September 9, 2002

Inside Veritas -
Article 1 - Jeff Wright to speak: Moratorium, water line, head 9/18 agenda
Article 2 - Business News & Issues (from 8-22-02 issue)
Article 3 - Squeezing Small Builders
Article 4 - Taxation and Finance - Your Company's Business Plan: Roadmap to Success
Article 5 - Indict Secretary "Don" Evans (from 8-22-02 issue)
Association News Update From Laura
Economic Update - Jobless rate falls, so does confidence
BS: Still about Nothing in particular
Housing Industry Update

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Jeff Wright to speak: Moratorium, water line, head 9/18 agenda
  
   When BAMF adjourned its final meeting of Spring, we all anticipated a normal summer, with another solid round of promotional events, followed by a summer of strong building activity. Well, everything seemed to be running smoothly until late June, when we received word of a legal challenge to the Coun-ty’s Capital Improvement fees for sewer and water, and a subsequent moratorium that halted the start of new homes in most of Genesee County for eighteen days, and still threatens the future of local activity.
   Like the events of 9/11, the events of late June taught us how vulnerable we can be to the depraved actions of others.
   There’s little doubt that the past few months will be remembered as the summer of sewer and water. Not only did we find building threatened by our vulnerability to the legal system, we found our dependence on Detroit water may be so costly, it could necessitate a dramatic change. That’s why Genesee County recently purchased over 300 acres near Lake Huron.
   At the center of these issues is County Drain Commissioner Jeff Wright, who will appear at at the Wednesday, September 18th, General Membership Meeting. Wright’s appearance is extremely important to the industry as the county remains in a development moratorium and we’re nearing the time for a court ruling on the case that caused it. The question is, “what’s next, and how to prepare for the impact of the ruling, and any future legal action?”
   However, there’s more. As we’ve noted for months, the sewer and water problems stretch across south Michigan. Recently we found that Detroit’s bungled the administration of water to the tune of $82 million this year alone, and that rates will more than double from ‘97 to ‘07. What will be the County’s response?
   These issues will greatly impact local home building for years to come. Don't miss this extremely important meeting!

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Business News & Issues

GM leads auto sales to highest rate for year

   Spurred by 0% financing incentives, over 1.5 million cars and light trucks were sold last month, representing an annual rate of 18.1 million units, and a rise of 8.2% from July ‘01. With auto sales up 11%, and light trucks up 36%, GM led the way with a 24% rise since last July, and even saw its market share jump above the 30% threshold.
   Even Ford saw its sales rise. Although it was just 1.5 over ‘01, it was the first rise for the distraught #2 automaker this year. Chrysler, on the other hand, experienced a decline of 4%, and its market share plummeted to 13.2%.
   Toyota’s sales rose 4.6% to a new July record of 156,053, giving the #4 “American” auto maker a 10.2% market share, just 3% below Chrysler. Last month we reported that June gap at 4.3%, and the year to date gap for the first half of the year at 4.6%. Well, July’s data brought the y-t-d gap to 4.3%.
   But, if there’s a real story in the July sales figures it’s the strong GM data. Last July the world’s biggest manufacturer had a 26.6% share of the U.S. market. Last month its share was up to 30.4%, making it the only major player in the American market to show a gain. Furthermore, it now has 28.7% of the share for all of ‘02, up from 27.9 in 2001.

For GM, it's more than just market share

   The once floundering largest auto company is showing signs of its old dominance at the expense of its domestic rivals. But its recent success extends far beyond its rising share of the domestic market, as it’s in position to extend its dominance to the future.
   What’s been most interesting about this recent round of incentives is that Chrysler and Ford, both weakened in the past couple of years, are finding it difficult to compete with GM. Despite incentives costing GM $423 more per vehicle than its competitors, the costs are having less of an impact on the company’s profits.
   It appears that, over the past 20 years or so, GM has done a much better job of making itself competitive in the world market. An article in BusinessWeek noted how GM has reduced its variable costs per vehicle to roughly 62% of revenue, as compared to 70% for Ford and Chrysler. So, the big rise in sales means GM can run assembly lines faster, raising productivity and gaining even more from its competitive advantage.

Insurance companies know what to do

   A Wall Street Journal article asked, “what’s the best way to get rid of mold? The insurance industry has the answer: Exclude it.”
   The article explained how most insurance companies are eliminating coverage for mold, in some cases even for mold caused by insured storm damage. It pointed out how “2 years ago, mold was barely on insurance radar screens.” Then, an avalanche of mold claims cost the industry $1.3 billion in 2001 alone. And, who’s the culprit? You probably guessed it ... trial lawyers and the media blowing the problem out of proportion.

