Mike Ulinski, Masco Contractor Services vice president of sales and marketing, has a pretty good barometer for gauging which builders are in trouble and how deep.
He doesn't worry much about those who continue to hammer for lower prices. It's those whose personalities suddenly warm who give him pause. "The guys who would walk over you with hobnail boots and now they are your best buddy," he says. "Those guys who are getting into trouble are real nice to you."
But the customers who set off all the alarms are those who not only pay late, but also don't return phone calls. "If they are really going to go belly up and out of business, then they tend to go quiet on you, and you can almost sense that it is going the wrong way. The strategy there is to get your money whatever way you can."
In times of distress, many builders will focus on communicating with their banks in an effort to keep operations afloat. However, some won't keep their vendors and customers in the loop. And that mistake, according to those who have worked with builders during downturns, past and present, can cost companies a shot at recovery.
"The wrong attitude is to go hide your head in the sand and to hunker down and get a kind of behind-the-barricades mentality," says Winston Elton, a retired partner with KPMG who worked with NVR, U.S. Home, and William Lyon Homes during their financial difficulties in the last big housing industry meltdown.
Elton notes that suppliers can sometimes be easier to deal with than banks. "Keep in mind that everybody in this business is in this business," he says. "They understand market forces. ... They can be patient. They might be willing to take to take a token to show you are still in the game. If you can communicate with these guys, you will survive. ... There will be life on the other side, and it can be very good."
Ulinski agrees. When customers are open about their financial situations, even if that includes the possibility of a Chapter 11 bankruptcy filing, he says Masco does its best to work with them. "When we have had those kinds of dialogues, we have worked with them right through the filing in an amicable way," he says. "Some of the strongest relationships we have today were born out of that. ... We want to keep the personal relationships intact and fold the tent kind of neatly as this goes down. I'd like to be able to look you in the eye and shake your hand again some day and talk about how we can do business again."
Last fall, as TOUSA executives planned to take the company into bankruptcy, they faced a special challenge. Although they intended to reorganize and continue operations, the filing followed quickly on the heels of Levitt & Son, another Florida-based builder that had just filed bankruptcy. To avoid some of the negative fallout experienced by Levitt stakeholders, they hired corporate communications consultant Jennifer Mercer, a principal at Van Meter.
Mercer developed an aggressive plan that had company supply chiefs constantly communicating with vendors to assure them that the company was still operating and planned to continue to do so after the company announced it was considering financial alternatives including potentially filing for bankruptcy protection. "There was no hiding or not returning calls," she says.
Moreover, preceding the official filing, everybody who had any business with the company was called or sent a letter informing them of the bankruptcy filing. "None of the key constituents should ever have to read about you in the newspaper first," she says. "The message has to come from you first. Proactive communication is the absolute No. 1 way to mitigate. The company is able to control the message rather than the customers hearing through vendors."
As a result, trade partner and buyer fallout was kept in check. Of course, helping the company retain buyers was the fact that TOUSA operates under other names in local markets, Mercer says. Still, the company expected to lose sales because customers cancelled and asked for their deposits back. "That didn't happen," Mercer says. In February, management forecast 76 net sales; instead, there were 352, she confirms. "That's a testament to all the people who were working hard to communicate. ... That's helped this company and is going to continue to help this company."