In an anomalous and ironic consequence of the scorching economy, the $14 billion manufactured-housing business has all but collapsed in the last 14 months, leaving the companies that remain in the sector desperate to jettison their prefab-home interests or struggling just to survive.
Buoyant expectations for the business in early 1999 led to increased production and aggressive lending, but the summer of '99 was sobering: Sales to dealers and consumers fell more than 30%, according to a report by Mark Zandi, chief economist at Economy.com, a West Chester, Pa., consulting firm that recently changed its name from RFA Dismal Sciences.
"Dealers are choking on a massive overhang of unsold inventory, now amounting to some six months of sales, forcing many to slash prices, go out of business, or seek a bailout from manufacturers," Mr. Zandi writes.
Indeed, Conseco Inc.'s troubles can be traced to its 1998 purchase of Green Tree Financial, a St. Paul manufactured-housing company it renamed Conseco Finance Corp. The wake of the $6 billion deal has brought an 82% drop in Conseco's share price; the resignations of its chief executive and chief financial officer; a $404 million net loss last quarter; and an uncertain future as the Carmel, Ind., company faces hundreds of millions of dollars of maturing debt in the next few months.
Though Conseco's former chief executive, Stephen C. Hilbert, said in March that he hoped a sale of Green Tree would fetch $4 billion, his successor, Gary C. Wendt, has whittled that number to just above $2 billion.
Mr. Zandi's report attributes the business' hard times to several factors, including a slowdown of migration to the South and Midwest, where the bulk of mobile homes are purchased; overexpansion by companies in the supply of manufactured housing; and national prosperity's allowing more buyers to seek single-family housing.
The most important factor, Mr. Zandi says, lies in the declining credit quality of the asset-backed securities that manufactured-housing lenders issue after making the loans. With better-quality borrowers fleeing the pools in the face of lower rates in 1997 and 1998, asset-backed securities were left with the riskiest borrowers. That spooked investors and dammed a significant source of capital for manufactured-housing lenders.
"While demand and shipments appear to have stabilized, sales remain very low by the standards of just last summer," Mr. Zandi writes.
Though he predicts that dealers will not be able to work off excess inventories by yearend, his report says the worst may be over: With aggressive lenders crippled by a lack of capital, excess inventory that can be moved through incentive offers, and an aging population, the business should gradually heal.