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Squeezing Small Builders

   In 1998 large, publicly held home building companies controlled 18% of the Southern California housing market. 3 years later that percentage jumped to 35.
   During that same period the number of single family and condominium units in the eight counties in Southeast Michigan fell from 21,919 to 18,729, a 14.6% decline according to data from the Clarkston based Housing Consultants. However, during those 3 years, the number of homes that were built by the five largest builders in the area rose 9.9%, and their share of the market jumped from 11.1 to 14.3%.
   In metropolitan areas across America small home builders are losing market share to large building companies at a rapidly expanding pace. And the primary reason relates to cost of available building sites, and land in general.
   In August, the Wall Street Journal focused on this situation with an article explaining how a serious consequence of excessive regulations is the demise of the small home builder in many of the nation’s largest markets. The article told how the myriad of regulations relating to nearly every aspect of housing development have been drawing builder complaints for years. Issues relating to the availability of utilities, roads and environmental studies “delay building and draw out the time between land purchase and sales, pushing up financing costs.” But it notes that, while such obstacles cause big problems for small builders, “the nation’s largest builders are finding restrictive federal, state and local antidevelopment regulations to be a blessing of sorts. As small builders are priced out of metropolitan markets, large home builders with deeper pockets are gaining greater control of a limited supply of land.”
   The regulatory problems, alone, have forced small builders out of some markets and have, at least, prevented them from being competitive in many others. Making matters worse is a trend that has big companies buying small competitors out. So, it’s not much of a surprise to find that the numbers of active builders in major metro areas is on a rapid decline.
   The “Wall Street” article noted since ‘98, “declines in the numbers of build-ers hit 30% in San Francisco, 36% in Washington, and 51% in the Philadelphia market.” And, “at the same time, the market share of the large (publicly held) builders has soared.”
   So, could the family building company go the way of the corner drug store? Well, look at these numbers: In 1996 the nation’s five biggest home builders were responsible for 5% of all the new homes built. Last year, it was 10%.
   During the same period, the Flint area’s top 5 built 11.3% of all owner occupied homes in 96. In 2001 it was 19.8%.

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Taxation and Finance ---- Your Company’s Business Plan: Roadmap to Success

   It's a common misconception that a company needs a business plan only ifit is looking for investors or trying to secure a loan. For any small business owner, a well-thought out business plan can be a valuable tool for growth and the roadmap to success.
   Like most small business owners, you probably don't have the time to develop a detailed, 25-page business plan. However, you should be able to find the time to put together a 3-5-page plan that will provide a strategic roadmap for you to follow in your everyday operations. In fact, operating without a coherent plan can be hazardous to the health of your growing business. Once you have determined that a business plan would be useful for your company, following these four steps will help you get the most out of the process and should result in a usable plan of action:
   Plan. Before you sit down to the task of writing your business plan, you should consider how you want your plan to look, and what purpose you need it to serve (e.g., is it for internal and/or external use?). In addition, there are a few important decisions you will need to make upfront, such as:
* Timeline. What length of time will your plan cover? A good rule of thumb is to take your plan out 3-5 years. Start-ups with little or no established revenue history or in new markets (such as the Internet) should lean more towards a 3-year timeline while older, more experienced companies in an established line of business should plan out 5 or more years.
* Information. What information will you need to prepare your plan? The more relevant business data you have, the more accurate and useful your plan will be. Past & current business records, industry market analyses, and employee compensation guidelines are all good sources of data that can be integrated into your plan.
* Assumptions. What assumptions will you make and what are the sources of those assumptions? Invalid or unrealistic assumptions may result in a business plan that, if followed, may cause you to make unwise decisions that could be detrimental to your business. Be realistic, if not conservative, about your assumptions and make sure the source of the data you use is reliable.
*Prepare. Once you have gathered all of the data you will need and have made some of the more critical decisions, it's time to get down to actually writing your business plan. Keep in mind that if business writing and/or financial forecasting are beyond your abilities, you may want to consider seeking out assistance from qualified professionals in those areas.
Your business plan should include these key elements:
* Executive summary. The Executive Summary is an overview of the plan and includes a summary of the goals and strategies of the company.
* Market Analysis & Strategy. In this section of your business plan, you will need to define your market and the strategies that you need to implement to achieve the revenue projections set forth in the plan.
* Action plan. Once the goals & strategies have been identified and the market has been defined, the action plan must be formulated to provide guidance to implement these strategies. The action plan should provide quantitative data regarding the resources, financial and human, that will be needed in order to achieve the goals outlined.
* Financial projections. The financial projections pull together the expected results of the actions discussed in the plan, based upon certain assumptions made.
* Implement. Once you've developed a coherent plan, it's critical that you don't simply file it away unused. If, once you have your plan completed, you are unsure how to implement the plan's actions, do not hesitate to seek assistance from a qualified professional or a trusted advisor familiar with your company's industry.
* Maintain. Following a business plan with invalid or out-of-date assumptions and data could do your business more harm than good. Revisiting the business strategies and financial projections in your plan on a periodic basis is essential if you want to continue using the plan as a tool for growing your business. At a minimum, your business plan should be reviewed and updated on an annual basis. Developing an effective business plan can pay long-term dividends and is certainly worth the effort. However, keep in mind that implementation and maintenance are just as important as development in order for your plan to be effective.

