News / Service Market / New Construction Market

Uncertainty Looms for Contractors in 2013

Government Regulation, Economy Remain Top Concerns

December 10, 2012
business uncertaintyThe election has come and gone. And while HVACR contractors held on to hope that November’s ballots would provide a bit of clarity, looming legislative gridlock and unstable economic conditions continue to provide a much murkier forecast. The NEWS asked some of the industry’s most well-respected professionals to share their expectations, predictions, and resolutions as we usher in 2013.

Prominent Concerns

Charlie McCrudden, vice president for government relations, Air Conditioning Contractors of America (ACCA), sums up 2013 in one word: uncertainty. “No one knows if Congress will be able to agree on how to avoid taking the economy over the fiscal cliff in 2013,” he said. “But, if Congress cannot find ways to cut spending and generate new revenues, severe and sudden cuts to military and discretionary spending will kick in, hamstringing the economy.”

Steve Saunders, CEO of Tempo Mechanical, TexEnergy, and U.S. Ecologic, Irving, Texas, said he’s most concerned about the fiscal cliff and ongoing government gridlock.

“These are perilous times, and the margin for error is thin. Our leaders must provide more and better information, and deliver it faster and to more devices,” he said. “For our business, we must continue to serve the interests of our clients and find ways to ensure that the long-term success of our partners comes from serving our clients well.”

David Dombrowski, manager of ARS Raleigh/Durham, N.C., is hopeful that a strengthening economy will translate into more confident buyers. “We are finding that people are hesitant about long-term commitments,” he said. “To save money, they are choosing to repair rather than replace. They’d rather do without basic heating and cooling needs than take on additional personal debt.”

“Will customers finally open their wallets and begin to make investments, or will they continue to sit on their assets and wait four more years?” asked Dave Bavisotto, vice president, Illingworth-Kilgust Mechanical, Milwaukee. “We’re also concerned about the burden of health insurance and if this burden will be enough to squash any potential hiring. Lastly, will the cost of fossil fuels escalate and hinder the economy?”

Ellis Guiles, vice president, TAG Mechanical Systems Inc., Syracuse, N.Y., believes continued softness in the commercial and residential markets will make 2013 a challenging year.

“Homeowners have been putting off renovations and upgrades, and may continue to do so. Commercial customers are continuing to be risk averse, but are showing some interest in energy-efficiency improvements, provided the return on investment is reasonable,” he said. “Sunsetting the Bush tax breaks, as well as tax increases due to healthcare mandates, will continue to suppress business investment activity.”

Election Results

Industry members had mixed views on the re-election of President Barack Obama and a Congress that remains divided.

“The fact that the election and the uncertainty that it brings are over is probably the best short-term result, and I don’t believe the outcome of the election will greatly affect our business, on a day-to-day operations basis,” said Butch Welsch, owner, Welsch Heating & Cooling, St. Louis. “However, in the long term, I believe the election will be very costly to us due to this administration’s desire to have their hands in every part of our business.”

Saunders feels the election, regardless of the result, changes very little.

“I think the decision is the same regardless who won. We needed clarity, and now there is some national certainty related to the outlook for the administration. We can at least now plan based on these perceptions,” he said. “We are ready to move forward and must do so carefully and with awareness that unexpected events will create change, giving opportunities and creating problems.”

Hank Bloom, owner, Environmental Conditioning Systems, Mentor, Ohio, is worried about rising costs.

“The election will definitely have an impact,” he said. “It seems like small businesses will be forced to pay more overhead for new government regulations that will be put into place.”

Businesses continue to lack confidence, said Richard A. Starr, president, The Enterprise Corp., Twinsburg, Ohio, who also serves as vice chairman on the Mechanical Service Contractors Association’s (MSCA) board of managers.

“A divided House and Senate leaves America feeling that politicians only care about themselves,” he said. “What impact Obamacare will have on insurance costs, and the tax hikes that are coming, only thwarts business success.”

Representatives with the Alliance to Save Energy applaud the Obama administration’s continued dedication to increased energy efficiency.

