Background — 2004
Flow Automotive is a unique family of 32 auto dealerships located in the North Carolina region. Owner Don Flow was the feature of the Ethix Conversation in the March/April 2004 issue, where he responded to the opening statement, “People don’t generally put ‘auto sales’ and ‘ethics’ in the same sentence. Tell me how you link the two.” With principles and dramatic illustrations, he showed how a deep set of values formed the foundation for his business. This business was not only deeply ethical, but also very profitable.
But the world has changed. Since October 2008, the world has been in a financial meltdown. While every industry has been hit, the automotive world has been particularly challenged. General Motors was once the vanguard company in America. It used to be said, “As General Motors goes, so goes the country.” Now GM stands at the brink of bankruptcy. Toyota has never had a layoff, but its losses are now in the billions. This is a very difficult time to be in the auto business.
So how do ethics survive in the auto industry in this downtime? I caught up with Don on February 14, 2009, to get his response to this question. To provide a context for the discussion, we will recap highlights of the 2004 Conversation, followed by his current perspective.
Al Erisman
Highlights from the Conversation with Don Flow in 2004, issue 34.
The traditional model in the automobile business is really laissez-faire capitalism, and at the center point is a transaction where both parties try to maximize their own position. Thus the auto dealer sees the customer as an element of the profit-maximization model. What we try to do is to change that model and ask, “How are we serving the customer?” This is a completely different starting point. So our sales processes are totally different from most others in the car business.
We don’t have the traditional run back and forth negotiating process; we have a pricing structure that’s set. You don’t have to be a tough negotiator, or more educated, to get a fair price. If you’ve got a Ph.D. or if you’re a janitor, you’ll pay the same price for the vehicle. We did a study and found that the people who typically paid the least for the cars were the most able to pay. Those least able to pay, paid the most. For me, it was wrong to take advantage of the least able.
We want to be transparent to our customers. We share all of our information with them. In our appraisal process of a car, we go online together with the customer, pull up all the auction reports, Kelley Blue Book, NADA Black Book. We have kiosks in our showroom floors so people can go online. So we try to accommodate the customer at every step, in the way they’d like to buy a car. In our operating principle, the customer is in control of the process, and our job is to help the customer in that process.
We have “integrity” as one of our values, but it is more than a word. We have a number of unconditional service commitments, for example, that spell out what integrity means for service. The first is, if we do not repair your vehicle correctly the first time, you don’t pay for additional repair. If it’s not right, we come and pick up your car, we repair it no matter what the cost is to us, and return it to you. We believe we’re supposed to be professional, and you’re paying us to diagnose it correctly, so we don’t think we have the right to charge you again for something we charged you for the first time. Second, we make a commitment to complete the repair at the time promised. So if we say it’s going to be ready at 2:30 p.m., and it’s not, we’ll take a car to your home or office and bring your car back to you when it is finished so you’re not inconvenienced. Thirdly, when we give an estimate, that’s the only price it’ll ever be. If we misdiagnosed and found out that it wasn’t a $100 repair but it was a $500 repair, we eat the difference.
… our sales processes are totally different from most others in the car business.
We have been very profitable. We have enormous loyalty with our customers. We’ve also been able to manage our costs much better than other folks because we don’t have the overhead associated with all of the negotiation processes and we’ve greatly streamlined our operations.
We have a housing assistance program for all entry-level employees. If they save money, we match their down payment to buy a house. But in the end, it can’t be just about these things — it must extend to treating each employee as a valued, respected person.
We build Habitat for Humanity homes together, and we are involved in dozens of United Way agency programs that we either volunteer for, or help start, as a company. We are heavy investors in education, from inner- city programs up to universities. We have started inner-city educational programs and underwrite them.
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Maintaining Ethics in a Downturn: Auto Sales
Ethix: What is your perspective on the economic downturn?
