HVAC Manufacturers Expect Modest Gains in 2014
Most Expect Economy to Still Be a Concern This Year
The latest report from Air-Conditioning, Heating, and Refrigeration Institute (AHRI) indicates that 2013 will likely end on a positive note, as shipments of HVAC equipment increased as of November 2013, with year-to-date combined shipments of central air conditioners and air-source heat pumps increasing 10 percent, while U.S. shipments of gas warm air furnaces increased 15.8 percent over the same time period.
This is good news for manufacturers, although many predict that the HVAC industry will see only modest gains this year. Carol Baker, vice president of marketing, Nordyne, noted: “The economy will continue to be a concern in 2014. We expect modest improvement in the HVAC industry related to residential pent-up demand and a small uptick in residential new construction.”
Growth, indeed, will be modest, said Frank Landwehr, vice president of marketing and product planning, air conditioning business, Emerson Climate Technologies, with expected gains of only 4-5 percent in the unitary segment. “New residential multifamily will continue to be strong and likely remain near 30 percent of new construction, as it has for the past three years. Residential housing will also remain relatively strong in the high single digits, but will moderate its growth from 2013 due to rising mortgage interest rates and home prices. As always, the weather is a wild card.”
The weather did not help sales of cooling equipment last year, with fewer states suffering the record heat they saw the year before, and a majority of end users experiencing less severe heat and humidity than they did in 2012, said John Gibbons, director, residential product and platform strategy, Carrier Corp. “But given normal weather patterns and typical replacement rates, we expect to see an uptick in single-family replacements in 2014. We’re also seeing continued strength in single-family new construction, which is leading to modest-to-moderate growth in the residential split systems and furnaces markets.”
Rheem Mfg. Co. is also optimistic about the 2014 residential real estate market, said Ken Rothgeb, vice president and general manager, sales and marketing, who noted that a recent report from the National Association of Home Builders (NAHB) found that markets in 54 out of the approximately 350 metro areas nationwide returned to — or exceeded — their last normal levels of economic and housing activity. “We have also seen a shift away from repairing units to replacing them in the past year, and we expect this trend to continue in 2014. That said, we don’t think that this necessarily points to the realization of pent-up demand. For years, the industry has been too optimistically banking on a boost in sales from pent-up demand, and while there are more replacements today than before, replacements will continue at the steady pace we’ve seen.”
John Bailey Jr., senior vice president of sales, ClimateMaster Inc., agrees that the economy is rebounding, but at a much slower rate than anticipated. That is taking a toll on the replacement market, with many homeowners choosing to repair equipment rather than replace it. “Most families are still in wealth-rebuilding mode. Home values are a major portion of their wealth, and while they are increasing, they still lag significantly from the highs of the mid 2000s. However, I think sales of geothermal equipment will remain strong and probably gain momentum as new housing starts rise. This is especially true for baby boomers who are looking for long-term solutions that will protect their expenditures in the future.”
One issue that is sure to get a lot of attention in 2014 is the Department of Energy’s (DOE) latest regional efficiency standard that is scheduled to go into effect Jan. 1, 2015. The standard would increase the minimum cooling-efficiency requirements for split-system central air conditioners and heat pumps in the South and the Southwest, but its future is unclear, which is cause for concern among manufacturers.
“Uncertainty regarding regional standards will be a challenge that impacts the entire industry in 2014,” Rothgeb said. “As we saw with the regional efficiency standards for heating equipment, when an issue like this is not settled in a timely manner, it puts manufacturers in limbo trying to figure out where we need to invest our resources. We also can’t give an accurate perspective to our customers about how these regulations will impact their businesses when there’s so much uncertainty.”
Given that the DOE’s regional furnace standards are still being vetted by the U.S. Court of Appeals for the D.C. Circuit, Gibbons expects that there will most likely be a delay in the cooling standard implementation as well. “There has been a significant regulatory burden imposed on the HVAC channel that, for the most part, has not been implemented, yet has caused confusion for manufacturers, distributors, and professional contractors.”
The latest regional efficiency standards may also create unintended consequences, Landwehr said, including higher costs that push some consumers toward repairing rather than replacing cooling equipment. “It is also likely to put pressure on the premium tier as higher efficiency becomes less valuable as a sales driver.”
The continued uncertainty related to the enforcement of the regional standard also remains a concern, added Landwehr, as there is no clear guideline regarding how the standard will be policed. “Until we gain some clarification from DOE, it will be difficult to guess how the transition will play out. In addition, our research suggests that contractors are generally less aware of the 2015 regulation changes than they were at a similar point in time prior to the 2006 regulation change. This will likely add to the general confusion and concerns within the industry as the deadline approaches.”
For contractors who are aware of the new standard, there is a fear that the burden for enforcement will lie with them, said Rothgeb, which could create much more recordkeeping, paperwork, and reporting. “Not knowing the fate of the standards means that our contracting customers can’t get clarity on their concerns until litigation is resolved.”
Looking ahead, manufacturers are excited about some of the industry’s latest trends. Inverter technology is definitely becoming more popular in unitary products, said Baker, who predicts more activity of that nature in the near future. “Another trend is the use of microchannel evaporator coils to combat formicary corrosion. These coils have been popular with our customers, and we predict their use will continue to grow next year. Controls present another opportunity for the HVAC industry, as homeowners are looking for a smart system in everything they buy, including HVAC.”
Brad Paine, director of product marketing, Honeywell Intl. Inc., agrees, noting that the connected home will be one of the leading trends in 2014. “Hands down, the biggest opportunity is centered on connected products. There is a terrific tailwind happening in consumer awareness and demand, and the HVAC industry needs to lead this trend with connected systems. In fact, connected thermostats are the leading connected home products, and the HVAC industry is in a great position to offer exciting new offerings to home and business owners.”
Connected homes will likely feature heating, cooling, and water heating products that communicate with each other on one network, which is why Rothgeb is particularly excited about the combination of energy management and water conservation systems. “Presently, heating, cooling, and water heating systems account for 65 percent of a home’s energy consumption. By developing integrated technologies that help homeowners more accurately manage their heating, cooling, and water heating consumption, we can deliver much more personalized comfort and added efficiencies.”
The interest in connected products will most likely spur a demand for wireless access at all tiers of efficiency, said Gibbons. “In addition, variable-speed technology continues to evolve and more efficient energy-saving products are still popular, as are IAQ products. As homes get tighter and more energy efficient, consumers will become more and more health conscious and invest in better air-treatment and humidity-controlling products.”
All in all, 2014 is shaping up to be an interesting year, with opportunities arising due to the improving economy, as well as challenges caused by regulatory uncertainty. And Mother Nature will surely weigh in as well, creating more opportunities — and perhaps more challenges — for the HVAC industry.
Publication date: 2/24/2014