Clayton Homes, a leading manufacturer of both modular homes and manufactured HUD homes, has bought Fleetwood Enterprise's Trendsetter military housing construction assets.

The $4.5 million deal was approved May 27 by the U.S. Bankruptcy Court of Central California, where the Riverside, Calif.-based Fleetwood is working through restructuring under Chapter 11 protection.

The military housing operation was actually a bright spot for Fleetwood, which has been struggling as demand for recreational vehicles, its core product, have dissipated. "We were not selling that because it was not a good business," said Charley Lott, president of the housing group. It was about to start a new phase of the business, but Fleetwood's economic situation left it without the ability to bond the construction.

"If you can't bond that business, then you don't have that business," Lott said. "We were on the cusp of losing that next project, and we had to do something very, very quickly in order to salvage it." So the Maryville, Tenn.-based Clayton, which has no bonding issues since it is a subsidiary of the deep-pocketed Berkshire Hathaway, stepped in.

"Clayton was gracious enough to work with us on this," Lott said. "Clayton had tried to enter the military manufacturing market in the last few years and had not had as much success."

In recent years, Fleetwood, which began business as a manufacturer of recreational vehicles and manufactured homes, has attempted to save itself from the slump in demand by diversifying into the modular home business through a subsidiary named Trendsetter Homes. The focus of Trendsetter was twofold: capitalize on the need for replacement housing in New Orleans in the aftermath of Hurricane Katrina and to net military housing contracts.

The former never materialized at any high level, and the company shuttered its Georgia plant opened for that purpose. But it was successful in securing contracts with the military to build housing in Texas, Lott said.

Under the sale agreement, CMH, the subsidiary of Clayton Homes that bought the Fleetwood manufacturing plants in Belton, Texas, which is south of Waco, will enter into new contracts with the military to complete current Trendsetter barracks projects at Fort Sam Houston and Fort Bliss in Texas, and another building at Fort Sam Houston. Fleetwood said it expects Clayton will give the current employees conditional job offers.

While Clayton and Fleetwood are rivals, they also work as friendly allies on occasion. For instance, Clayton is Fleetwood's No. 1 manufactured housing customer, buying the finished HUD-inspected units from Fleetwood in some markets. And in 2005, Clayton bought Fleetwood's retail organizations, which are similar to car dealerships, where customers looking to buy manufactured and/or modular homes come to see the products and place orders.

"They're our No. 1 competitor and No. 1 customer," Lott said.

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