Donald Flow: It is almost unimaginable what has happened. Demand has fallen off in every state for every product. Presently, the sales rate for automobiles is 20 percent below the replacement rate. While it is probably too early to make a definitive statement about fundamental change, it is clear that at this point that our demand-driven economy is de- leveraging.
Auto sales were particularly hard hit. Immediately after the market shocks of October, our sales just disappeared. We were down 70 percent in the first three weeks. As of now, we are down in sales from 30 percent to 50 percent, and down in service about 5 percent. In past economic downturns, when sales would drop off, service would pick up because people would try to get more out of their cars. This time both are down. Buying a car is a statement about the future, and everywhere we looked people were living in fear. During November and prior to the government intervention in December, we frankly didn’t know if the automobile business was going to disintegrate in a similar manner to the financial world.
I had the responsibility to bring hope and facts to the organization
The challenge was not just a lack of customers. Our lead bank was Wachovia (they financed our inventory and the majority of our real estate). Wachovia was founded in our hometown, and we have a deep and long relationship with them. Although Wells Fargo ended up stepping in and saving Wachovia from bankruptcy at the end of September, our credit was caught in all of the uncertainty of this banking transition. While we have a diversified product portfolio, we have 14 GM franchises and with GM facing bankruptcy, we were faced with being caught in that vortex. I made several trips to Detroit at the end of last year working with them on their strategy for the next steps. They have one chance to fix it now, and they won’t get there by doing incremental changes. They need to fundamentally restructure, and that is what they are working on.
We believe Flow Automotive has a strategy at this point, and we will make it. That does depend on General Motors, though, because if they don’t make it, then it will be a whole different story. If they do not survive, it will throw the entire supplier network for the automobile industry into question.
By January 4, I was personally totally exhausted. I took two days off and flew to the Cayman Islands just to sleep and regain perspective. We had been going at an unbelievable pace over the last quarter of 2008, and it was necessary to get away to sleep and recharge. I have come back from that time with a renewed commitment to hold up our core values, our deep beliefs that have defined our culture, as the basis of everything we do as we prepare for a different kind of market for the future.
What steps did you take during the crisis time to stabilize things?
We pulled people together into small groups and asked the question: What is it as a business that we are deeply committed to? What would we never go away from as a business? We concluded together that our service ethic, grounded in respect and truthfulness was fundamental. If we lost that we would not have a reason to exist. Secondly, we concluded we must maintain an environment where we treat each other with respect. We have to have a fully participative environment where everyone is fully invested in what we are doing.
Now our job is to stick with the program, with insistence on great service and high integrity.
From that foundation, we agreed to look at everything else and opened up the question of what we can change. A crisis truly galvanizes thinking and some great suggestions came forward. Perhaps these could have been implemented before, but they weren’t. The crisis forced us to think differently and overcome inertia. We framed everything with three questions: Does it provide better service to customers? Does it enable our people to be more productive? Does it eliminate waste? Some great cost-saving suggestions came out, making us wonder how we made money before without dealing with these things! We tried things. We tested things. We made great progress. And we managed in doing this to avoid getting paralyzed, which can often happen in this kind of a situation.
I realized I had to rethink my own job. I had the responsibility to bring hope and facts to the organization. If we were to move forward, we had to bring value to the customer and focus on our purpose. I met with groups in every dealership. We framed it in the following manner: When times are good, the economy is like whitewater rafting down a river. The main thing is to not fall overboard, to not crash into any rocks, and to keep your energy level high. But when the economy is like it is today, it is like rafting in very flat water. This requires every member of the team to paddle, and it requires everybody to do it together because there is no natural momentum, there is no current. If we do not act, and then adapt, we will not move. Therefore, for us to survive, it was the responsibility of every member of our organization to do the following:
- Do what you know how to do with excellence every day.
- Learn how to do something you did not know how to do yesterday.
- Anytime you see something that somebody else does in any sphere of life that you think could help, share it.
We had 10-day budgets, and looked at the numbers and key components of the plan on a weekly basis. I had a weekly webcast letting people know where we stood, evaluating ideas, and updating people on progress. What I shared seemed pretty straightforward, but people appreciated it greatly.
