TRAILER KING
TRAILER KING
BY MONTE BURKE
This feature appeared in the 2002 Forbes 400 edition.
JOHN CHIASSON
UNDER A CLOUDLESS SKY in Knoxville, Tenn., James Lee Clayton straps himself into his black Bell 407 helicopter and eases the seven-seater off the ground. The 68-year-old cranks up Eric Clapton on the stereo and winds his way between the Cumberland and Smoky mountains. Twenty minutes later Clayton lands the whirlybird at his summer getaway, a cedar-sided joint fitted out with patio furniture straight out of Walmart.
Of his five residences—which include condos in Colorado, Florida and South Carolina, as well as a brand-new 14,000-square-foot house in Knoxville—Clayton says this is his favorite. “I get more thinking done, more work done and have more sex in this place than anywhere else in the world,” he declares. “This place” is a double-wide for which he paid $45,000 in 1991.
So not every trailer is inhabited by a chain-smoking couple with tattoos. This mobile-home owner is worth $620 million. He made that money manufacturing, selling and financing homes like this one.
Padding around the 15-acre site on Fort Loudoun Lake, Clayton describes how his hardscrabble beginnings and an early business failure steeled him to survive in a boom-and-bust business. Conspicuous in the history of Clayton Homes is the near absence of leverage or daredevil growth. At the moment, the mobile-home sector is suffering one of its periodic busts, but Clayton Homes is not suffering like its competitors. Its Big Board-listed shares are down only 33% from their all time high. The shares of Champion Enterprises, the biggest mobile-home maker, are down 90%. Shares of Oakwood Homes, which during the last boom beat out Clayton in a bidding war for another manufactured housing company, are down 99%.
Clayton grew up in rural western Tennessee, the son of a sharecropper. His father borrowed money for seeds, fertilizer and tools, money to be repaid from the proceeds of the cotton harvest. The whole family pitched in to make ends meet. “Picking cotton is one of the most horrible—and boring—things you can do,” Clayton recalls.
Clayton’s mother worked in a shirt factory next to a baseball field. When Clayton and his brother, Joseph, showed up to play, they were always chosen last. “We weren’t as good as the other kids because we were working in the field all day while they were playing ball,” he says. “We started to realize that we did not dress as well and did not know how to move around socially like the postmaster’s son or the banker’s son. Our dad worked longer than the other dads did.”
Clayton was intent on finding a future away from the cotton fields. “There were three ways to break out of that kind of life,” he says. “Go to Pontiac and build cars, join the military or make it to the Grand Ole Opry like Eddy Arnold.”
He chose the latter, spending his nights learning how to flat-pick on the guitar, his fingers bloodied by cotton-picking. Clayton never made it to Nashville, but he paid for his engineering degree from the University of Tennessee by playing on a Knoxville radio station. (He still plays guitar and has serenaded shareholders at annual meetings.)
In college he sold his first car, an old Kaiser-Frazer, for $295, and was inspired. Within half a year he had six fraternity brothers working for him, brokering cars out of their frat house. As a junior in 1956, he founded Clayton Motors with his brother, Joe. Soon he was buying up lots and selling used cars all over Knoxville. But he expanded too fast, and when Hamilton National Bank called in his debt in June 1961, he could not pay.
The bankruptcy was humiliating. “I couldn’t finance a car for two years,” he says. “It was on the front page of the newspaper. My parents thought for sure that we were going to jail.” Clayton entered law school that September. “I made a pact with myself that I haven’t violated: I was never going to be vulnerable to a bank again.”
The law degree was only a temporary distraction. He got back to business, buying a mobile-home retailer in 1966 across the street from one of his old car dealerships.
FOUR YEARS LATER Clayton Homes added a factory, and the business took off. In 1973 he sold 700 homes from that one lot alone. In 1974 he added a financing arm. In 1988 he put the company into trailer park ownership. It has 82 parks, renting spaces (at $170 to $300 per month) to 16,000 homeowners. If it ever felt so inclined, Clayton Homes could distribute that real estate to shareholders as an investment trust worth $400 million, says Wachovia Securities analyst Robert Marshall.
Clayton Homes’ retailing arm, which moves 60% of the 20,000-unit annual output of its factories, has gimmicks to maintain prices. In Knoxville, for instance, the company uses the names Clayton, Luv, Country Squire, Crossland and International for its retailers. That way the customer thinks he is shopping around, when in fact he is looking at five different Clayton models. It’s still not an upscale business, but at least trailer homes are participating in the upward drift in the quality of the country’s housing stock. You can get a trailer with a basement, hardwood floors, stainless steel appliances, island kitchen and siding that reaches to the ground.
There are two ways for a mobile-home company to get into trouble during a boom phase. One is to get too big, adding factories and employees. The other is to sell to bad credit risks. Even if the financing is coming from outside (such as the mobile-home mortgage operation at seedy Conseco), a weak buyer comes back to haunt the seller. Sooner or later the repo man is going to put that home back on the market to compete with new homes.
Clayton wants his employees to think about what happens to the home after the initial sale. “We knew that we had to build solid homes because we would be financing them for 30 years,” he says. Clayton Homes’ retail managers are paid a tiny base salary ($19,000 a year), but they get 40% to 50% of the profits of their stores. The manager also gets a cut of the mortgage payments (as much as $30,000 a month) on homes financed at his branch. A sour loan cuts into the manager’s income. Only 2.3% of the homeowners with a Clayton mortgage are 30 days delinquent, roughly half the delinquency rate at Oakwood.
