Clayton Homes, a top manufacturer of both modular and manufactured HUD-code 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  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. Trendsetter was ready 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 investor Warren Buffett's 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 two-fold: capitalize on the need for replacement housing in New Orleans in the aftermath of Katrina and to net military housing contracts.

The former never materialized at any high level, and the company shuttered the 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 Clayton Homes subsidiary that bought the Fleetwood manufacturing plants in Belton, Texas, will enter into new contracts with the military to complete current Trendsetter barracks projects at Fort Sam Houston and Fort Bliss in Texas, and an additional 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 occasionally work as friendly allies. For instance, Clayton is Fleetwood’s largest manufactured housing customer, buying the finished HUD-inspected units from Fleetwood in some markets. And in 2005, Clayton bought Fleetwood’s retail outlets, which is where prospective buyers can view and order manufactured or modular homes.

Clayton is "our No. 1 competitor and No. 1 customer,” said Fleetwood's Lott.

Teresa Burney is a senior editor at BIG BUILDER and BUILDER magazines.

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