As a General Contractor in the 1990s, one of the terms I quickly learned was “built for practice’, which meant I was building a new home that was destined to lose money. Even though I knew every house should make a profit, about one or at worst, two homes were built for practice every year.
The buyers of those homes did nothing wrong as I gave them the price and would complete it for that price but it was adding insult to injury whenever I had to fix or repair something in their home.
At this year’s MHBA two-day event, I talked with a lot of factory owners and GMs about labor, lead times, profits, inflation, and projects. What I came away with was a lot of “Building for Practice” stories.
Taking a closer look at each of the above topics began an understanding of why many of them are so frustrated.
Labor: Every single factory couldn’t find enough labor to ensure a steady production flow. One factory told me on any given day, up to 30% of his workforce didn’t show up.
Lead Times: “39 weeks”, “Out 13 months”, and “We’ve stopped taking business for 6 months” were just a couple of the answers. I can remember years ago when the manufactured housing industry was backlogged for almost 18 months and now it’s happening to the modular industry.
Profits: “Projects are the key”, “Our Profit is tanking” and “Profit disappears a little bit more with every price increase”. There’s not much more I can add to these statements.
Inflation: When lumber prices drop, something else goes up in price. As food, gasoline, and rents skyrocket for workers, they “expect me to raise their wages.” That is such a slippery slope.
Projects: Several told me this is a double-edged sword. Projects are large and one of them can tie up the production line for a month or longer which doesn’t allow single-family or small multi-plex homes to go to the line until the project is finished. The other factor is the slim profit margins you get for 40 modules and larger projects. One factory told me they lost a project because they refused to shave any more money off the cost of the contract the day after another lumber price spike.
An Observation: If finished capacity and profit are two of the biggest concerns for modular factories, why not reverse that by charging more, losing the lowball projects, and pricing projects and custom single family with a higher profit in order to shorten your lead times, hiring higher paid workers and running a lower overhead factory. Capacity should be determined by profit. If charging more for each module to obtain more profit, being able to pay workers a good, livable wage, and allowing you to work at a pace that ensures higher quality with fewer shortages and repairs after delivery, what more could you ask for?
The modular industry is reluctant to buy into the Law of Supply and Demand which means charging more for a scarce product. Instead, we look for ways to “Build for Practice” by shaving profits to the bone to get more projects. And all without the capacity to meet demand.
WHAT!! Charge more and make a legitimate profit, pay our workers $10 an hour more! “That will never happen in my factory”
The only thing I can figure out is that factory owners and GMs simply love to ponder the situation of having to live on the edge every day they start up their production line or quote a new project. Yep, that must be it.
Gary Fleisher is the Editor in Chief of Modular Home Source and Offsite Builder. Email at [email protected] learn more about the Offsite Construction Industry, sign up for your free monthly issue of Offsite Builder, the Construction Magazine for Builders and Developers
