Click here to download the 2007 Builder 100 Top 35 Modular and Top 10 Manufactured lists. (PDF)

Larry Keener’s voice sounds worn over the phone, and you can almost picture him shaking his head back and forth as he discusses his firm’s 2007 performance.

“Our company made money in the current downturn right up until shipments crossed the 140,000 mark” in 2005, says Keener, CEO of Palm Harbor Homes, one of the country’s largest factory-built home manufacturers. “It’s really difficult to make it through eight or nine years of a down cycle and get hit at the very end. We’ve always built for the upper end of the market, but that market got so thin.”

It certainly did. Overall, shipments of manufactured HUD-code homes tumbled 18 percent in 2007, to 95,700 homes, according to the U.S. Census. But factory-built housing executives say that statistic fails to reveal how difficult a year it really has been. “There’s been increased emphasis on production of single-section versus multi-section homes,” says Craig Reynolds, CFO for American Homestar Corp. in League City, Texas. That means that the industry is building smaller homes compared to the past, so the drop in manufacturing activity has been even steeper than the shipments drop indicates. Many companies have closed factories until the situation improves.

No Escape

The main culprits? The battered single-family housing market and the subprime lending crisis. Many markets report record-high inventories of homes for sale at ever-dropping prices, giving buyers plenty of affordable choices. The manufactured/modular industry has not been able to escape the credit crunch, either, despite working through its own chattel lending crisis and subsequent reforms earlier this decade. Modular appears to be the most affected because most modular homes are financed with traditional mortgages versus the chattel loans used for HUD-code homes.

Specialized markets have been affected, too. Palm Harbor’s active adult factory-built communities got hit when would-be buyers couldn’t (or wouldn’t) sell their existing homes, either for lack of buyers or because of softening home prices. “Our biggest drop off in business came in that market,” Keener says.

Of course, operating in a grim business environment has become standard practice for factory-built housing companies, but what differentiates many of these firms’ performance in 2007 is the willingness to explore new approaches to building and selling their products. “It’s been a challenging year,” agrees Kevin Flaherty, vice president of marketing for Genesis Homes, the modular division of Troy, Mich.–based Champion Enterprises. “But we see some opportunities within a difficult marketplace.”

Fresh Approaches

Those opportunities include new products. Firms such as Genesis and American Homestar Corp. are retooling floor plans and rolling out smaller models for more price-sensitive buyers. Factory-built companies are also actively pursuing niche markets. Genesis displayed a narrow-lot modular home at an Urban Land Institute meeting. Says Flaherty, “Rural and urban America have not been glutted with new housing, so they are somewhat protected.”

The post-Katrina landscape, which includes New Orleans and the Mississippi Gulf Coast, encompasses both those markets, which has made it an important business priority for American Homestar. In 2007, the company joined forces with The Home Depot in select Louisiana locations, placing a model modular home on-site. “We serve as the builder, and we have the salesforce in the home,” explains Ronnie Richards, American Homestar’s vice president of marketing. “The buyer selects a plan from us, and then they go into The Home Depot and select the finishes from the largest design center in the world.”

The program quickly exceeded expectations. American Homestar contracted for 60 homes via The Home Depot partnership within the program’s first week.

American Homestar also will soon be producing housing for Katrina survivors living in substandard housing in Mississippi. The company won its bid to ­produce as many as 600 Katrina Cottages for the state. The 400-square-foot homes, which will feature a front porch and a metal roof, will be suitable for short- or long-term use, unlike the notorious FEMA trailers.

Alison Rice is a freelance writer based in Arlington, Va.