Decline in Industry Makes us Ripe for Innovation

By: Jim Moody, CAE
President

Ruth Kellick Grubbs, an industry consultant and a good friend of CSA’s, recently sent out a newsletter to clients with some harsh insights. Contrary to what I’m hearing from some economists and from other industry gurus, Ruth says there’s no recovery on the horizon for home building.

She cites several reasons to support her analysis:
• Statistics indicating home price increases may be misleading.
• The current low interest rates are not sustainable.
• The homebuyer tax credit will not last forever.
• FHA loans now makeup a significant portion of the market, and they are risky.
• Foreclosures are going to spike again, and so are subprime resets.

Different people can look at the same statistics and come to very different conclusions. Certainly Greg Brooks, another industry consultant, has a different perspective. We provide you with his insightful newsletter each month, and he has a much more positive view of the future than Ruth does.

But whether you think brighter days are just around the corner or not, Ruth makes another point that is interesting.

She says we are at a critical point in the life cycle of our industry. People who study these things have determined that industries typically go through birth, growth and then a decline. The length of the cycle may be different from industry to industry, but the pattern is generally the same. Once an industry hits a decline, there has to be an innovation or the industry eventually dies.

We know that our country will continue to need housing in the long run, so the industry is not likely to die. Instead, someone will find a better, cheaper or faster way to get the job done, and the rest of the industry will fall in line. What’s not known at this point is whether the innovation will keep independent dealers in the mix (although with a much changed business model) or cut us out entirely.

Ruth asserts that technology will have a much larger role in the industry going forward. She also sees major changes in the distribution model, since ours is the most expensive model in existence. She also notes that our existence depends on our customer’s ability to sell our products and services for us, and that’s probably not going to be true in the future.

I’ve seen a lot of information about how homes going forward will be smaller and less customized because cheaper will be better for consumers. If that’s true, then I wonder whether the future is in more manufacturing. Will wall panels be the next big thing? Will the dealers and the home builders essentially be the same company? I don’t have answers to those questions, but it is good food for thought. What do you think the innovation in our industry is going to be? Use our blog feature to post comments.

Meanwhile, one of our members brought a ProSales article on credit to my attention. The article talks about how dealers who aren’t diligent in credit are as guilty of sub-prime lending as the mortgage companies. Clearly credit issues have been significant for our members over the past two years. How you extend credit and manage collections will be critical in the recovery of business going forward. We’ve had a task force developing a guide to best practices in credit and collections this year, and it’s now if final production. Hopefully it will be a useful tool for you; we’ll let you know when it’s available. Here’s the link to the ProSales article