Champion Enterprises, Inc.

views updated

Champion Enterprises, Inc.

2701 University Drive, Suite 320
Auburn Mills, Michigan 48236
U.S.A.
(810) 340-9090
Fax: (810) 340-935

Public Company
Incorporated: 1953 as Champion Home Builders, Co.
Employees: 5,000
Sales: $798 million (1995)
Stock Exchanges: New York Chicago Pacific
SICs: 2451 Mobile Homes; 3713 Truck & Bus Bodies; 6719 Holding Companies, Not Elsewhere Classified

One of the fastest growing companies in the manufactured housing industry, Champion Enterprises, Inc. manufactures homes that are sold in more than 90 percent of the United States and in western Canada and manufactures a line of mid-size buses, which are sold to municipalities, hotels, hospitals, rental car agencies and other businesses. During the mid-1990s, Champion ranked as the second-largest manufactured home company in the United States, supported by 31 production facilities and a network of 2,000 independent dealers. After reorganizing in 1990, the company began its resolute rise in the manufactured housing industry, more than tripling its sales volume during a five-year span and quickly climbing the industry’s rankings. Already recognized as one of the industry’s fastest growing companies midway through the 1990s, Champion elevated its stature substantially in 1996 when it merged with the country’s third-largest manufactured home company, Dallas, Texas-based Redman Industries, Inc. The merger, once completed, was expected to increase Champion’s annual revenue volume to more than $1 billion, add 18 manufacturing facilities, and bolster its independent dealer network by 1,400.

Early History of Mobile Home Industry

Founded in 1953, Champion began business shortly before the mobile home industry in the United States underwent a revolutionary change and blossomed into maturity. With roots stretching back to the 1920s, when mobile homes first began to emerge, the mobile home industry spent the first three decades of its existence struggling in obscurity, desperately trying to spark widespread demand for the products a handful of manufacturers produced. Initially, mobile home manufacturers subsisted on sales to migratory workers such as farm workers and heavy construction workers, whose nomadic life-styles were perfectly suited to the two chief attractions of mobile homes: freedom of movement and affordability. Although migratory workers were not the only purchasers of mobile homes, they did account for the bulk of the industry’s sales and, consequently, limited the potential of the industry’s future expansion since such workers represented only a trifling percentage of the nation’s population. Accordingly, for the first several decades of its existence, the mobile home industry appeared destined to remain a relatively insignificant industry on a national scale, its growth kept in check by serving customers without sufficient purchasing power to launch manufacturers toward exponentially higher sales volumes.

The mobile home industry and manufacturers like Champion were destined for greater prominence and wealth, however. The first signs of the industry’s coming growth emerged during the Second World War when the military turned to mobile home manufacturers to provide temporary and transportable housing for defense workers and soldiers. The wartime business gave manufacturers their first upswing in business and, perhaps more important, introduced a sizeable segment of the country’s population to “homes on wheels.” Once the war ended, business remained strong largely because America, in effect, had a standing army, a new social class of military personnel subject to the frequently itinerant demands of military life. This new facet of the country’s social structure created a wealth of prospective customers for mobile home manufacturers, enabling the industry as a whole to generate more than $150 million in sales per year shortly after the conclusion of the Second World War.

Despite the welcomed infusion of business from the Second World War and its after effects, the industry was still several years away from reaching the pivotal moment in its history. That moment, the signal moment in the mobile home industry’s development, arrived in 1956 with the introduction of “ten wides.” Until 1956, the size of mobile homes had varied considerably, but always in length and never in width. Every mobile home produced measured eight feet in width to conform to the maximum width permissible by law for vehicles on highways. In 1956, the law changed and manufacturers began producing 10-foot-wide mobile homes, or “ten-wides,” forever changing the magnitude and the dynamics of the mobile home industry. The introduction of wider mobile homes was important not only because ten-wides quickly supplanted the production of eight-foot-wide models—representing 85 percent of the industry’s total production four years after their introduction—but also because of what the immediate popularity of ten-wides taught mobile home executives. As sales of ten-wides rose sharply after their debut, it rapidly became apparent to manufacturers that mobility was not the primary selling point of mobile homes. Instead, affordability was their distinguishing quality, and manufacturers at last discovered a widespread, national need their mobile homes could fulfill: a dramatically cheaper alternative to traditional housing. As part of this discovery manufacturers realized their business had less to do with the automotive industry and more to do with the construction industry. Though its was just beginning in the mid-1950s, this change in the mindset of manufacturers precipitated the transformation of the mobile home industry into the manufactured home industry and touched off financial growth that would enable the mobile home industry to collect more than $8 billion annually during the 1990s.

