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-- REGROUPING FROM THE PAST --
The manufactured housing industry has a long history of providing affordable housing to American families. In the 1920s, manufacturers began producing factory-built trailers that were often used to meet temporary housing needs. After World War II, housing shortages led to an increased use of factory-built homes as inexpensive housing that could be moved as families pursued new job opportunities.
Fleetwood’s story began in 1950, and we have grown as the industry has grown. In 1976 HUD developed national building standards and a federal oversight program, and manufactured homes today bear little resemblance to the early models in terms of quality, safety, durability and appearance. Increasingly, demand is for larger homes that are permanently sited, and include more amenities. Today, Fleetwood builds houses that are virtually indistinguishable from site-built homes.
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After the HUD Code was adopted, the acceptability of manufactured homes accelerated and, by 2000, according to MHI, 22 million Americans, representing about 8 percent of the population, lived in 10 million manufactured homes.
Industry shipments from the mid-1970s to the mid-1990s were relatively stable, averaging about 250,000 homes per year. However, undisciplined lending practices prevalent in the late 1990s led to an increased level of borrower defaults and repossessed homes, and caused lenders to retreat from our industry. In the past year, however, the default rate has fallen, and the inventory of repossessed homes has declined. In addition, Warren Buffett’s investments in the industry, through Berkshire Hathaway, have prompted a cautious re-emergence of national lenders, applying more rational lending practices. Fleetwood proactively supports industry initiatives to prevent future lending abuses. It is widely believed that calendar 2003 will prove to be the trough of the recent down cycle.
-- WORKING STRATEGICALLY IN THE PRESENT --
Calendar 2003 hit a low in national manufactured housing shipments that few thought possible. With only 131,000 new manufactured homes entering the market, the percentage of new single-family housing starts represented by the industry sank to 9 percent, from a high of 23 percent in 1998. Knowing that throughout this time period the industry continued to improve its quality and aesthetics without losing its central claim to affordability, it becomes clear that outside factors were at work.
The industry received a healthy dose of good news in late 2003 with the announced entry of several quality lenders to the business and a decline in repossessed homes in retail inventory. Although the magnitude and effect of both of these factors is difficult to quantify, MHI projected at the beginning of the year that 143,000 homes would be shipped in calendar 2004, an increase of 9 percent over 2003. Following four
years of declines that averaged 21.5 percent per year, and reported shipments still down on a year-over-year basis through the first five months of calendar 2004, this projected upturn holds the promise of welcome relief.
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“THE MANUFACTURED HOUSING INSTITUTE … PROJECTED AT THE BEGINNING OF
THE YEAR THAT 143,000 HOMES
WOULD BE SHIPPED IN CALENDAR 2004,
AN INCREASE OF 9 PERCENT OVER 2003.”
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GROWING MARKET SHARE IS BENEFITING FINANCIAL RESULTS
Fleetwood management believes that the “normal” retail market for manufactured homes is approximately 250,000 new homes per year, almost double what was shipped last year. Much of the demand in the past few years has been met by repossessed homes – as many as 100,000 just last year. Plus, a significant segment of the customer base has been unable to qualify for loans under the new, restrictive lending criteria set since the onslaught of repossessions began and lenders started to exit the market. In calendar 2003, we shipped 19,653 homes, a 21.5 percent drop from calendar 2002.
That said, broad product acceptance and new community introductions helped sales to jump 21 percent year-over-year in our fourth quarter and, as a result, Fleetwood’s revenues for all of fiscal 2004 were down just 2 percent from the prior year. With the rest of the industry still experiencing year-over-year declines, our market share improved during the first quarter of calendar 2004, making Fleetwood the largest provider of multi-section housing.
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