One on One with Pulte CEO, Richard Dugas
Thursday, October 23, 2008
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SUSIE GHARIB: Shares of Pulte Homes tumbled 18 percent today as investors reacted to disappointing quarterly numbers announced late yesterday. The nation's fourth largest home builder reported a bigger than expected loss, its eighth consecutive quarter of red ink. Joining us now, Pulte CEO Richard Dugas. Mr. Dugas, welcome back to NIGHTLY BUSINESS REPORT.
RICHARD DUGAS JR., PRESIDENT & CEO, PULTE HOMES: Thank you for having us.
GHARIB: When do you expect Pulte to be profitable again?
DUGAS: Gosh. It's tough to say. The housing market is clearly going through a severe correction. I would certainly hope that in the coming couple of quarters, we might be able to post a profit, but it's very difficult to say based on inventory write-downs that have been affected by this crisis.
GHARIB: Let me ask you this. When do you think that you will be able to hire back workers and contractors and get building going again?
DUGAS: I don't believe it's going to be anytime soon, frankly. The market is still reeling from an incredible combination of fear and effectively locking down the markets in total. We are continuing to lay people off, unfortunately and the overall industry is in tough shape right now. So I wish I could give you a good forecast on hiring again, but at this point I don't see it in the near term.
GHARIB: Now, you have been successful in building up your cash trove, whether through cost-cutting and other measures. What do you think is the best use of that cash?
DUGAS: For now, I think the best thing to do is to sit on it. Anytime you have a very difficult environment, overall cash is king as you know, and we can be defensive with that cash to help allow us to run our business, if conditions deteriorate further and also we can be opportunistic with that cash when it does stabilize -- when the market does stabilize, we can use it to actually invest. So I think for now the prudent thing to do with the cash is to continue to build it and sit on it. It's a very conservative strategy, but this market has thrown us many curves and we certainly don't want to bet wrong.
GHARIB: At some point, banks are going to sell the foreclosed homes and land that they've seized. When do you think that might happen? And would you be interested in buying any of the distressed properties?
DUGAS: Definitely, we would be interested in buying distressed properties. Banks are already selling the foreclosed homes. As a matter of fact, there was a report out this week that in California, as much as 50 percent of resale inventory in the recent period was foreclosed homes being sold. So the homes are moving through the bank system, but land has not yet really made it to the market at prices that we would find attractive. However, that will eventually work through and at that point we would like to take advantage of some of those opportunities. We are one of the few companies in the industry that does have significant cash reserves and to spend a small portion of that to buy opportunistically would be appropriate, we believe.
GHARIB: You talked about stabilizing the housing market. If you were advising the next president of the United States, whether it's Senator Obama or Senator McCain, what would you tell them to do to solve the housing crisis?
DUGAS: I'm glad you asked. We need two things. We need a large one- time tax credit for buyers to stimulate demand in the range of $10,000 to $25,000 depending on the price of a home in your given area that does not have to be repaid. It needs to be a true stimulus from the government combined with a 2-250-basis-point mortgage rate reduction. That's exactly, Susie, what happened in 1975. The Ford administration passed a tax credit and a mortgage rate reduction that lasted for about nine months.
GHARIB: But Mr. Dugas, let's say that that tax credit were offered. Do you think consumers who are so fearful right now would actually take advantage of it and maybe most of them are just waiting for prices to come down?
DUGAS: I do not think a tax credit alone is enough, but in combination with a 4 percent 30-year fixed rate mortgage, it would be good enough to stimulate demand. It worked back in 1975. We have the recipe for it, we just need to enact it. Unfortunately most of the stimulus discussion today is excluding housing which is ironic since it's the root of the economic problem in the country. I definitely believe it would stimulate demand.
GHARIB: All right, to be continued. Hope you come back and talk more about that. Thank you so much for coming on the program this evening.
DUGAS: My pleasure. Thank you for having us.
GHARIB: My guest tonight, Richard Dugas, CEO of Pulte Homes.
