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Company Perspectives:
At Pulte, we love the business of building homes and are proud of the houses we deliver. We want to share this passion with our customers and get them actively involved in the process. Buying and building a new home is very different from just about any other product purchase. It provides the unique opportunity of being intimately involved with a work-in-process. Think about it. Unlike buying a car, a dishwasher or a pair of skates, a new homebuyer gets to watch his or her house being built from the foundation right up to the shingles. It's a highly emotional experience that is exciting and, at times, a little stressful.
At Pulte, we encourage customers to be actively involved and to become one of our building partners along with our employees, contractors and suppliers. We have determined that greater involvement is vital for our customers being comfortable with the experience.
Pulte Homes, Inc. is the largest homebuilder in the United States. The company also builds and sells homes in Mexico, Argentina, and Puerto Rico. Over the course of its half century in business, it has remained consistently profitable and has completed some 277,000 homes in the form of single-family residences, townhouses, condominiums, and duplexes. Pulte offers a wide variety of home models, and customers can vary the model's style by choosing from a number of facades and interior options. In addition, the company operates Pulte Mortgage, a financial services company that originates loans to buyers of Pulte properties.
Inception and Rapid Growth: 1950s-70s
The company originated when William J. Pulte built his first house in Detroit, Michigan, in 1950. He incorporated his home-building activities in 1956 under the name William J. Pulte, Inc. In 1961, the company had one subdivision in Detroit; by 1969 it had 12 active subdivisions in six states. The company recorded $5 million in sales in 1964. That figure nearly tripled by 1967, and sales exceeded $20 million by 1968. Pulte entered the Washington, D.C., market in 1964, the Chicago market in 1966, and the Atlanta market in 1968.
On March 4, 1969, William J. Pulte, Inc. was reincorporated through a merger with American Builders, Inc. of Colorado Springs, Colorado. The newly formed Pulte Home Corporation became a publicly owned company, and 200,000 shares of common stock were issued. The reorganization allowed Pulte entry into the low-cost Federal Home Administration (FHA) and Veterans Administration (VA) housing markets. At the same time, Pulte opened its first subdivision of medium-priced homes and began its first subdivision in the state of Virginia. The company also built high-priced conventionally mortgaged homes, student apartments, and turnkey multifamily housing. To control its construction costs, it implemented a computerized critical path program.
During 1970 Pulte evolved from primarily a supplier of high-priced single family homes to a builder of single family homes across price ranges. For the first time, the company's sales of low- and medium-priced houses exceeded those of high-priced houses in both sales dollars and units. The company completed and delivered 1,000 housing units for the first time, reaching $31.2 million in sales. The company also increased its capital base by selling preferred convertible stock for the first time.
In the early 1970s Pulte architects developed the first Quadrominium project, a single building that resembled large, custom-built, high-priced homes, but contained four separate two-bedroom units with separate entrances and garages. Pulte opened its first Quadrominiums in Chicago in 1971, providing buyers with homes for less than $20,000. To increase quality control and shorten the time period between the first rough carpentry work and the closing in of the exterior against the elements, Pulte started to make extensive use of component parts. It used prebuilt trusses; prefinished cabinets, windows, and doors; and factory-built floor and wall sections.
The company extended its presence into new housing markets and continued to grow during the 1970s and 1980s. Even as national housing starts and deliveries declined, Pulte's sales increased to nearly 5,000 units in 1980. It ranked first among all onsite builders in the United States in revenues and in homes delivered in 1985.
Adding Financial Services
One of Pulte's first financial services companies was the Intercontinental Mortgage Company, founded in 1972. Later renamed ICM Mortgage Corporation (ICM), the wholly owned subsidiary provided customers with home mortgage financing and thus made Pulte housing units more attractive to homebuyers. (Over half of all Pulte homebuyers financed through ICM in 1992.) ICM services included originating mortgage loans, placing loans with permanent investors, and servicing loans as an agent for investors. ICM posted its third consecutive year of increasing volume in 1992 as it began to focus on origination of "spot" loans for other than Pulte buyers, development of core business relationships with local real estate brokerage professionals, and refinancing activities.
Other Pulte financial services companies included Pulte Financial Companies, Inc. (PFCI), which was the parent company of several bond issuing subsidiaries, and First Line Insurance Services, Inc. (First Line), which provided customers (principally Pulte homebuyers) with convenient and competitively priced insurance-related services to protect themselves and their new homes. In operation since 1981, PFCI subsidiaries engaged in the acquisition of mortgage loans and mortgage-backed securities principally through the issuance of long-term bonds. First Line was established in 1987.
