Market downturn – Sagging economy forces layoff of 34 workers at Bitterroot Valley log home builder

"A man’s house is his castle," as the saying goes, but not every man can afford the castle of his dreams – especially when the stock market is in the basement.

By JAMIE OGDEN Staff Reporter

Though the market rallied late last week, the turnaround followed new multi-year lows – all too representative of a shift in the economy that has a certain breed of local builders adapting to shaky ground.

While construction and the housing market have generally been strong this year as a result of low interest rates, local log home manufacturers report that high-end buyers have been cautious to invest in the luxury homes made here in the Bitterroot Valley.

That caution has impacted, particularly, the business in handcrafted log homes, leading to local layoffs and general belt-tightening throughout the valley’s most prevalent manufacturing sector.

At Alpine Log Homes, near Victor, where 34 workers were recently laid off, owner Ken Thuerbach said business in high-end homes has slowed considerably after nearly a decade of robust sales.

"We’ve had ten years without a single layoff of this magnitude," said Thuerbach.

Though multiple orders are on the books for spring, according to Alpine President John Powell, the company is experiencing what is, "hopefully, a momentary pause." Usually carrying an 18-month to 2-year backlog, Powell said manufacturers specializing in high-end handcrafted homes have been affected by the wealthy’s current caution for discretionary spending.

"Some of this is a matter of the economy, some is a matter of the time of year, and some is a matter of our orders slowing," said Powell. "Not every business is going to be affected the same way every time."

In the log home industry, where seasonal layoffs are a typical part of the flow of business, several companies valleywide have reported layoffs moving into the winter months.

Powell said that at Alpine, thanks to a strong economy, the last few years have seen few layoffs – a fact that makes this year’s cuts perhaps felt deeper.

"This used to happen every year," said Powell. "The last few years, we haven’t experienced it, so it seems odd to everybody. Because the economy was so robust, scores of new companies opened up and people were willing to order early, order late, whatever it took to get an order."

Mark Moreland, vice president at Rocky Mountain Log Homes south of Hamilton, said that while his company has had seasonal layoffs, those cuts have impacted the handcraft division of the company – Pioneer Log Homes – more this year than normal.

"At Pioneer, they’ve had more than normal," said Moreland. "I would say the high-end market has been hit a little harder than some of the other sectors of the market. … There has been $3 trillion taken out of the stock market in the last 10 or 11 months. People with investments aren’t probably as apt to build a second home."

Pioneer, itself, is a more diverse kind of handcraft business, according to Moreland, building a lot of commercial buildings as well as residences. While that may insulate the business from feeling the full effect of the decline in investment earnings, Moreland said the handcraft market is highly dependent on the labor of craftsmen – which makes for a delicate balance between the flow of work and number of workers employed.

At Alpine, where handcrafting has been the mode of operation since the business opened in 1974, Powell said recent layoffs affected all levels of the business, from the yard to the office. Yet because the handcraft business is labor intensive, craftsmen aren’t necessarily protected from market’s twists and turns.

"Because we’re handcrafted, we’re labor intensive," he said. "And that’s the key – it takes a lot of people to build one of these homes. Two weeks ago, I had everybody working, two weeks from now, I don’t…"

At Rocky Mountain Log Homes, Moreland said the difference between the handcraft sector and other sectors of the business is clear. Because Rocky Mountain relies heavily on automation, and therefore has fewer workers in the yard, it’s easier to compensate for a slow in flow without sacrificing jobs in the yard, he said.

"With the automated equipment, it takes a lot fewer people to manufacture the same number of homes," said Moreland. "There are far more people in sales, administration and design than in the yard – just the opposite of the handcraft market."

Yet to get the most out of automated equipment, companies need to be processing more material. And with other factors contributing to an economic slow down, even those log home manufacturers working outside the handcraft industry have felt the effects.

Phil Alman, vice president and co-owner at Glu-Lam Log near Stevensville, which provides products for the industry, said that while the handcraft companies can live off backlog for awhile when orders slow down, his company is impacted by changes in the industry much earlier.

"We’re faster to go in and faster to go out," Alman said. "So when things go sour we feel it quickly – and we felt it last September."

Alman said business is mediocre at Glu-Lam, but the company is still at full employment. After a rather rough year, business is actually up in recent months, he said, though "it is too early to say why."

To weather a choppy market, Alman said Glu-Lam cut back in capital acquisitions in other areas, electing to keep employees on the job.

"When you don’t have all that many employees, you’ve got a big investment in their training and experience," he said.

It is just that loss of experience that has Lennie Thompson of Hamilton, a little ruffled about the recent layoff at Alpine. A former craftsman at Alpine, Thompson said that while handcraft companies rely on trained craftsman during a boom cycle, those workers are the first to go during a bust.

A company’s need to respond to changes in the market can leave craftsmen in a lurch, Thompson said, and provides too much leeway for management to choose to keep less experienced, and cheaper, employees over those with more skills and higher wages.

An advocate for putting teeth into national labor laws, Thompson said he tried to organize workers at Alpine to join the Laborer’s International Union of North America when he worked there. Though the effort was not successful and he knows of no other log home workers in the valley that are organized, Thompson said he believes that unionizing could help insulate craftsmen, who themselves have an investment in their own training.

At Glu-Lam, Alman said that while his company’s preference is to keep employees, he understands the pressures brought on by a slower market, particularly when the cost of doing business is rising.

"If costs are going up at the same time that you’re selling less … what can you do but lay off people?" Alman said.

Among those costs that are rising, Alman pointed to health insurance and workers’ compensation insurance. With increases in health insurance premiums of 25 percent for two years in a row, and workers’ compensation up 11 percent this year, Alman said investment losses for insurance companies are getting passed onto business.

Add to the mix a 20 percent duty on timber at the Canadian border, which Alman said "doesn’t help the bottom line." While Congress strove to protect Montana’s mills by imposing the duty, Alman said it’s been an expensive burden for secondary users, including those in Ravalli County.

At Montana Idaho Log Home near Victor, where about 18 workers are employed, co-owner Jim Cain said in addition to crippling workers’ compensation increases, deregulation has impacted the bottom line. After deregulation, he said, his company saw its electricity costs nearly triple.

In addition to costs, Cain said competition within the industry is increasing. Smaller "backyard" family operations, perhaps unimpacted by large benefit costs and overhead, are "swooping smaller, more economical jobs out of the market," he said. With costs rising, even though competition is stiff, it’s hard to drop prices.

But, Cain said, some companies "have dropped their prices way down in order to keep the doors open."

Though it’s been an up-and-down kind of year for the log home industry, many of the valley’s larger companies report that maintaining diversity within their businesses acts as a buffer when certain sectors lag. At Neville Log Homes, Chris Lane, director of advertising and marketing, said diversity in marketing plays a key role.

At Rocky Mountain, Moreland, too, said marketing across a variety of sectors is important.

"We try to market throughout the U.S., so that if one area tends to be hit more than others, we can pick up the slack somewhere else," Moreland said. "We also cross-market through different price ranges."

And, even though bottom lines may be tight at the moment, things can change quickly in the manufactured log home market, according to Alpine’s Powell. Two months from now, he said, the situation may change.

"There’s no industry on earth that doesn’t have its cycles and swings, and times like this," said Powell. "The log home industry has long been ignored for what it is. It’s a very important industry. … It’s a major, major employer."

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