Pulte Pulls Plug On Prefab Va. Plant
Saturday, January 27, 2007
Battered by the slowest housing market in years, Pulte Homes yesterday announced that it would shut down a three-year-old manufacturing plant in Manassas where it once hoped to build many of its Washington area homes and possibly revolutionize traditional home-building methods.
Pulte officials met with the plant's workers yesterday morning to inform them of the decision, Melanie Hearsch, a Pulte spokeswoman, said in an e-mail responding to inquiries about the plant's status. About half the workers were offered severance packages and most of them were expected to leave by the end of March. Some were given other jobs.
Pulte produced the basic shells of houses -- foundations, walls and floor decks -- at the 109,000-square-foot plant. The parts were trucked to sites within a 125-mile radius and assembled there. The plant built 850 such homes in communities in Fairfax, Prince William, Stafford and Fauquier counties.
But the process "proved economically unviable, especially under current market conditions," Hearsch wrote. "Overall costs were higher and that was something that Pulte Homes could not pass on to homebuyers."
Soon after the plant opened during a booming housing market in January 2004, company officials said they expected it to churn out 1,800 homes a year. The goal was to master a technique that would allow Pulte to build more houses quicker and cheaper while improving their structural quality.
The plant never functioned at full capacity. As of May 2005, the plant employed about 150 workers, a Pulte official said at the time. By yesterday's announcement, the plant had 58 employees and was running at 25 percent capacity.
Experts who track the industry said Pulte, which is based in Michigan and is one of the largest home builders in the nation and in the Washington region, came up with an innovative idea at the wrong time.
"With 20-20 hindsight, Pulte should have started their factory three or four years earlier because the market turned down just as they were trying to ramp up," said Lawrence Horan, an independent analyst who has toured the plant.
In today's climate of contract cancellations and plummeting home prices, Pulte probably did not have the volume it needed to justify keeping the plant open, said Jim Wilson, a building analyst at the investment firm JMP Securities.
"There's too much land, too much labor, too much material, and at the moment, not enough home buyers," Wilson said. "You can't pick a category or location in the country where [builders] are not scaling back because prices have dropped so much and sales volume has dropped so much."
For decades, builders have manufactured houses in factories. But the logistics of transporting manufactured and modular homes limited the possible floor plans, and the product was generally seen as a low-end option. In many ways the methods used inside the factory were no different than those construction workers used in the field.
By contrast, Pulte's plant was highly automated. The company also used more steel and less wood to reduce warping, bowing and bending. The climate-controlled plant allowed more precision, less waste, and fewer weather-related defects and delays.
The result: larger, higher-end prefabricated homes with a variety of floor plans that could be built in three to five days. In her e-mail, Hearsch said homes built at the factory "drew consistent praise from Pulte homeowners."
Pulte said it chose to experiment with the system in the Washington area because of the high volume of home building here and the popularity of large floor plans. "We brought the concept to Manassas as a test," Hearsch said in another e-mail, "and in the end, it didn't prove out."
Pulte builds homes in 53 markets in 27 states. In its most recent earnings report, the company said third-quarter profit fell by 52 percent, to $190.2 million from $395.4 million in the same period a year ago. Revenue fell about 6 percent, to $3.56 billion from $3.79 billion. The home builder has said it may report a loss when it announces its fourth-quarter earnings Wednesday.
The Manassas plant is too small to have much effect on Pulte's finances, analysts said, and probably had not operated long enough to turn a profit. Under the right market conditions and with a large enough demand, however, it could have eventually made money and even saved money, especially on labor costs, said Greg Gieber, an analyst at A.G. Edwards & Sons.
Even though many parts of a home are prefabricated these days, "there was nothing of this scale in terms of complexity and sophistication," Gieber said. "But markets like this are not the environment to see whether those ideas can flourish."