We had to let a few people go [out of almost 1,000 employees], and some people left because their commissioned-based compensation was just not at the level they had before. So we are down about 10 percent overall in employment at this time. We have always been slow to add people in good times, which meant that at peak times, the organization was strained significantly. Now we have people getting cross-trained. Those in sales learned and performed some of the basic service tasks. No one is making what they were. But several have come to me to say they were sticking with us. The benefits are good, and one said, “This is very tough, but so is everywhere else. I would rather stay here because I have confidence in our management and if anyone can recover, we can.”
Now our job is to stick with the program, with insistence on great service and high integrity. If we do this, we are confident we can attract customers even in these tough times. We are not perfect, and recently we had a repair for a customer that wasn’t done properly and they had a breakdown in Charlotte. A service manager there called us about the problem, and I said, “Send us the bill. It is our problem, and we have to take responsibility.” He couldn’t believe we would respond that way at this time, and wrote me an amazing letter. But this is the core of who we are and we must stay with it.
Once we realized we could make it (unless something else goes terribly wrong) we came to several conclusions:
- We must stay focused on our purpose of creating value for customers in every interaction.
- We must adjust to new and lower margins.
- We must find a new operating level, since it is unlikely the sales rate will return for several years.
We had been living in a world where people were living beyond their means, leveraged to the top. This is for every socio-economic sphere in our culture. They won’t be able to live that way now. So this means some of the highline cars that were very profitable will not meet the previous sales levels, and we must adjust to this.
We also recognized that to carry on in this way requires top talent and a strong identity with our values. So valuing people and maintaining our values is essential. Here is an example. We are asking very deep questions about the role of advertising in this new world. What would make a person get off the couch and buy a car in this environment? But also, is it ethical to get someone to buy a car that would hurt them financially? I had an interesting conversation with someone from a local business school recently. He said, the business schools have failed by presenting financial instruments as morally neutral. We now clearly see that the way we encourage debt has a strong moral component.
How has all of this affected your view of business?
Business is a great institution, and has always had its focus on economics. This is good in the sense that a business that destroys economic capital should not exist. And economic capital is necessary for a community to flourish. But we know that there is much more than economic capital needed for flourishing — there is aesthetic capital, intellectual capital, political capital, and social capital as well. And while business focuses on economic capital, it draws on all of the others. For example, economic capital will not grow without social capital, since trust is required for transactions to take place.
Perhaps we should now better understand the role of business as a part of a larger system, and recognize business should not exist that destroys other kinds of capital as well. This provides accountability for business in a broader way than simply thinking about stakeholder theory. Working with other entities in the community (government, education, etc.), business should be a contributor to the flourishing of society. This doesn’t diminish its role in creating economic growth, but means that this economic growth cannot be at the expense of other forms of capital. Said differently, the value proposition of business must include being a net producer of every kind of capital, even though its primary calling is the creation of economic capital. In this framework, being a net producer of economic capital does not justify being a net consumer of social, intellectual, aesthetic, and political capital.
… it also offers a chance to ground capitalism in a deeper, more viable framework of community and purpose.
A business is a microcosm of society. It is a community organized for a purpose, and it is a living organism subject to all of the conditions of life and death. It cannot flourish in the long term if the people who comprise the business are not flourishing. The creation of meaningful work that enables the individual person to flourish, to grow and develop, is systemically linked to the capacity of the business to continue to grow in the long term. We believe that for us to navigate through this time of transition that it is absolutely critical that this being a living reality in our company.
Those of us in leadership today have no experience with the kind of broad-scale catastrophic loss we are experiencing now. We must go back and look at fundamentals across our communities. I was reading a book recently that discussed how new financial instruments through the ages have seemed to lead to great promise and economic growth, followed by an explosion of some kind when the new instrument is not understood and gets out of control. Banks today are engaged in complex transactions moving trillions of dollars electronically in a way no one can really understand. Banks have always, in our lifetime, been the institution of trust. The undermining of that trust that we have seen has profound consequences on a society.