R, P & T

Indict Secretary “Don” Evans

   Consider this! It’s Spring of ‘01 and the nation’s economy is in serious trouble. Consumer Confidence has fallen 33 points in six months, the Dow Jones Industrial average is down over 1000 points, manufacturing activity’s plummeting and a growing number of analysts claim a recession’s imminent. Then, the Commerce Department reports that the economy actually grew a surprising 2% in the first quarter (later revised to 1.3%).
   Well, with recession no longer “imminent,” confidence, along with consumer spending begin to rebound over the following 2 months, and investors go back to the market helping the “Dow” recover its 1000 points.
   A year later, with the “Dow” off some 2500 points, the same department says “sorry, our figures for that first quarter were wrong. Actually the economy contracted during the period.”
   It makes one think if Martha Stewart had a friend at Commerce, she would have sold all her stock holdings on July 31st.
   Now, how familiar does this sound? The auditor for the U.S. economy, with obviously the full faith and credit of the nation, assures Americans that the economy continues to expand. The public goes back to buying stock in American corporations under false premises before finding their government mislead them. The result? A 22% decline value of those investments.
   Now, if this were Enron, the Senate would have subpoenas out for the “scoundrels” who were responsible. Maybe Playboy would have a special issue dedicated to the women who lost their savings from failing investments. Bill O’Reilly and Chris Mathews would verbally harass the culprits nightly until they confessed or committed suicide. But in this case there’s been nary a word about incompetence or deceit.
   Well, this should give all a sense of understanding. Commerce Secretary Don Evans was formerly the CEO of an oil company in Texas. How many dealings do you think he had with Ken Lay? It’s time to heat up that tar kettle!

Beyond Seinfeld: It’s still about "Nothing" in particular

Detroit’s Water Woes Cost Local Users

   Back in April we wrote about the potential burden of solving Southeast Michigan’s drain disaster falling back on the users of Detroit’s water system. Well, it’s already worse than previously thought.
   Last week we found that 37% of the customers living in Detroit were delinquent in their water bills, costing the whole system $59 million. We also found that poor maintenance of the system was responsible for 35 billion gallons in annual leakage with an cost of $23 million. Further review found that average rates rose 37% since ‘97, and there’s an expectation of another 50% by ‘07.
   If we figure the total cost of the leakage and delinquency at $82 million, we realize that Gen-esee County users are responsible for roughly 10% (or $8.2 million) for this past year alone.
   At that rate, we could pay off the total expansion of the local sewer and water system in approximately 11 years at the current financing rates.
   Anyway, it’s quite obvious that Detroit operates about as efficiently as Flint, and depending on the city to supply our water is risky, to say the least.
   Interestingly enough, recent media attention brought the issue to the governor’s race, with Posthumous calling for a water board that would give the suburbs at least 75% control, while Granholm is, as would be expected, in favor of Detroit.

Toyota Keeps Closing in on Chrysler

   While auto sales soared another 13% in August with Chrysler leading the way (up 20.4% in comparison to last August), Toyota continued to narrow the gap in its move to become the #3 auto company in the U.S.
   A year ago, the gap between the two companies for the first eight months was 4.6%. Last month the y-t-d gap was 4.3%. After August, the gap’s down to 4%, with Toyota at 10.5%.
   GM held its 28.7% share of the market, with sales up 18% over August ‘01. Ford’s share is running about as well as its offspring’s share of the points in Miami last Sunday. Despite an 8.2% surge over August ‘01, its market share was down 1%.