After six years of hell-for-leather expansion, the mobile-home industry fell apart in early 1999. Since then 80 factories and upwards of 4,000 retail outlets have shut their doors. Clayton has closed only 31 retailers and none of its 20 factories. Some big competitors were in the red last year, but for the June 30 fiscal year Clayton just reported its 28th consecutive year of profit—$124 million, up 16% from the year before, on revenue of $1.2 billion.
Having entrusted day-to-day management of the company to son Kevin, 39, Jim Clayton has time for diversions. In 1993 he bought a Knoxville bank and installed it in a building one block away from the bank that called his loan back in 1961. Last December he bought a bank in Henderson, Tenn., two blocks from the factory where his mother once sewed shirts. “He plays all of those things down,” says Kevin. “But I think for him they serve as reminders.” F
Going Mobile
Despite their reputation as tornado magnets, manufactured homes are an attractive option for lower-income buyers.
22 million
Number of Americans living in manufactured homes.
$26,900
Median income of a mobile home owner.
14%
Clayton Homes’ market share.
193,229
Number of mobile homes shipped in 2001.
$48,800
Average price of a manufactured home.
$164,217
Average price of a site-built home (excluding land).
SOURCES: MANUFACTURED HOUSING INSTITUTE; CLAYTON HOMES COMPANY DOCUMENTS.
Forrest Edward Mars Sr.
Forrest Edward Mars Jr.
John Franklyn Mars
Jacqueline Mars Vogel
Candy, pet food. Father, 2 sons and daughter. Forrest Sr.’s parents, Frank and Ethel, started making candy 1911; struck pay dirt 1923 after young Forrest suggested candy bar based on chocolate malted milk drink: Milky Way, named for a malted milkshake flavor. Malt-flavored nougat cornerstone of subsequent Mars bars, including Snickers, 3 Musketeers. Forrest Sr.: Las Vegas. 80s. Widowed; 2 sons, 1 daughter. Built candy empire in Europe after falling out with father: “I told my dad to stick his business up his ass.” Developed M&Ms after seeing soldiers eating candy-coated chocolate drops in Spanish Civil War. Bought out family 1964, built one of the world’s largest candy companies, pet food makers (Whiskas, Kal Khan). Added snack and prepared foods, Uncle Ben’s Rice et al. Aggressive expansion into Russian market 1993; experienced slight U.S. market share decline 1994. Retired 1973; runs Ethel M, fine-chocolate firm Las Vegas. Forrest Jr.: McLean, Va. 64. Married, 4 daughters. Established company’s Dutch unit 1960s; now copresident. Advanced notion of candy as energy food, added granola bars, noncandy snacks. John: Arlington, Va. 59. Married, 2 children. Set up Australian operations; now copresident. Brothers rule Mars Inc. with authoritarian hand. Jacqueline: Twice married, seeking second divorce; 3 children by first husband. Mars Inc. VP. Current hubby Harold Vogel suing to get bite out of Mars. Family live quietly, operate company under intense secrecy. Four share company worth over $12 billion.
From the Forbes 400 1995 Issue
Clayton Lee Mathile
Pet food. Dayton, Ohio. 50. Married, 5 children. Former Campbell Soup buyer hired as general manager 1970 by Paul Iams, animal nutritionist turned pet-food maker. Iams looking for successor, Clayton running things by 1975. Bought out Iams cheap 1982. “He got a real sweet deal.” Grew from $16 million sales to $210 million 1990. Pioneered fast-growing $1 billion yuppie puppy food market. Sold breeders with discounts, promise of smaller stools, better health. Result: near-commodity product but margins up 25% pretax. Described as “born again” Catholic who runs company in “Judeo-Christian” manner: extremely generous with employees: bonuses, birthday cards, etc. Estimated around $450 million; spokesman claims much less.
From the Forbes 400 1991 Issue
Gordon Moore
$7 billion. Intel Corp. Woodside, Calif. 69. Married, 2 children. Reluctant entrepreneur, he of Moore’s Law: the power of microchips doubles every year (later amended to 18 months). First job at Johns Hopkins researching weapons propulsion, got bored with abstract projects. Joined Shockley Semiconductor 1956, left a year later—one of the “traitorous eight”—to form Fairchild Semiconductor. Moore and seven cofounders ponied up $500 apiece for seed money. Produced first integrated circuit, incorporating several electronic components on a single chip. Started Intel in 1968 with Robert Noyce (d. 1990). Used $2.5 million startup investment raised by legendary venture capitalist Arthur Rock. First-year sales: $3,000. Intel market cap now $129 billion, 1997 sales $25 billion. Introduced first microprocessor 1971. Still owns 5.5%, chairman emeritus. PC industry’s recent move toward sub-$1,000 computers runs counter to Moore’s vision for Intel: “We want to run ahead and make large complicated chips and leave the competition behind. The one thing I’ve learned in this business is that you never get well on the old products.” Member since 1982.
From the Forbes 400 1998 Issue
Robert Einar Petersen
Publishing. Beverly Hills. 66. Married. Son of Calif. Auto mechanic; worked as short-order cook, pumped gas; turned hobby into magazine with $400 and partner: hawked Hot Rod for 25 cents at races 1948. Bought out partner 1950, expanded Petersen Publishing. Now 15 monthlies (Motor Trend, Guns & Ammo, Skin Diver, etc.), 6 bimonthlies. Bought Sport magazine 1988. First man to bag polar bear with revolver, 1965. “It was shoot or be fatally mangled.” Pursues what his magazines cover—“Except for Teen.” Founded Petersen Automobile Museum, LA, with $15 million. “We’re a good medium for a lot of what advertising is—beer, cigarettes, cars, all those good things.” Also good for over $325 million.
From the Forbes 400 1992 Issue