We are in social turmoil as well as economic turmoil today. People are looking for symbols of hope, for strong leadership at all levels. We have been through a period in our country where top leadership lost its voice. Regaining direction, providing hope, with focused leadership is crucial for institutions at all levels at this time.
There is much we can do, and much we can be hopeful about, but I believe we are entering a new era where things will look very different from the past. The transition will be a challenging period. But it also offers a chance to ground capitalism in a deeper, more viable framework of community and purpose.
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Maintaining Ethics in a Downturn: Real Estate
Beverly Bothel has been in the real estate business for 25 years, which have included ownership of her own real estate company in Bellevue for three years. She was recruited to Windermere Real Estate East Inc. in 1990 as the managing broker for two different Bellevue offices. In addition to her involvement in the day-to- day operation of running an office, Beverly was instrumental in crafting the Standards of Practice contract that is signed by all agents who are associated with the company.
Ethix: How did you experience the real estate market in 2005, just a few years ago?
Beverly Bothel: This was the ultimate boom market. Builders were building lots of products. There was a lot of demand. The day-to-day real estate that took place included multiple offers on homes and often a feeding frenzy of pricing. This started in other parts of the country and swept over our area, and it was not always a “fun” time, pacifying purchasers who had their hearts set on a product that often got sold out from under them. Those were external factors.
Internally, every real estate company has a culture unique to it in its own region, which relates back to the leadership in every office. We have been very fortunate to have traditionally had people bound by very strong ethics, which has helped us maintain our reputation. That culture starts at the top and causes people who don’t buy into this to simply go someplace else.
For us, one factor that holds this culture together is loyalty on the part of top management in Windermere for the people in our company. Our company was started by fraternity members who had a strong loyalty to each other. They brought this to the company they started, and we continue to work at a culture that values this loyalty. Another cultural trait they established was one of innovation — always trying to improve. Some organizations that have strong loyalty turn inward and are not open to new ideas, so we have had this great combination of loyalty combined with innovation. This can be summed up by our goals: Hire the best people, give them the best tools, pay them well, and get out of their way.
Because we are team oriented, we do not grade our agents and announce salaries; we want people to work together rather than be in competition with each other. We have tried to create the environment of each person doing better each year and competing with their own mark, not with someone else.
We have become very sophisticated in the use of technology, so much so that an agent who cannot use technology won’t survive in our environment. We can communicate with clients, search properties, and access all of the information needed to do our jobs. Electronic signature is just beginning to work its way into our business. Some innovative technologies are very expensive for independent contractors. Perhaps surprisingly, we do not use email in our transactions, primarily because there is an immediacy to our transactions that doesn’t fit with email and the lack of official time stamping. Decisions that need to be made by a certain time may be affected by even a minute or two before expiration may occur. Unfortunately, there are consequences to all of our timing.
We also take a long-term view. Even in the boom times, we worked hard to match the capability of the buyer with the right home. The last thing we want is to get someone into a home they can’t afford. Our work is built on repeat customers, and a person who can’t afford a mortgage is not a good repeat- customer prospect. They will remember what has happened, and they will tell their friends.
What has happened to the market more recently?
The market is not only challenging but it is also different. What we have learned over the past few years is that there were some bad mortgage-lending practices that have gotten us to where we are today. A lot of loans were made that should never have been made. The real estate market was depending on the mortgage industry to make good decisions and they did not.
Unfortunately, there is also some stagnation in the system as well. There are so many homes on the market. In addition, there are so many in foreclosure, that even a good well-qualified buyer may have difficulty purchasing a home because of the lender’s approval process. The lender process includes the forgiveness of debt on the property that has been foreclosed in order to sell it, and this is a process that lenders had little experience with until recently, and sometimes they are not very good at it.