On September 17, 1987, PHM Corporation was incorporated and became the publicly held parent holding company of the Pulte Home Corporation group of companies, which became the wholly owned subsidiary of Pulte Diversified Companies, Inc. In 1988 home sales were flat and one of Pulte's financing subsidiaries filed for Chapter 11 protection due to foreclosure losses. PHM saw a good opportunity to expand its financial services operations by taking advantage of the federal government's Southwest Plan to purchase five insolvent Texas savings and loan institutions. Under the plan, the government offered excellent purchase terms, assumed the risk for any loans that went bad, and gave tax benefits for any losses generated. The acquisitions included two newly incorporated Federal Savings and Loan Insurance Corporation (FSLIC) insured institutions, First Heights and Heights of Texas. For $45 million, and with the assistance of the FSLIC, the company acquired substantially all of the five thrifts' assets of $1.3 billion and their business operations and assumed certain of their liabilities. Since Pulte was basically responsible only for loans made after the takeover, it was the Government National Mortgage Association's responsibility when one of the thrifts defaulted on a mortgage servicing contract only a month after the takeover. The $2.4 billion portfolio was Ginnie Mae's largest single default to date.
Heights of Texas merged into First Heights in July 1990 and consolidated operations under the name Heights of Texas. Throughout 1991, the bank sold off home loans and securities not guaranteed against loss by the government, repaid high-priced liabilities, and made other transactions in anticipation of eventually being removed from government backing. The effect was an increase in core capital ratio. By 1992 First Heights had grown to 28 branches that offered a full range of deposit and loan services to retail and small business customers, and it had approximately $2 billion in assets.
The "Pulte Quality Leadership" Initiative
The homebuilding industry is traditionally one of the hardest hit by fluctuations in the economy. Factors that affect the housing market include national and world events that impact consumer confidence and changes in interest rates; property taxes, energy prices, and other costs associated with home ownership; federal income tax laws; and government mortgage financing programs. PHM realized that a conservative financial philosophy, combined with delivery of good products, was not enough to assure that the company's more than 35 years of consecutive profitability would continue; in 1989 the company launched the Pulte Quality Leadership (PQL) proactive initiative. PQL was a process to involve every employee, supplier, and subcontractor in devising ways to continuously improve all aspects of the company's operations and assure its continued success. Since the company was already a decentralized organization, PQL further empowered divisions and subsidiaries to adapt products, services, and business strategies to meet the needs of local markets.
Under the PQL process, Pulte had more than 150 teams in the field working on improvements and innovations that would benefit the corporation's diverse companies. Active councils represented each of Pulte's major disciplines: sales and marketing, land management, construction, and finance. Senior managers from every business unit joined to form the seven task teams of the National Quality Council (NQC) in 1990.
PQL training stressed the concept of "Seven Voices" that must be heard and understood to become integral to decision-making. They were the voices of customers, employees, suppliers, competitors, internal systems, communities, and shareholders. The NQC developed the Customer Satisfaction Measurement System, a communication link with new homebuyers that provided feedback on the expectations of customers nationwide. The system measured quality and satisfaction relative to expectations.
The Construction Council developed performance requirements for nearly 200 distinct processes involved in building a house. The council also implemented a comprehensive "building science" program that was the first in the industry. These initiatives fundamentally changed the way the company viewed the entire construction process. For example, in Charlotte, Pulte decided to complete garage slabs, driveways, walks, stairs, and rough grading far earlier in the construction process so Realtors and brokers could show the houses to prospective customers even in bad weather. The new practice contributed to the company's local success and growth during challenging market conditions. Additionally, the subcontractors liked the ease of entry and cleanliness of the job sites and customers were able to view their homes more conveniently. Pulte's Chesapeake operations converted to a screw system to attach gypsum and subfloors. The new system reduced drywall cracks, nail pops, and floor squeaks—three of the most frequently occurring problems in a new home. It also solved service problems that usually showed up after the customer moved in.
The Land Council changed the procedure Pulte Corporation used to acquire land. Instead of using the traditional industry "price and terms" philosophy, the corporation started to choose land based on an understanding of where targeted customers wanted to live. For instance, Pulte integrated 280 homesites with a large preserve of wetlands, streams, fields, and forests in suburban Baltimore. Boy Scouts, public school groups, and other civic organizations joined in planning and building hiking trails, bird houses, and other enhancements. The community received much praise, including designation by the Urban Wildlife Institute as an "Urban Wildlife Sanctuary."
Because of the PQL initiative, ICM Mortgage Corporation switched from issuing traditional mortgage coupon books to a monthly mailing of mortgage statements. The innovation added costs up front, but reduced the number of calls to customer service, improved late charge collections, and decreased delinquencies because the system encouraged customers to communicate problems earlier.
1990s: Thriving in a Changing Market
During the economic downturn of the early 1990s, Pulte continued to enjoy record sales and profits in spite of weakened housing and troubled financial markets, enjoying the highest sales and profit per employee of any firm in the industry. While the country had the lowest number of housing starts since World War II during 1991, PHM Corporation enjoyed a 37 percent increase in earnings. The company was able to compete on the basis of reputation, price, location, design, and quality of its homes. It had more than 150 active subdivisions within 25 markets in the Mid-Atlantic, Central, Southeast, and Southwest geographic areas. Pulte Home Corporation attained its first $1 billion year in 1992, with a unit volume of more than 8,000.