Champion Founded in 1953

Champion, incorporated as Champion Home Builders in Michigan three years before the introduction of ten-wides, began business at a propitious time, joining the fray just before the industry was to grow significantly during the late 1950s and 1960s. The company tapped into the prosperous economic conditions promptly and effectively, taking little time to climb the industry’s rankings to hold sway as one of the country’s elite mobile home manufacturers. Shortly after completing its initial public offering in 1962, Champion was generating more than $30 million in sales annually and drawing praise from the business press for efficient and self-sufficient operations. By the mid-1960s, Champion ranked as one of the five largest manufacturers in the country, who together controlled roughly a third of the $1 billion market for mobile homes.

By the beginning of the 1970s, when annual sales flirted with the $100 million mark, Champion’s reputation was solidly established. In its first decade-and-a-half of business, Champion had created an enviable degree of vertical integration that separated its from its rivals. Unlike many of its competitors, Champion manufactured and assembled every component and fixture included in a finished mobile home. From installing plumbing to producing its own roofing materials, Champion carried out everything on its own, manufacturing a wide spectrum of items that ranged from drapes, to furniture, down even to the bed-springs used in the beds. This high level of self-sufficiency enabled the company to achieve exemplary efficiency. Champion could produce one mobile home unit per week with the labor of only two workers, giving it a productivity ratio twice that of nearly all its competitors.

1970s Slump

Strongly positioned by its unique approach toward manufacturing mobile homes, Champion reaped the rewards to be gleaned from its burgeoning industry, registering enough success in its original business to diversify into the production of recreational vehicles and mini motor homes. As a result of its firmly established and extensive mobile operations and its promising subsidiary business, Champion’s business was booming during the early 1970s, ranking as strong as any of its competitors, but nothing could protect the company from the disastrous affects of the mid-1970s. Just as the mobile home industry was recording an impressive string of sales gains and building a solid foundation, the bottom dropped out of the business, precipitated by the sudden onset of a national recession. Anemic economic conditions dealt a decisive blow to the industry nationwide, particularly to the handful of publicly-traded companies who stood atop the industry. Companies like Elkhart, Indiana’s Skyline Homes, New York’s Divco-Wayne Corp., Dallas’ Redman Industries, and Champion, who together controlled roughly 30 percent of the national market, all suffered ills from the drastic downturn in business. Industry-wide, sales dropped to $2.5 billion in 1974 after exceeding $4 billion two years earlier, while unit shipments plunged 42 percent. Champion, not immune to the stifling economic climate, recorded a financial loss for the remainder of the decade, lagging behind the recovery of the industry which began in 1976.

For Champion, recovery from the adverse economic conditions during the mid-1970s came not from its mainstay business, but from strong sales generated by products other than mobile homes, specifically its line of recreational vehicles and low-priced mini motor homes. Gradually, however, Champion’s mobile home business also began performing well once again, buoyed in part by the escalating prices of new homes, which leaped 61 percent during the mid-1970s. Given a choice between paying an average of $62,500 for new home or $15,000 for a new mobile home, more and more consumers either chose voluntarily or were forced by financial constraints to opt for the more affordable mobile homes. With its mobile home sales invigorated, Champion once again became a consistently profitable enterprise, recording a string of profitable years during the early and mid-1980s.

Company Perspectives:

“We are not a manufacturer of paper products, sparkplugs, or sports apparel. We are not a bureaucracy and we do not focus on management fads. We have no fat. Our passion for quality and success is shared by each of our 5,000 employees at all levels of the company. Champion is a leader in manufactured housing and mid-size bus production. We are aggressive, profitable and growing every day.

The recovery effected during the first half of the 1980s was only temporary, however, as the latter half of the decade saw Champion once again struggling to maintain its profitability. The company slipped into the red in 1986 and stayed there for the remainder of the decade. While annual sales totals fluttered between $303 million and $364 million during the late 1980s, the company’s net income totals demonstrated more regularity: they consistently slipped downward. The company lost $1.4 million in 1987, $4.9 million in 1988, $7.2 million in 1989, and nearly $14 million 1990, the year Champion began its dramatic recovery.

Animated 1990s Growth

As yearly losses mounted, production facilities were shuttered, stripping the company of some of its manufacturing capability. In 1990, when the company appeared to be on the brink of insolvency, new management was brought in, led by Walter R. Young Jr., Champion’s soon-to-be savior. Young, who was named president and chief executive officer, quickly made his presence felt, implementing a corporate restructuring program and shedding Champion’s unprofitable operations. A chain of dealers owned by the company was divested, which transferred sales responsibilities to a network of aggressive, incentive-driven independent dealers, and the company exited the retail financial field, thereby limiting its credit operations to financing dealer inventories. In the wake of these changes, Champion climbed out of the red for the first time since 1985, registering a gain of $339,000 on sales of $288 million in 1991.

