time for Modular Builders and Factories to Reboot

Just as the economy was really hitting on cylinders, the Coronavirus hit the US economy, forcing states and the Federal Government to order all non-essential businesses closed.

The Small Business Administration says there are approximately 30 million small businesses spread across the United States. Collectively they employ almost 59 million people. By the end of June, up to half of them might be gone.

I’ve talked with modular new home builders across the country over the past 2 weeks and the mood has gone from optimistic to one of resignation to the point where many are trying to figure out how to stay in business once the ban is lifted.

The Modular Mobilization Coalition (MMC), a movement within the modular construction industry, to bring many modular factories together with the intent of producing standardized hospital/medical modules for the COVID-19 pandemic was formed to help factories keep their production lines operating.

The idea is to allow huge orders for these standardized medical modules to be disbursed to several factories throughout the MMC and provide a rapid response to the shortage of beds and med labs, etc.

The plan is for the members to work together afterwards to provide standardized affordable housing, dormitories and apartments quickly by having them built in several factories in a coordinated effort.

I believe the MMC will keep some factories operating past the shutdown.

If the SBA is correct in predicting 50% of small businesses will close, it is only reasonable to assume many small modular new home builders will close their doors forever. Few jobs, few contracts, fewer subcontractors will all work to force many to rethink building homes.

Then the factories will see a reduction in new home orders and once again within the last 10 years they will begin turning to commercial work to keep the lines full and profitable.

Developers will be slowing down their need for housing simply because the money may not be available to build projects and the ones that do order modules from a single factory or through the MMC may put very stringent time clauses into their contracts with the factories. Time is money to them and it’s never going to be more important than what it will be after the crisis.

On Friday I was asked by a modular factory owner if a member of the MMC didn’t finish their portion of a project on time while the other factories did, would the developer punish all the MMC members. Good question and I told him to go directly to the MMC for the answer.

Supply chains have dried up for many products, especially those shipped by container from other countries. China produces a lot of products for every industry in the US and the modular industry is no exception. Switching to “American Made” products may find the modular industry looking for things that are no longer made here and if they do, the price will probably be higher.

Business owners are burning through their savings in order to survive, often reaching into their personal pockets to keep up with payments. Even that won’t last long though. While some have already begun to close, our industry should expect a wave of permanent closures in the very near future.

If a factory hasn’t been active in the Building Systems Council, Modular Building Institute, Modular Home Builders Association or the newly formed Modular Mobilization Coalition, it may find itself trying to solve problems that one or more of these organizations has already solved and dispensed to their members. Consider joining at least one of these as it is never too late to begin working together.

Modular new home builders will need to learn new ways of attracting prospective new home buyers, meeting with them, signing contracts and building their homes. They may also find their modular home factory has changed direction by going into even more commercial and affordable housing projects and no longer have time to work with builders or worst case, the factory doesn’t have the cash reserves to reopen leaving builders facing the same problems they would have if a factory went bankrupt.

Our industry needs to find ways to bring new custom modular home builders into the housing market. Factories must step up and begin a full frontal attack to attract site builders and new builders to modular by offering training, marketing and leadership.

Look for several regional builders to form group buying alliances to work with selected factories and to market modular housing and work together to make it easier for consumers to go modular. Franchises will start programs for better ways for entrepreneurs to enter the modular construction business.

Rent, debt, fixtures, taxes, payroll, service contracts, utilities, insurance and more all add up to a monthly overhead budget that is very difficult to scale back during difficult times. While a business can take drastic steps, like laying off staff and physically turning off the lights, most of its bills still have to be paid.

If you’re a modular builder or factory owner and have simply sat back waiting for this to shutdown to end and business to go back to normal, you must begin reading and listening to as much as you can about the inevitable changes coming not only to the modular housing industry but to every supplier, financial institution and subcontractor out there.

The way business was conducted prior to COVID-19 will never return. Maybe that’s a good thing.

Gary Fleisher is a housing veteran, editor/writer of Modular Home Builder blog and industry speaker/consultant.

1 comment:

Tom Hardiman said...

Thanks for the shout out Gary.

I have no idea what "normal" is going to look like in the near future but it won't look like the old normal. The newly formed MMC is a coalition made up of mostly MBI and MHBA members doing some interesting and unique things. But it is no substitute for the prolonged and on-going advocacy and marketing efforts by MBI, MHBA, and BSC. Those efforts were going on long before COVID and will continue long after.

We are still making plans for MHBA's annual conference in October. It will have a different format and no doubt a different feel. And MBI is still going to sponsor three regional Off Site Construction Expos in Aug, Sept and Nov.

We will get through this!