By Wendy Leibowitz. During these healthy home building times, why do problems persist with the manufactured housing industry? "The industry really shot itself in the foot," says Joseph Stegmayer, who has been CEO of Centex's Manufactured Housing Group since 2000. "It was careless in its business practices, expanded too fast, had too much inventory, and financing has been constrained."

In late April, Centex Corp. announced that it would spin off its manufactured housing subsidiary, Cavco Industries Inc., the largest manufactured housing company in Arizona and the 13th-largest in the country. "Yes, Centex is bowing out of the manufactured housing business," says Sheila Gallagher, vice president of corporate communications at Dallas-based Centex. "The business did not turn out to be a major strategic focus for Centex." She adds that as a separate company, Cavco should have better access to capital than it did when it was a wholly-owned subsidiary of Centex. Centex is now focusing more than 90 percent of its capital in its home building operations, according to Gallagher.

Stegmayer, who will be chairman and CEO of the new entity, knows that no one has promised him a rose garden. "It will be a tough couple of years," he says. The quality of loans deteriorated as manufactured housing companies expanded aggressively, he explains. Houses were repossessed, and those homes competed with new homes on the market, bloating inventory.

But he asserts that the quality of manufactured homes has improved structurally and aesthetically, and in the long and medium term he says he expects demand for the product to grow as the stockpiles of homes are whittled down.

Data from the Manufactured Housing Institute support Stegmayer's claims. Year-to-date sales of manufactured homes are down 2.7 percent, but sales for spring 2003 increased 5.4 percent over spring 2002. Thus far this year, manufactured home shipments are down only 5.3 percent from last year, compared to shipment declines of 28 percent in 2000.

The spin-off made sense for both companies, says Stegmayer, because Cavco, which will continue to be headquartered in Phoenix, can now expand into different markets in small ways that were not meaningful to a large company like Centex. Stegmayer notes that Cavco, which has no debt on its books, has the cash flow to expand on a "selective basis," perhaps buying a plant that is on the verge of shutting down or building a new plant. "We serve a lot of niches -- first-time home buyer, retiree, empty nester, the rural markets where builders [like Centex] don't want to build one home."