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The tax credits had a profound effect on equipment shipments, according to Steve Hoffins, York® brand manager, Johnson Controls Unitary Products. “In 2009 and 2010, there was a large shift to the higher SEER and AFUE products, as dealers found it easy to sell those premium products to homeowners with tax credits up to $1,500,” he said. “In fact, it wasn’t uncommon for a homeowner to receive as much as $3,000 back for purchasing a high-efficiency premium system. Meanwhile, the industry made a large shift to premium products as a result of the tax credits, coupled with state/local/utility rebates, along with system purchase incentives offered by manufacturers.”
“There’s no question that we saw a shift in the mix to higher efficiency systems thanks in part to tax credits,” said David Meyers, vice president of sales for Carrier’s Residential Systems. “We don’t lament that result. This is actually a government program that worked!”
The program worked for a while — and one side-effect was that more homeowners became educated on the true meaning of energy efficiency and the term Energy Star crept into the dialogue as well.
“The Energy Star certification makes it simple for homeowners to identify the products that will reduce their energy usage,” said Matt Lattanzi, director of product management for Nordyne. “Contractors have long touted this seal and also used to promote tax credits and other local utility incentives.”
Speaking of incentives, tax credits dropped to a maximum of $500 in 2011, and while the incentive was still there, the motivation to buy was not as strong, according to Hoffins.
He added, “The buying decision changed for the homeowner. Industry wide, overall volume remained fairly consistent, as the mix shifted again — from higher-end, energy-efficient models to lower SEER-AFUE-rated products. The reduced tax credits were large enough to drive consumer behavior, and the high-efficiency products were basically selling themselves so consumers could maximize their rebates.”
Meyers thinks there are still enough incentives to drive homeowners to purchasing high-end furnaces. “While the $500 maximum credit is certainly less than last year, we still expect the consumer to be interested in higher efficiency equipment for two key reasons: it reduces the impact on the consumer’s pocketbook and the environment,” he said. “The tax credit program gave contractors an opportunity to further the conversation with homeowners around the benefits of higher efficiency products.
“With or without the $500 maximum tax credit, people are very open to the idea of purchasing higher efficiency products that deliver improved comfort and cost savings while reducing environmental impact.”
A New Strategy
While it may be necessary to shift gears to a new selling strategy, some things still remain the same, which Meyers noted: promoting energy efficiency, cost savings, and leaving a smaller carbon footprint.
Lattanzi said, “Now is the time for contractors to make sure they have a solid sales strategy for high-end models — one that promotes long-term energy savings and home comfort equally. The 2010 American Home Comfort study shows that homeowners do not always buy on price; they choose their equipment first from contractor recommendation, second by overall value, and last on price.”
Lattanzi said the push is on to show homeowners the value of shopping for an Energy Star-rated furnace. “For homeowners, an Energy Star seal can be the gold stamp on a new furnace,” he said. “According to the 2010 American Home Comfort Study by Decision Analysis — a survey of more than 2,500 recent HVAC buyers — the majority of furnace replacements are driven by a breakdown or an anticipated breakdown. And since furnaces tend to last around 20 years, you can imagine that homeowners are not very savvy when it comes to shopping for a new one.
“When it comes to high-end, high-efficiency furnaces, the contractor is ultimately in control of which system goes in the house. Getting up to speed on the Energy Star changes now will help HVAC contractors maintain that expert position in 2012 and beyond [see sidebar].”
Hoffins said it is important to stay the course and Johnson Controls has been working on keeping up with any tweaks to the course. “We are still actively promoting the benefits of higher efficiency products because they provide homeowners with the best possible solution,” he said. “We’ve also increased our focus on sales training techniques, with many tools and programs available. And we’ve adjusted our manufacturing mix accordingly to meet current market demand.
“Think of the long-term solution when you’re selling the homeowner. At Johnson Controls, we have many tools available to aid the dealer in selling. These tools not only provide the value proposition for the homeowner to purchase premium high-efficiency products, but they also offer dealers an incentive to sell those products.”
