Clayton Homes
Company Overview
Clayton Homes is the largest manufacturer and retailer of manufactured (formerly 'mobile') homes in the United States, producing approximately 45% of all new factory-built homes sold annually. Berkshire acquired Clayton in 2003 from founder Jim Clayton for $1.7 billion — one of Buffett's cleaner 'dominant business in a niche' acquisitions.
Investment Story
2003: Acquisition from Jim Clayton. Clayton's son Kevin approached Buffett after hearing him speak at the University of Tennessee, where Buffett was a Clayton investor. The $1.7 billion purchase price was considered fair to attractive — Clayton Homes was the unambiguous market leader in a segment that served primarily lower-income buyers who couldn't qualify for traditional mortgages.
The manufactured housing market. Manufactured homes are built in factories and placed on rented lots or owned land. They cost roughly 50-60% less per square foot than site-built homes. The primary customers are blue-collar workers, retirees, and rural residents who cannot qualify for or afford conventional mortgage financing. This market is enormous (historically 80,000-100,000 new units annually) but largely ignored by mainstream housing analysts.
The vertically integrated model. Under Berkshire ownership, Clayton expanded its vertical integration: manufacturing the homes (through its own factories), selling them (through company-owned retail centers and dealer networks), financing them (through Clayton's lending arm, Vanderbilt Mortgage), and insuring them (through company-owned insurance). This vertical integration creates ongoing revenue through financing and insurance, extending the economic relationship well beyond the initial home sale.
2008–2012: Controversy during the crisis. Clayton's lending practices came under scrutiny during and after the 2008 mortgage crisis — journalists alleged predatory lending targeting low-income buyers. Clayton's actual loss experience was significantly better than the subprime mortgage market broadly, and the manufactured housing segment never experienced anything like the catastrophic losses of conventional subprime. The business continued through the crisis without requiring capital support from Berkshire.
Growth under Berkshire. Clayton's revenues have grown from approximately $2 billion at acquisition to over $8 billion by 2022, with Berkshire housing becoming increasingly significant for Berkshire's total housing exposure.
Buffett's Own Words
As the decade progressed, new offerings of manufactured junk became ever junkier and ultimately the predictable outcome occurred: Junk bonds lived up to their name. In 1990 - even before the recession dealt its blows - the financial sky became dark with the bodies of failing corporations. The disciples of debt assured us that this collapse wouldn't happen: Huge debt, we were told, would cause operating managers to focus their efforts as never before, much as a dagger mounted on the steering wheel of a car cou
None, however, had a more unusual genesis than our purchase last year of Clayton Homes. The unlikely source was a group of finance students from the University of Tennessee, and their teacher, Dr. Al Auxier. For the past five years, Al has brought his class to Omaha, where the group tours Nebraska Furniture Mart and Borsheim’s, eats at Gorat’s and then comes to Kiewit Plaza for a session with me. Usually about 40 students participate. After two hours of give-and-take, the group traditionally presents me with a t
World Books and related publications, and 700 sets of knives manufactured by our Quikut subsidiary. Additionally, many shareholders made inquiries about GEICO auto policies. If you would like to investigate possible insurance savings, bring your present policy to the meeting. We estimate that about 40% of our shareholders can save money by insuring with us. (We'd like to say 100%, but the insurance business doesn't work that way: Because insurers differ in their underwriting judgments, some of ou
We now are taking delivery of about 8% of all business jets manufactured in the world, and we wish we could get a bigger share than that. Though EJA was supply-constrained in 1999, its recurring revenues — monthly management fees plus hourly flight fees — increased 46%. The fractional-ownership industry is still in its infancy. EJA is now building critical mass in Europe, and over time we will expand around the world. Doing that will be expensive — very expensive — but we will spend what it takes. Scale is vit
None, however, had a more unusual genesis than our purchase last year of Clayton Homes. The unlikely source was a group of finance students from the University of Tennessee, and their teacher, Dr. Al Auxier. For the past five years, Al has brought his class to Omaha, where the group tours Nebraska Furniture Mart and Borsheim’s, eats at Gorat’s and then comes to Kiewit Plaza for a session with me. Usually about 40 students participate. After two hours of give-and-take, the group traditionally presents me with a t
Investment Lessons
Dominant market position in an unglamorous segment creates durable returns. Clayton's roughly 45% market share in manufactured housing is virtually unassailable — no competitor has the national manufacturing scale, retail network, financing infrastructure, or brand recognition to mount a serious challenge. Berkshire paid a fair price for this dominance, which has compounded steadily under Berkshire's ownership without requiring significant capital support.
Vertical integration enables capture of the full economic cycle. A manufactured home manufacturer that only sells homes earns a one-time transaction. Clayton earns the transaction margin, the financing spread over 15-30 years, the insurance premium stream, and the service facility revenue — converting a one-time sale into a 15-30 year economic relationship. This vertical capture of the full value chain creates EBITDA per unit multiples higher than any individual component of the chain.