Profits climbed to more promising levels after the modest gain reported in 1991, as did the company’s revenue volume, which for years had been declining as production facilities were dropped from the company’s roster of manufacturing operations. The company had closed eight plants since 1986, but after five years of consolidating and decentralizing its operations, Champion found itself in the position to grow its business. After one last necessary divestiture—the company sold its money-losing recreational vehicle division in October 1992 to Firan Motor Coach, Inc. for $621,000—Champion began to expand its business after a lengthy hiatus. Ranking as the fourth-largest manufactured housing company in the country when it began its rise, Champion jumped on the acquisition and expansion track in 1993 when it announced it would pursue prudent acquisitions and invest $6 million to expand four production plants in Colorado, Idaho, and Nebraska, which was expected to increase the company’s production capacity 20 percent.

As the company began to actively pursue growth, it did so with the reassurance that its expansion campaign was being launched from a solid financial foundation. After the modest profits recorded in 1991, the company’s earnings doubled each year for the next three years, rising to $11.2 million by the end of 1993, by which time annual sales had increased to $341.9 million. On the heels of this encouraging growth, confidence was high at the company’s headquarters, a sentiment expressed by Young when he explained to a reporter from Crain’s Detroit Business, ”We’re pleased about our past, but more exited about our future.” The company’s future, or at least its progress for the ensuing several years, was highlighted by strengthening its core modular home business through acquisitions, such as the March 1994 acquisition of Dutch Housing Inc., an $85 million a year modular home manufacturer based in White Pigeon, Michigan. Other acquisitions followed in 1995, when Champion acquired Chandeleur Homes, Inc. and Crest Ridge Homes, Inc. in February, giving the company two businesses that catered to more price-conscious customers. In October, the company acquired Alberta, Canada-based New Horizon Manufactured Homes, Ltd., the addition of which complemented Champion’s Moduline International subsidiary and its business of designing highly customized homes.

Once the acquisitions completed in 1995 were brought into the company’s fold, Champion’s geographic reach extended throughout 90 percent of the United States and into western Canada. By increasing the company’s geographic scope and shifting focus toward higher-end products, Young had executed what indisputably was a remarkable comeback for Champion. By the end of 1995, sales reached $798 million, having more than tripled during the previous three years. The company’s net income nearly tripled as well in two years, jumping from the $11 million posted in 1993 to $32 million in 1995. Flush with success, Young looked toward a banner year in 1996, mapping out ambitious expansion plans that were aimed at strengthening the company’s number two market share of 8.5 percent. In February 1996, the company announced its would open two new plants and significantly expand three of its existing 23 plants. In May, the company’s plans became grander with the announcement that it would open five new factories in 1997 and upgrade all of its existing plants. Several months later, however, these expansion plans were dwarfed by an announcement made in August that substantially narrowed the gap separating Champion and the largest manufactured housing company in the country, California-base, Fleetwood Enterprises, which controlled 21 percent of the national market.

On August 14, 1996, Champion announced its merger with the third largest manufactured housing company, Redman Industries, Inc. Based in Dallas, Texas, Redman operated 18 production facilities concentrated in the West, and relied on 1,400 independent dealers. When the merger was completed on October 24, 1996, Young noted the incredible boost the addition of Redman gave Champion on all fronts, declaring, “Today is a momentous day for us. Just five years ago, Champion had sales of less than $250 million annually. With the merger, our 1995 pro forma sales were $1.4 billion, and 1996 sales will be even higher. Our market capitalization has gone from less than $50 million in 1991, to more than $1 billion currently.”

After the merger, Champion operated as a manufactured home company with 49 housing production facilities scattered throughout the country and an independent dealer network comprising more than 3,000 retail locations. Strengthened considerably by the absorption of Redman, Champion closed the gap separating it from Fleetwood Enterprises, with each company capable of generating commensurate sales volumes. As Champion prepared for the late 1990s and the beginning of the 21 st century, it was intent on galloping past Fleetwood to firmly establish itself as the largest manufactured housing company in the United States.

Principal Subsidiaries

Champion Home Builders Company; Redman Industries, Inc.; Moduline International, Inc.; Dutch Housing, Inc.; Chandeleur Homes, Inc.; Crest Ridge homes, Inc.; Grand Manor, Inc.; Homes of Legend, Inc.; Champion Motor Coach, Inc.