This market is tougher and very different from what I have seen in 25 years in the business. There are more sellers than buyers, and the buyers aren’t sure they want to go forward for two reasons: They think the price might go lower, and they have uncertainty in their own finances — and these are the top prospects who don’t have a home of their own to sell. Someone with a home to sell has a much more challenging problem.
The average real estate person is working very hard and getting very few results. Four years ago, buyers made decisions quickly, because the price might go up or the property might get purchased by someone else. Today these factors are gone and each sale takes a longer time. It is like the buyers are sitting on the fence with their hands folded waiting to see what will happen next. It also seems that motivating factors no longer motivate! Interest rates have been extremely low, the lowest in 40 years, and those rates have had little effect on the purchasing process.
This cycle is much longer than others. I was there at the high-interest rate cycle, but I don’t remember a past cycle being more than four months long. This one is much more pervasive and much longer. We get little bounces, but the real return is a long ways away. People are not willing to spend money when they watch their 401k accounts swing so wildly. There has been some real pain in times like this.
Can the real estate industry blame the mortgage industry exclusively, or does the real estate industry bear part of the blame by working with unqualified clients they hoped someone else would be able to create a loan for?
I am sure some in real estate own part of the blame for this. Perhaps part of the problem in real estate community came from the rapid growth we had during the boom. There may well have been some people who were new to the industry and had a very short-term view of success.
As the frenzy built, lots of people saw gold in this market and hopped on board. Some people came on part time to sell real estate, and they did not understand this is a full-time task requiring full-time thought processes and a long-term view.
There is another issue on the client side that affects real estate today. We at one time had a standard of ethical thinking in our country. People knew about right and wrong and expectations in the way they dealt with each other. Some people coming in from other cultures simply have different standards. Knowing how to work with them has been very challenging because some of them bring business practices from other cultures, and want to do business that includes bribery, misrepresentation, and making statements that are simply not true, etc. This puts a strain on the real estate transaction. A complicating factor is that the real estate transaction may be the starting point for someone coming in new to the area, before the person has learned the expected ethical standards.
Internally, we are very much aware of the mindset of the new agents coming into the business. We work very hard at dealing with the mindset of those people, including a course in ethics that needs to be taken every four years. That is not mandatory to be a member of the National Association of Realtors, so there are companies who do not see the value of the ethical standards that are set by that organization. That creates a problem between companies and the expectations of doing business cohesively.
What has been the response to these challenges? New regulations? People leaving the real estate field?
There are new regulations. The state has caught on and is in the midst of changing the requirements that will make it more difficult for people to get a real estate license, and there is nothing we would like better.
A lot of the bad lenders have gone away, and we are seeing some new lending regulations come in as well. You used to have an inspection on the property, but the inspection report did not have to go to the lender. You just had to get the final papers showing the final agreement that might include a cash settlement for fixing things. Now you have to send everything that has been discussed as a part of the paperwork going to the lender. This can eliminate some of the bad practices, even mortgage fraud, that had been going on.
Educational requirements for real estate people have grown substantially. We have developed more training for agents as to what is right and what is wrong, and the state has passed a new law on distressed properties that will regulate an agent’s involvement in foreclosures.
What are you doing to get through this difficult period?
Agents are in the same position as buyers and sellers. Everyone has a level at which they live. In the last five years, real estate brokers have had a very comfortable level. But when you don’t sell a house, you don’t get paid. So this is a very difficult time. Some people, otherwise good real estate people, have left the business because it is hard to make a living today. But I usually counsel them that there are few opportunities available for those looking for jobs, so we will have to work much harder than we used to for much fewer results. The agents who work for me need to focus on each day and what can be done in this environment. I’m convinced that those people who continually grab at the news and dwell on the negative will be stuck in this market and they will make no headway.
It’s back to the basics of relationships, knowledge, and a positive attitude. We will survive the downturn of the market, and we will be stronger for continuing to do things right for the benefit of the clients and customers with whom we come in contact and for our own reputations and long-term goals.