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Association News and Events by Laura

  

GENERAL MEMBERSHIP MEETING Wednesday, September 18, 2002 at Bonaparte’s (in the Great Lakes Tech Center) Social Hour at 6:00 p.m. (Sponsored by S & M Lumber) Buffet Dinner at 7:00 p.m. Meeting starts at approximately 8:00 p.m. Guest Speaker: JEFF WRIGHT Genesee County Drain Commissioner ********** Member’s Dinner: No charge All Guests and Member’s additional attendees must pay $20.00 at the door that evening. RSVP no later than noon Thursday, September 12th by calling 810-603-2200 or e-mail to: Tracey@bamfhome.com

HABITAT HOUSE UPDATE    The Builders Association sponsored Habitat for Humanity house is making progress finally after weeks of delays.    The foundation is done and the next stage is the official framing of the house. The Association office has been keeping a photo dairy of each phase in hopes of giving the new homeowner a special scrapbook when they move in.    The “Habitat House” was the featured front page article in the Grand Blanc section of the Flint Journal on Thursday, September 5th. In the article, President Steve Edwards noted that our wish was to have the house in the Fall Parade but it may be possible to have it where people can come by and see the progress to date. (Steve will give us an update at the Sept. 18th Membership Meeting.)

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Economic Update: Jobless rate falls, so does confidence

   It was kind of a strange few weeks for the economy. We found that, while employment was up, consumer confidence was down. While durable goods orders soared, manufacturing’s growth subsided. And, while consumer spending was up, growth in the service sector was down.
   And, of course, there was little to celebrate in the financial markets, unless you need mortgage rates to fall further.
   Perhaps the economic report that received the biggest response was the August’s employment data, which featured an unexpected drop in the nation’s jobless rate to 5.7% (from 5.9%). However, the economy only created 39,000 jobs during and should be creating 2.5 to three times that number to keep the unemployment rate even over time, let alone bring it down.
   So, it was kind of a good news / bad news situation. The “good” being that we added jobs for the fourth consecutive month; the “bad” is that the total for all four was 162,000, not even a good single month two years ago.
   The employment report followed a report by the Conference Board that consumer confidence fell nearly four points in August to 93.5, taking it to the lowest level since last November when confidence plummeted on the heels of 9/11. However, the Conference Board survey found little evidence that Americans are about to stop spending. So, it wasn’t much of a surprise 3 days later when the Commerce Department said there was a solid jump in consumer spending in July, despite income growth remaining “flat.” Personal spending was up 1% for the month, the biggest rise since a 2.6% gain last October (which followed the post 9/11 shutdown). But personal income didn’t move, making July’s rate the weakest since November.
   But, perhaps the most interesting data came from the Durable Goods’ orders, up 8.7% in July. When defense goods’ orders were removed from the report, it’s up 7.3%, the biggest gain on record. Still, the Institute of Supply Management manufacturing index showed that, while the sector continued to expand for the eighth consecutive month, the index was down, and in danger of returning to a rate that suggests contraction.

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Housing Industry Update - State appreciation lags behind nation

   After leading the nation in rising housing values during in the mid and late ‘90s, Michigan’s rate of existing home appreciation continues to lag behind the rest of the nation, as it has since the third quarter of 2000. The average home value in the state rose 4.84% during the 12 months from the second quarter of ‘01 to the same period this year, well behind the national rate of 6.48%, according to Office of Federal Housing Enterprise Oversight (OFHEO) data. The OFHEO measures the value of homes their actual transactions, going back as far as 1980. So, by measuring the same properties over a period of time, the values are not subject to the market distortions as are median and average prices.
   The agency’s House Price Index (HPI) shows the District of Columbia leading the nation over the past year, with values up 15.23%, followed by 6 northeastern states from New Jersey to Maine, rising 10.8 to 12.7%.
Locally, “Flint” ranked #149 at 3.06%, Detroit was 98th at 4.8% and Ann Arbor (79) at 5.55%.
   An interesting note: The San Francisco area was at the bottom of the nation, with San Jose actually losing 2.26% of value.

The Census’ construction report shows Michigan had its worst July since ‘95, with 4,480 total units authorized and 3,959 single family. Still, from a historical perspective, Michigan’s rate of housing activity was at 46,764 units, which is solid for any period except the past eight years. The Southeast Michigan region’s single family activity is running 1.2% ahead of 2001’s first seven months. However, the “Flint” section is down from 1,249 units to 1,117, or 10.6%.

   The U.S. housing industry continued on its roll in July, as sales of existing homes were back at annual record levels, while new homes sold at their highest monthly rate in history.
   The National Association of Realtors said existing homes sold at a 5.3 million unit pace as the Commerce Department was reporting new homes selling at a 1.017 million unit rate. Now the NAR predicts records for new and existing in 2002.

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