Pulte was ready to respond to changing home design preferences and lifestyles. The typical home design before the 1990s was for a family of four. However, the company was discovering that a demand for a greater variety of styles existed and that, in order for it to remain competitive, it needed to not only "satisfy" but "delight" its customers, according to an article in Crain's Detroit Business. Consequently, the company established four different buyer profiles for which it designed homes: the traditional family; the single person; the empty nester; and the extended family. The last profile included parents with children starting college or with children in their 20s still living at home. To suit the lifestyles and wishes of its customers, Pulte engineered new home designs that decreased formal areas to provide space for larger kitchens with fireplaces, bigger family rooms, and master suites; and ranches gave way to two-story Cape Cods.
PHM Corporation was renamed Pulte Corporation on July 1, 1993, to capitalize on the public's recognition of the Pulte name. PHM Corporation was not widely known outside of financial circles, while Pulte had name recognition and identification throughout the geographic areas in which the company's subsidiaries marketed their products and services. It was thought that the change would decrease confusion, potentially increase awareness of the company and its subsidiaries' products and services, and help attract more investors.
The early 1990s also saw Pulte's expansion into the Mexican market. The company began by building small 850- and 450-square-foot units in Monterrey, which were priced between $7,000 and $13,000. Through an agreement with General Motors and Mexican builder Grupo Condak, Pulte also began building 6,000 homes for GM's Mexican employees in Juarez.
In 1994, the company reorganized into four separate operating divisions, based on geographic territory. The divisions—Pulte Home West, Pulte Home South, Pulte Home Central, and Pulte Home North—were highly autonomous, with each division in charge of making its own asset management decisions. The company also changed the way it evaluated potential land acquisitions. Whereas previously Pulte had used financial criteria to determine land purchase and use in a given market, it began to use a more consumer-driven approach. In a January 1997 edition of Builder, Pulte CEO Bob Burgess explained: "Every land purchase must meet the needs of a particular TCG [targeted consumer group]. We normally begin land acquisition and house design addressing the specific needs of two to three TCGs." This approach allowed Pulte to develop standardized homes that met the needs of the consumers it was targeting, and reduced the need for customization of floor plans and features. The reorganization was part of an ambitious growth strategy, dubbed "Plan 2000." Plan 2000 called for Pulte to more than double its size by the year 2000. It also involved the company's focus on new segments of the market, including affordable housing and senior buyers.
Pulte's expansion efforts made it the nation's largest homebuilder in 1996. The company, which was operating in 39 markets, sold 12,456 homes and had revenues of $1.93 billion in 1995 to win the number one spot. Just a few months after being named the biggest, it was also named the best. In November 1996, Pulte received the "America's Best Builder" award from the National Association of Homebuilders and Builder magazine.
In 1997, Pulte again reorganized its operations. The reorganization eliminated the geographic divisions established just three years earlier, replacing them with operating units that focused on targeting specific customer groups. One area of focus for the new operating structure was the adult/retirement segment of the market. Pulte jump-started its expansion in this high-growth segment, by partnering with an investment bank to form a new company dedicated to "acquiring and developing major active adult residential communities."
2000 and Beyond
As Pulte left the 1990s behind, it remained poised at the top of its industry. Its activities as it prepared for the new century indicated that it planned to stay there. In late 2000, the company launched a new brand development program designed to make the Pulte name a byword for homebuilding throughout the nation. In a November 7, 2000 press release, Pulte's vice-president of marketing, Jim Lesinski, explained the reason for the initiative: "On a national scale, there is limited brand identity associated with Pulte Homes or with any homebuilder. As companies in other industries and product categories have done, Pulte Homes can distinguish itself by establishing a solid brand identity that resonates strongly with the consumer." Tenets of the marketing plan included changing the company name to Pulte Homes, Inc., redesigning the logo, giving away a Pulte home in a national sweepstakes, and sponsoring a float in the Macy's Thanksgiving Day Parade.
An even more dramatic example of Pulte's commitment to growth, however, was its acquisition of Phoenix-based Del Webb—the nation's leading builder of active adult communities. The July 2001 acquisition, which was valued at $1.8 billion, easily secured Pulte's position as the largest homebuilder in the United States and gave the company a much stronger position in the fast-growing active adult market. In addition, the merger was expected to generate cost savings of up to $50 million annually by leveraging operational efficiencies and eliminating redundancies.
Principal Subsidiaries: Pulte Diversified Companies, Inc.; Pulte Financial Companies, Inc.; Pulte International Corporation; Pulte Home Corporation; Pulte Mortgage Corporation; DiVosta & Company; First Heights Bank; Del Webb Corporation.
Principal Competitors: Centex Corporation; KB Home; Lennar Corporation.
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