Form letters from builders started showing up in late June, even as suppliers and subcontractors rushed to keep up with materials and labor demand to finish the healthy backlog of homes ordered in the final throes of the heady, frenzied, multi-year home building market boom.
The party was over.
A hangover was setting in as home orders fell. And now builders fully expected each supplier to share in the pain and help with a cure or else, Builders wrote their trade partners. A tithe in the form of a 10 percent price cut would be acceptable; more would be better, but less was not an option.
That's the tone and thrust of the letters, if not the actual wording, sent by big national builders, including Lennar Corp., K. Hovnanian Enterprises, and Technical Olympic USA (TOUSA) to its vendors. Beazer Homes USA's Indianapolis division similarly “asked for” a 5 percent reduction.
SHARE THE PAIN Because builders already cut loose land options and employees, it's clear that they are not hesitating to axe uncooperative goods-and-services providers as well, although the letters refer to “partnerships” and “relationships” with suppliers.
At whiplash speeds, many big builders are downshifting their purchasing departments from machines striving for greater capacity at any cost to cost-slashing, leaner, meaner organizations with no fear of flashing muscle and teeth to get their way.
“As our customers continue to pay us a lower price for our homes, we must in turn pay you a lower price for your services,” writes Jonathan M. Jaffee, COO of Lennar, which is asking for at least 10 percent discounts and, in some markets, more. “Only those companies that participate in this request will be considered as our trade partners in the future.”
Some builders announced they'd apply a 10 percent discount to their materials prices without even first securing a nod from suppliers to do so. “We are reaching out to you, our trade partner, to participate in a six-month temporary discount program,” writes Scott South, area president of the Cambridge Homes division of K. Hovnanian. “Beginning July 1, Cambridge will discount all new purchase orders by 10 percent. When we see an upward trend, the discount will be removed from purchase orders going forward. The amount of the discount restored will be proportionate to the volume of sales recognized during this six-month period.”
Beazer's Indianapolis division says it is amending house bid contracts and asking suppliers to sign a revised pricing agreement. “If you are unable to reduce your pricing by 5 percent, we will be seeking alternative bids from new subcontractors or assigning your work to other vendors who have partnered with us to reduce costs,” writes Jay Arvin, vice president of purchasing. “Failure to partner with us will result in the loss of some or your entire work load with Beazer Homes.”
Randall Bolt, supply manager for TOUSA's Texas-based Trophy Homes, asks for 10 percent off and then offers TOUSA's Trophy Home supply management team as a service for vendors to “identify cost reduction opportunities to help mitigate the adverse effects this price concession may have on your business.”