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Maintaining Ethics in a Downturn: Home Building
Background 2004
Bigelow Homes is a developer/home builder located near Chicago, Illinois, with part of their operation in Texas. Founder Perry Bigelow was featured in the December 2004 issue of the Professional Builder magazine as “2005 Builder of the Year” for the United States. The company was honored for “doing good by doing right,” showing that a strong purpose and exemplary ethical practices could produce a great place to work and industry standard profitability. But the world has changed. Since October 2008, the world has been in a financial meltdown. Housing has been at the center of the meltdown, with more homes available than are needed in this foreclosure market, so demand for new homes has all but stopped. This is a very difficult time to be in the home-building business. How do ethics survive in the home building industry in this downtime? I caught up with Perry at the end of 2008 and in February 2009 to get his perspective.
The mission on the conference room at Bigelow Homes reads, “To honor, glorify, and experience God in all relationships and to do good work.”
Their vision statement is, “To respect and value people, foster interdependent relationships, and respect and care for the natural environment.”
Ethix: Tell us how Bigelow Homes got started and what you did leading up to the “Builder of the Year” honor for 2005.
Perry Bigelow: I founded Bigelow homes in the early ’70s, about eight years out of college. I grew up in a poor family and had no working capital, but had saved enough to live on for about six months. I built one home and sold it, then built another. Soon I got into building custom homes on environmentally sensitive lots. I always had a very deep concern for stewarding God’s creation, and wanted to demonstrate this in my work. We developed procedures for building a house on a lot as if it were brought in by a helicopter, preserving as much of the natural environment as possible.
After the oil embargo in the ’70s, I realized we were chewing through non-renewable resources in a matter of 200 years that took billions of years to produce, and we needed to conserve energy. So we started building very well-insulated homes that carried with them a guarantee on heating costs for the home. We offer a three-year guarantee. In 30 years, we have paid out about $2,000 on the guarantee.
Professional Builders Association wrote about Bigelow Homes when they announced their award as builder of the year in 2005: “As altruistic as these good and green goals are, Bigelow Homes has another attribute: it is also one of the country’s most profitable home builders.”
In the middle ’80s, I went to Eastern College to study inner-city economic development for the poor. There I encountered the writings of Wendall Barry (a Kentucky farmer and environmentalist) and Robert Belah (author of Habits of the Heart). They changed my life. We decided we did not want to build homes for the rich, but rather to build real communities for ordinary working folks, and in which we also incorporate the principles of sustainable development.
As an environmentalist, I realized when we talk about sustainability in nature we mean that the ecology of a place works in such a way that the plants and creatures of the place reproduce so that the ecological health of the place is maintained and sustained.
Similarly, a human community can maintain and sustain itself when the community is designed so that children grow up in a spiritually, socially, and culturally healthy and nurturing community with adults and old folks they are interacting with serendipitously all the time.
In the Bible, the ideal city is described as a place where old people sit in the streets and the streets are filled with kids playing in them.
When I was growing up, children could come and go as they pleased because it was safe. This meant kids could develop relationships with other kids and adults independent of organized activities controlled by adults. Our parents were not as dominating or determininistic in our relationships. There is not a lot written on this, but we realized we needed to go back to developing communities like they were before World War I.
We have focused on preserving integrity while keeping the business going.
What had changed over time was much more powerful automobiles that make the streets of today’s community unsafe. Fear of “stranger danger” also made the communities unsafe in another way. The streets in our community (for example the HomeTown community in Aurora, Illinois) allow cars to travel at only about 15 miles per hour. The houses are designed in such a way that there are lots of “eyes on the streets.” Houses have raised porches on the front, windows oriented to the street, and curves in the streets. There are dozens of patterns that go into these designs, and the communities do, in fact, work for children. This changes how children can live in the community. We have a great deal of description on our website about how we accomplish this.
