Ford Motor Company reported record profits for the 3rdquarter this year, proving that domestic automakers can make money even in a smaller market. They have benefited from cost-cutting measures but also from the introduction of a series of successful new vehicles, several of these new products successfully targeting new buyer segments.
The new home market is down by two-thirds from average production over the past two decades, certainly a much smaller market than before. Where are the cost-cutting measures in the homebuilding industry and where are the new home designs that will appeal to our new buyer segments which are not that different than those that have embraced the new Ford products?
One homebuilder in a market I have been watching finally liquidated his standing inventory after two years and substantial discounts. In fact, the prices at which the homes finally sold were below his cost. Last week he announced in a press release that he is opening a new phase of his development after the first of the year with exactly the same homes and “list” pricing as he had before. Neither his land development nor his construction costs have declined, he has not reduced overhead. And he certainly has not introduced anything new in his product so how can he reasonably hope for any different result than before?
I believe that it is time for all of us in the shelter industry to reexamine the basic nature of our business, investigate realistic opportunities for improvement and translate that analysis into a written strategic action plan.
Homebuilders need to reexamine their operations to minimize G & A costs. One of the most successful condominium builder/developers on the East Coast in the 1980s had a total payroll of three people – himself, his secretary and a bookkeeper. Perhaps that is overly simplistic today but many of the internal functions of a homebuilding company can be outsourced to third party consultants thereby not only reducing cost while keeping a professional staff but also eliminating burden rate on compensation.
Suppliers and subcontractors have material sitting idle and skilled tradesmen unemployed. Would it not be worthwhile to examine a true partnership, with the homebuilders, suppliers and contractors working together on a minimized up-front cost basis with everyone sharing in the profits at the end?
Developers and banks have substantial inventory of improved homesites. Would it not be beneficial for the developers and other landowners to work with the homebuilders on a similar partnership basis with everyone profiting at the end?
Architects and home design firms are also underutilized. One homebuilder that I know is working to develop all new plans for the new viable markets with zero up-front costs. Not only are these new home designs attractive to the buyers seeking smaller and more usable homes but the houses are also designed for maximized cost effectiveness satisfying the other needs of the new buyer segments – price and value.
Homebuilders need to be more effective and more cost-effective in reaching and selling the new buyer segments and the Internet allows us to do that at greatly reduced cost over more traditional print, outdoor, direct mail and electronic advertising outlets. We need to truly and fully embrace all aspects of this new media and also the new technologies that are available therein.
Homebuilders need to work more closely with Realtors©, increasing their broker cooperative sales where the cost is not incurred until closing and cash flow is improved.
Most importantly, now is the time for everyone in the homebuilding industry to really think about what we could be doing better, not for just the next few months until the markets return but into the future to retain a competitive advantage and achieve ongoing, lasting success and profitability.
And perhaps, that is the most underutilized asset that we all have – our brains. The city of Chandler, Arizona, promoting the goal of responsible government leading the way toward environmental and ecological sensitivity, instituted recycled water utilization for their wastewater plumbing in city hall. But so that this good deed did not have negative consequences, and apparently in response to their belief that people no longer think, the city felt it necessary to install signs throughout the building’s bathrooms that read “Urinals and toilets are served with gray water. Do Not Drink!” And I have to ask – should we be concerned with the residents of Chandler who had to be warned or with the city officials who felt it necessary to issue this warning?
Let’s not be like the city of Chandler, acting before we have really thought through the full impact of our actions. Instead let’s learn from Ford and take this opportunity to become smarter and wiser for then we will be able to truly fulfill the homebuilders’ prayer – “Lord, grant me just one more good market and I promise not to foul it up this time”. But that’s just my opinion.
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