High-End HVAC Becomes Harder to Sell
June 20, 2011
The generous federal tax credits for higher end equipment have been a boon to the HVAC industry for the last two years; indeed, many contractors reported record sales last year thanks, in large part, to the tax credits. However, the landscape is changing now, as the tax credits have been reduced, the economy is still recovering, and prices on equipment keep increasing. Add in declining home values and higher-than-normal levels of unemployment, and many contractors are facing larger challenges when it comes to selling high-efficiency units.
As Tom Tausche, president, Northstar Heating and Air Conditioning Inc., Evanston, Ill., noted, “People are very much keeping their wallets zipped and in place. It has become an issue of dollars and cents, and people are making their decisions based upon their pocketbooks. A lot of people are afraid to spend money right now, especially on higher end HVAC systems.”
Even though many customers are tightening their purse strings, others are still willing to purchase higher efficiency equipment. However, the marketplace is smaller, and the systems homeowners are choosing are often more basic in nature and lack the bells and whistles they might have purchased before the economic downturn.
ENERGY PRICES A CONCERNBusiness is still brisk at Oren Atchley Co. Heating and Air Conditioning, Fort Smith, Ark., although President Mike Atchley noted that the town, which relies heavily on manufacturing, has suffered in the recession. “Major manufacturers in our area have laid off people, and while we’re definitely not doing great financially or economically in this region, we’re not as bad off as other areas of the country.”
Even given those conditions, customers are still interested in higher efficiency equipment. Last year approximately 60 percent of the cooling equipment sold at Oren Atchley was 16 SEER or higher, while this year, that number is 88 percent. “We found that even though the tax credits are gone, customers do not want to buy the base efficiency units,” said Atchley. “Most of our customers are concerned about rising energy costs, the political climate, and what the future holds, so they want to do something beyond the minimum.”
That being said, the most popular systems that Atchley’s customers are purchasing are single-stage 16 SEER units combined with 80 percent AFUE furnaces that have high-efficiency - not variable-speed - blowers. Ironically, the tax credits are what led to higher sales of single-stage cooling units at Oren Atchley.
“Before the big $1,500 tax credit, when we sold a 16 or 17 SEER system, it was expensive and absolutely top-of-the-line with a two-stage outdoor unit,” said Atchley. “Once the tax credits came along, manufacturers wanted to offer lower priced equipment that still qualified for the credits, so they came out with a single-stage, 16 SEER unit that matched up with a furnace with an X13 blower. And strangely enough, the high-end, two-stage units often did not qualify for the tax credits, especially in 4- and 5-ton sizes.”
Most customers wanted to take advantage of the tax credits, so they chose the single-stage 16 SEER units which continue to be the best-selling systems at Oren Atchley this year. Atchley noted that only about 10 percent of customers purchasing high-end units are interested in two-stage, variable-speed equipment, usually for reasons of increased comfort and humidity control, as well as energy savings.
Approximately 75 percent of the equipment sold by Apple Heating and Cooling, Wickliffe, Ohio, is 15 SEER or above, noted company president, Scott Robinson; however, the weak economy and lower tax credits have resulted in fewer new systems being sold. “To some degree our industry captured a lot of business in 2010 due to the tax credits, and now we have the hangover. We have increased our marketing efforts and have been able to enjoy a 9 percent increase over the first quarter of last year. Our customers continue to invest in the best value - a combination of the best equipment accompanied by the best installation.”
High-end units may not always be the right equipment for some consumers, though, which is why Robinson takes the time to evaluate a customer’s home and learn more about them. This includes inspecting the duct system, doing a Manual J heat loss/gain calculation, and looking over all areas of the home. “We also use a customer evaluation to learn about their needs and habits, including any planned additions; improvements that would affect the load (e.g., new windows, insulation); if they have plans to move in the next five years; and what their energy usage and costs are now.”
After taking all that information into consideration, Robinson may or may not recommend a high-efficiency system for the customer, although he noted that most customers do benefit from this type of system. “We sell based on the value of our system and most importantly our installation. We focus on comfort and savings, and because each customer is different, we customize our presentation for their needs.”
REPAIRING, NOT REPLACINGOne of the challenges facing Scott Follese, president, Golden Valley Heating and Air Conditioning, Minneapolis, is that there are far fewer customers in the marketplace, which hampers sales of new equipment. “Customers just aren’t making purchases during this slower time. With poor weather and the economy still in the tank, it’s very difficult to get customers to part with money.”
Atchley has seen that as well, noting that 2010 was the most profitable year the company’s service department has ever experienced. “We see a lot of people repair when our recommendation to them is to replace. Last year we definitely saw more repairs than we would’ve liked. I try to keep a positive attitude about it. We’ll make the repair, try to get a maintenance agreement on the equipment, then hopefully when the economy recovers, they’ll choose to have us replace their equipment.”
When it comes to replacing equipment, Follese said that many customers do not have the cash available for a high-end system - and their loyalty may be questionable as well. “It really comes down to money. We have been installing systems in the Twin Cities area for over 60 years, and people know we are going to do an outstanding job for them, but we have lost jobs for $50 or $100 on $6,000 to $9,000 systems. Unfortunately, it really come down to money for a lot of customers these days.”
And while many customers may want to buy higher-end equipment, they just can’t afford it, said Tausche. “We always pitch the high-efficiency equipment, approaching it mainly from an energy savings point of view. Customers are always excited about it until they see the price tag. When they see how much more expensive the higher efficiency equipment is, they usually drop down to a mid-efficiency unit. It’s not a question of whether or not a customer wants the high-end unit, it’s whether they have the money to pay for it.”
Publication date: 06/20/2011