“It is likely that more general proposals dealing with fossil-fuel production, reduction of harmful emissions, and mitigation of the impacts
of natural disasters could contain efficiency provisions,” said Rob Mosher, director of government relations, Alliance to Save Energy. “Additionally, several energy-efficiency measures that authorize programs or incentivize consumers and businesses through the tax code could be introduced separately or attached to other legislative vehicles.”

Guido Zucconi, director of congressional affairs, Air-Conditioning, Heating & Refrigeration Institute (AHRI), is hopeful that a well-balanced reform of the tax code will take shape.

“We are hearing a lot of talk from the right folks in the right committees, but Washington is still sort of reeling,” he said. “Hopefully an air of bipartisanship, for the sake of the country, will permeate the halls of Congress and they will find a way to work together and accomplish what needs to be done.”

Zucconi urged Congressional participation. “We’re cautious about how the DOE will react now that they are unencumbered by a presidential election. Will they be reasonable or more aggressive? This is a major concern not only for manufacturers, but all the way down the supply chain,” said Zucconi. “How much can Congress help us by acting as a neutral party or as an arbitrator in manufacturer versus regulators arguments?”

Jon Melchi, director of government affairs, Heating, Air-conditioning, Refrigeration Distributors International (HARDI), said it’s now his job to prepare his members for the pending regulations that will likely follow in the wake of Obama’s re-election.

“The election cemented the fact that Obamacare will be implemented,” he said. “This will impact everybody, especially in 2014 when many of Obamacare’s tax issues settle in. We anticipate a very active year on the labor and regulations front.”

McCrudden said the results of the November election changed little in terms of the political landscape.

“The occupant of the White House remains unchanged and very few new letterheads will need to be ordered,” he said. “While there will be many new faces in the rank and file in Congress, Democrats and Republicans will continue to argue over job creation, tax reform, energy policy, immigration reform, and regulatory relief, which have been around for years.”

Anticipating Growth

Most contractors anticipate some form of business growth in 2013.

“We will continue to do more with less,” said Thom Brazel, general manager, Ruthrauff Service LLC, Pittsburgh. “Whether it be special offerings, advanced technologies, or new business sectors, we’ll continue to innovate and find our niche.”

Brazel suggested now is the time to step outside your comfort zone.

“You must differentiate yourself,” he said. “Many contractors are struggling, but a handful are flourishing because they’ve figured out how to be different, how to be better.”

Aaron York Sr., owner, Aaron York’s Quality AC, Indianapolis, said, “Bigger centralized government will hopefully put some of the idle workers back to work, promoting growth.”

Welsch said pending regional standards regulations will likely facilitate growth at his company.

“We will only be selling 90 percent furnaces, and have for the last eight months of the year. This has increased revenue,” he said. “Additionally, we are starting to see small signs of some new construction work. We aren’t forecasting an enormous amount of growth in this market, but we definitely feel there will be an increase.”

McCrudden said ACCA’s Contractor Comfort Index (CCI) predicts growth.

“This year has been a pretty good year for contractors and they continue to tell us in our CCI that growth opportunities do exist,” he said. “So far, contractors generally feel better about growth prospects in 2013 than they did in 2012.”

Saunders said business is booming, and he expects that trend to continue in 2013.

“Our construction business is seeing the return of demand for single family housing. Our service business has many opportunities, and revenue growth in that area is developed from our long-term efforts to invest in improving service levels and business systems,” he said. “We anticipate our energy- and green-consulting business units will continue to grow rapidly.”

If you continue to do business as is, results may be hard to come by, warned Saunders.

“The business world is different and the pace of change is picking up. It is time to find new avenues to understand and communicate value, and it’s time to address your business model to the changing reality that is being driven by more stringent codes, the sustainability movement, transparency, the ubiquity of information, and the scarcity of a trained and willing workforce. These can be fun and exciting times, but, unfortunately, not everyone will think so.”

Mitchell Cropp, owner, CroppMetcalfe, Fairfax, Va., said opportunities for growth are available and ready for the taking.

“We need to stay on top of any programs that our government deals us, find the good in each, and use them to our advantage,” he said. “Looking at the economy and having four more years of the same is not a really a positive outlook, but we can make things happen with just a little more effort than the other contractors. With great people in our industry working together, we will make things happen and enjoy a great 2013.”

Publication date: 12/10/2012

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