Most people think of Warren Buffett as an investor, but he’s an active businessman who buys entire companies and is often involved in running them. One such company is Clayton Homes, which Buffett’s Berkshire Hathaway conglomerate acquired in 2003.
Clayton Homes is the 900-lb. gorilla of the mobile-home industry. It has nearly half the market for so-called “manufactured homes.” In addition, it owns hundreds of “manufactured home communities” (aka trailer parks), and owns companies that finance and insure the manufactured homes it sells. It operates under many different brand names and subsidiaries, and customers often don’t realize they’re all the same company. Reporters who interviewed former Clayton dealers learned they often received “kickbacks” from Clayton subsidiaries for steering customers into its high-priced loan and insurance products.
The Seattle Times passes unsparing judgment on this “many-headed hydra”:
“Buffett’s mobile-home empire promises low-income Americans the dream of homeownership. But Clayton relies on predatory sales practices, exorbitant fees, and interest rates that can exceed 15 percent, trapping many buyers in loans they can’t afford and in homes that are almost impossible to sell or refinance, an investigation by The Seattle Times and Center for Public Integrity has found.”
As portrayed by the Seattle newspaper’s expose, which you can read here, consumers who think they’re “shopping around” for competitive deals in fact are talking to salesmen working for the same company at every lot they visit. They end up paying top dollar in a market in which there’s no competition. They’re also buying financing and insurance from the same company — and paying top dollar at those stages, too. Clayton “extracts value” at every step of the process.
It’s a common practice, the Seattle Times asserts, for the company’s salesmen to employ bait-and-switch tactics in selling its pricey loans. Prospects are promised an interest rate when they’re making a buying decision, but after they’re committed and have tied up money in deposits or site preparation, they’re hit with a much higher rate and hidden fees at closing.
Investigators found that Clayton’s loan rates average nearly 7 percentage points above the residential mortgage market. The newspaper used as an example an Ephrata, Washington, couple who were promised a 7.5% interest rate that was jacked up to 12.5% at closing, raising their monthly payment from $700 to $1,100.
To get customers to go along with the switch, salesmen entice them with “false promises” that they can refinance later. “Nine Clayton consumers interviewed for this story said they were promised a chance to refinance,” the newspaper said. In reality, the overpriced homes leave most buyers underwater and unable to refinance in the open market, and Clayton “almost never refinances loans and accounts for well under 1 percent of mobile-home refinancings reported in government data from 2010 to 2013” even though it issued “more than one-third of the purchase loans during that period,” the Seattle Times reported.
The article portrays the company’s collection tactics as heartless and ruthless as its lending practices. “Berkshire’s borrowers who fall behind on their payments face harassing, potentially illegal phone calls from a company rarely willing to offer relief,” the newspaper said. “Buyers told of Clayton collection agents urging them to cut back on food and medical care or seek handouts in order to make house payments.”
The Seattle Times describes the entire process as “preying on the poor” by promising them “affordable homes” and then trapping them in “high-interest loans and rapidly depreciating homes,” and criticizes the government for doing “little” to protect consumers.
Clayton executives are heavily involved in lobbying Congress on behalf of the industry’s and company’s interests, the newspaper says. The company’s lobbying, the Seattle Times says, “have helped the company escape much scrutiny, as has Buffett’s persona as a man of the people. ‘There is a Teflon aspect to Warren Buffett,’ said James McRitchie, who runs a widely read blog, Corporate Governance.”
The Seattle Times article takes aim squarely at Buffett. It’s almost certainly a fair criticism of this hyper-wealthy “man of the people.” Although Clayton’s practices were in place before he bought the company, 
Buffett is a man who does due diligence, and he surely knew what he was buying. He’s owned Clayton for a dozen years now, and the founder’s son still runs it on his behalf. With this damning expose, a lot of Buffett’s teflon may be about to come off.
Photo: Warren Buffett; kindly billionaire, or predatory huckster and loan shark?
Update: The Seattle Times says Buffett’s company, Berkshire Hathaway, has responded by calling its expose “misleading” without pointing out any factual errors after it “ignored or declined reporters’ requests to discuss the company’s treatment of consumers” for months. The Times then refuted, point by point, several claims in the company’s statement. I will say this: Investigative journalism is what journalists do; newspapers’ proper role in society isn’t to disseminate corporate PR unchallenged, but to expose abuses in business and government. The old adage, “where there’s smoke, there’s fire” comes to mind here; Clayton customers wouldn’t be complaining to reporters if nothing was amiss. Self-serving denials don’t impress; reforming practices and correcting abuses does. That’s my two cents.