Meyers believes that homeowner education will continue to drive interest in high-end products and Carrier will continue to provide contractors with the tools to further this education process. “We continue to develop educational materials and training programs to ensure technicians and salespeople are prepared to have this conversation with homeowners,” he said. “And we have recently introduced a new line of furnaces that are more efficient and quiet while offering homeowners the benefits of increased comfort.
“It’s important to educate consumers on the benefits of high-efficiency products. Demonstrate how a 98 percent efficient gas furnace will save the homeowner money over time. Help them to understand the superior control and comfort that their families will enjoy this winter. And give them the future peace of mind that comes with longer warranties that support the durability of the products.
“Keep in mind that comfort is delivered by the technologies inherent in higher-end products. A variable-speed gas furnace, for instance, offers enhanced dehumidification in the summer months coupled with customized air delivery throughout the home all year long. And if possible, offer consumer promotions.”
There is still a sense of optimism that 2012 will be another good year for HVAC contractors who promote high-efficiency, cost savings, comfort, and environmentally safe products. Hoffins said, “We expect that high-end equipment sales will return to their traditional levels in 2012, when there are no federal tax credits and state/local/utility rebates are reviewed to see what’s still available. Manufacturer system rebates will likely be lower, as OEMs work to validate the impact of those rebates.”
Sidebar: Changes to Energy Star
Matt Lattanzi, director of product management, Nordyne, said that changes in Energy Star requirements may be a helpful selling tool for contractors — as long as contractors understand these requirements. “Unfortunately, an idea that was so simple is becoming increasingly complex,” he said. “Starting Feb. 1, 2012, the Energy Star furnace models you know now will change. The new requirements are in an effort to make the standards stricter and the qualifying models fewer — essentially helping homeowners narrow down their choices when energy efficiency is a top priority.
Lattanzi offered an overview of what’s to come for high-end Energy Star-qualified furnaces in 2012 and 2013.
“Starting in February 2012, Energy Star qualifications for furnaces will vary based on region. There are now three regions: United States North with Heating Degree Days (HDD) equal to or greater than 5,000; United States South with HDD less than 5,000; and Canada. (See Figure 1.)
“Essentially, what qualifies as an Energy Star furnace in Kentucky may no longer be an Energy Star furnace in Wisconsin. This makes it tricky for manufacturers to label the product appropriately as no one knows where the furnace will end up when it’s first made. To solve the issue, Energy Star has created a regional label to help define which equipment qualifies in the Southern region, but not in the North. You’ll start seeing this label on furnaces manufactured after the first of the year.
“Also new in 2012, the furnace fan figures into the Energy Star rating. Currently, only the AFUE matters in whether or not a furnace qualifies for the big blue seal. Starting next year, these furnaces also need a high-efficiency fan. In other words, qualifying for Energy Star in 2012 will require ECM motor technology to meet the furnace fan efficiency requirement.
“Contractors should take a hard look at their single-stage furnace offering — including 92 percent and 95 percent efficient models — as some of these furnaces may no longer be Energy Star rated in 2012. Losing this rating means these furnaces may also not qualify for local utility rebates and incentives.
“If the 2012 changes weren’t enough, there will be additional requirements for an Energy Star rating starting Feb. 1, 2013. All Energy Star furnace models must have an air leakage (Qleak) equal to or less than 2 percent in order to qualify.”
Lattanzi summed up the changes by saying that air leakage testing requires manufacturers to perform an extra step in securing the Energy Star rating. Other testing requirements for manufacturers also changed in 2011 as Energy Star made a move for more third-party validation. Also, the requirement of an ECM motor may mean changes to furnace models in the upcoming months.
“For the contractor, this all means that the cost of manufacturing a high-efficiency furnace is not going down anytime soon,” he said. “Additional requirements, regionalization and testing regulation only add cost to the bottom line.”
Publication date: 11/14/2011