We never wanted to take on outside investors that might have made us focus on profit rather than the quality of life we were trying to create. In 2005, we had about 60 employees. We grew slowly because we wanted to create long-term stable jobs. We have very careful hiring practices. We believe it is important for people to make a commitment to a company that enables them to flourish. We try to make sure people have a clear vision of the kind of company they are getting into. We walk them through the vision and mission statements to make sure they are a good fit for our culture. In 2005, most of our people had been here for 10 years or longer. We want to provide a stable working environment for people who want to have a balanced life. Our employees have three weeks of vacation after five years. If they maintain a B average, we pay the costs of their business- related education. One person working for us became a CPA. We offer health insurance, a 401k plan, and other benefits. We have always tried to advertise truthfully. When we advertise energy-efficient homes, they have to be energy efficient. When we market a community as child friendly, it has to be child friendly. Honesty in marketing drives you to excellence — no one wants to advertise they’re average. Our largest community is HomeTown in Aurora with 1,288 homes; about 1,250 are completed.
In 2005, we were building between 200 and 250 houses per year.
Update
What has happened more recently?
We are part of a benchmark group of private builders like ourselves, and we share data with each other three times per year. Through this information sharing, we began to prepare for the housing downturn in late 2005. We were handling it pretty well at first. In fact, we were profitable through 2007. Jamie, my son has been doing the day-to-day leadership. I am more an idea person, and he is more the natural leader, and I admire his work greatly. But no one was prepared for what followed. What happened in October 2008 is what has really been destructive. With the sudden collapse of the financial market, all of our assets were devalued, which inhibited borrowing. But banks aren’t lending to real estate regardless of your assets. So you are dependent on cash. In this business, you don’t keep a lot of cash sitting around.
We are in the position now where we are chewing through what little cash we had. Sales basically stopped in the fourth quarter. We had had 40 sales in the fourth quarter of 2005, and had two sales in the fourth quarter of 2008. It has been absolutely devastating. We are now down to about 13 people. Until a year ago, most of the employee losses were due to attrition. But in the last year, we have had to do some layoffs. We simply had no choice.
About 18 months ago, the first thing we did was to bring into our office work we had been subbing out. This worked for about a year, but as the decline continued we had to take other steps. Every month Jamie discusses with our people what is going on. We have focused on preserving integrity while keeping the business going. We broke opportunities and problems down into teams, each working on a different part of the business. People became involved in finding ways to save money, looking for innovation. This has happened right up to the present time.
It has been obvious to the people we have laid off that we had no alternative. You are not helping people to stay on if there is nothing for them to do. People have told us, “We respect you for keeping us on as long as you have. You probably should have let us go earlier.” To my knowledge, there is no one who has been angry at us for being laid off, no one who did not understand.
When we went through the collapse of the industry in the early ’80s, we were very highly leveraged. We learned to run the business much more conservatively. In the ’80s we lost 60 percent of the market and that seemed like a depression. In the last quarter of 2008, sales were down over 90 percent. This is more than a depression. This is the obliteration of an entire industry. When housing does come back, the human infrastructure will have to be rebuilt.
If we don’t go into a full-fledged depression, the housing market will come back in two to four years. However, we aren’t waiting for that. We have created the “World’s First Recession-Proof Home” that responds proactively to all the reasons and excuses that have kept first-time buyers from purchasing homes. The program includes a “Sweat-Equity No-DownPayment” plan and a “We’ll Pay Your Mortgage If You’re Unemployed plan.” Home Price Protection and flex-space plans with private separate living quarters or live- work occupation are also available, along with guaranteed heating costs. The flex space can reduce the monthly cost of ownership by 50 percent.
In San Marcos, Texas, we have introduced our Courtyard Community, which for the first time in the region provides a child-friendly community that is priced 10 percent under comparable-size homes.
The bottom line is that God has given us good work to do, and we are doing everything we can to continue that good work. However, if the business fails, we are still confident of God’s goodness to us.
Continued weakness underscores the problems facing the housing industry, which is in the grips of the worst slump in the post-World War II period, according to an Associated Press story February 18, 2009.