2006 Should Bring Smiles to Contractors

February 27, 2006
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A good economy and 13 SEER are among the reasons why some contractors say 2006 will be a good year for business.
On the heels of record setting HVAC equipment shipments in 2005, and the prospects of new business from energy-conscious consumers, it appears that 2006 has a rosy outlook for HVAC contractors. And it does - at least for the contractors who told The NEWS how they felt in a recent e-mail survey.

Although some areas of the United States are in an economic slump, it appears that an uncertain U.S. economy has not caused major slowdowns in orders for new equipment installations or the continued need for service of existing equipment.

Scott Robinson of Apple Heating & Cooling in Ashtabula, Ohio is one contractor who sees no slump in the economy at all. "I think 2006 will be a great year for HVAC contractors," he said.

"The new, higher cost of energy with prospects of it going higher is absolutely a driver for replacing older, less efficient equipment, even if it ain't broke.

"The economy is in good shape and corporate balance sheets are strong. This will mean continued growth in commercial customers' investment in our products and services."

13 SEER IS A DRIVER

The new 13 SEER energy efficiency standard is seen by a lot of contractors as one big reason why 2006 will be good. The timing of the new standard couldn't be better, with energy costs putting a dent in consumers' budgets and driving many of them to seek ways to cut energy consumption. The incentives are here now for people to replace old systems with new ones - and many contractors will be happy to accommodate.

Yet despite the obvious - energy savings as a sales tool - some contractors are seeing 13 SEER as a way to clean up the trade. One contractor feels that 13 SEER will go a long way to putting lowballers out of business and bringing additional revenues to legitimate contractors.

"I see 13 SEER as the final piece of the puzzle that will make low price jobs disappear," said Buddy Smith of Russell's Heating & Cooling, Chesapeake, Va.

"We work really hard to manage what our salespeople sell and to stay away from low-end work such as 10 and 12 SEER, but occasionally a long-time customer will ask for cheap equipment for their rental houses, or because they are moving, etc. 13 SEER will force up the average job amount for the low-end install, and that is a great thing."

Another contractor, Tony Williams of Homemaker Heating & A/C Inc., Killeen, Texas, agreed.

"We have been waiting for a change in our industry to force good, strong companies to be better and the not-so-strong to decide if they want to invest in their future, as we have done for the last five years, or step aside," he said.

Fellow Texas contractor Steve Wiggins of Quality Air Care in Waco/Lorena, thinks it is high time that good contractors get the recognition they deserve - and the others just fade away.

"Those that are always pushing for upgrades and high quality should welcome the new 13 SEER minimum," he said. "Now we no longer are forced to compete with the contractors that insist on always using the minimum with their pricing also at the minimum. To the contrary, those that thrive on minimum should hate the new rules because now they will be forced to compete with the quality high-end contractors.

"The general public deserves for the quality guys to have a chance at working for them. I realize the public and our industry won't be totally rid of the lowballers who attempt to drag us all down to their level, but at least now we have a chance of keeping it in check."

Weeding out the low-price competition is also on the mind of Paul Hobaica of Hobaica's Refrigeration Inc., Phoenix. But Hobaica is also concerned that the demand for 13 SEER equipment may exceed the supply.

"The 13 SEER regulation should work in our favor," he noted. "We already push for high-end, higher efficiency systems. The new scramble will force everyone to step up. The result should be better competition.

"We will continue addressing the high-end systems with two-stage options, zoning, and indoor air quality. But we are already seeing delays in the availability in certain equipment and this will surely continue through the first half of the year. This hopefully will manifest itself in an increased sense of urgency."

Another contractor also believes that the availability of 13 SEER as a mandated option is one way of getting the foot in a customer's door - as long as the units are available.

"The 13 SEER changes will not really affect us that much since we've been selling 13 SEER and higher," said Brad Swanson of M&S One Hour Heating & Air Conditioning, Manhattan, Kan.

"I do, however, feel that these units need to be properly sized to work well. For those clients who are still looking for less efficient 10 and 12 SEER units, they are starting to be real hard to find. When I get a call to look at a system for replacement, I look at other addresses in that area to see what type of equipment is in these homes and then look up the availability of the units before I make the trip to the home. I don't want to sell something I can't get."

Smith said that contractors need to remember how to price a 13 SEER job in order to make a decent profit.

"My concern for 13 SEER is that some contractors who are unfamiliar with basic accounting will just add the cost of 13 SEER versus 10 SEER without markup, figure they are making the same money in the end, and further commoditize heating and cooling," he noted. "As long as we stay focused on doing things right and selling the right type of jobs, we will be successful in 2006 and beyond."

Energy tax credits on qualifying equipment might also help sales this year and aid contractors’ bottom lines.

IT'S NOT JUST 13 SEER

Believe it or not, there are reasons beyond 13 SEER that give HVAC contractors hope for a good 2006. A good economy and extreme temperatures make for a very rosy outlook, similar to the situation in most parts of the United States in the summer of 2005.

"I have been in this business for 18 years and have found that the weather plays the biggest roll in residential HVAC," said Michael Pudetti of Advanced Heating & Cooling, Penfield, N.Y. "The better the economy the better we do, but the weather is the driving force. If temperatures are moderate, the equipment is working therefore no needs develop.

"When the economy is good, more people buy equipment, and when the economy is bad people pay for service. It works out for us on either side. Anyone who thinks differently lives in left field. We are coming off our best summer ever and it was hot here. Next spring will be good because of the previous hot summer."

Not only will a strong economy contribute to success, but a strong, well-trained workforce will, too. At least that's the opinion of Kris Knochelmann of Knochelmann Plumbing, Heating & Air/Service Experts, Covington, Ky.

"The economy is strong and if there was ever a good reason for replacement of heating and air conditioning systems, the higher gas and electric rates is a great one," he said.

"With the additional education our technicians and installers have gone through this year, as well as their personal commitment to providing the best possible customer experience possible, our customers will have it even better this year dealing with our company. Our co-workers and our company will benefit financially from providing this high level of service."

In a good economy, interest rates are manageable and credit is a little easier to get. That may help some contractors, although Brian Nalley of Northside Heating & Cooling, Benton, Ark., adds a word of caution.

"Our location in metropolitan Little Rock is good primarily due to residential new construction," he said. "I feel the overall economy is good at this point, but national credit issues will be a problem soon. I have seen available financing for three people in 10 go to eight people in 10 for residential replacement now. Why? Less spare or safety cash. What's the answer? Financing.

"The National Credit Act will increase minimum payments for consumers living day-to-day on borrowed money. Insurability, consumer credit rates, auto loans, and probably others are rating from credit scores."

If 2006 is to be a banner year, as contractors in this story have indicated it will, then equipment supplies will need to keep up with demand. One contractor plans on a good year, as long as he has equipment to sell.

"My plan is huge for 2006," said Dan Foster of Jackson & Foster Heating & Air Conditioning, La Mesa, Calif.

"I plan to make it, but I am not sure how much help I will get from my vendors. They tell me that equipment may get hard to get. One manufacturer has changed model numbers, unit sizes, and prices. Getting the equipment to perform the work may be a challenge. We have been selling variable-speed furnaces and 13 to 14 SEER equipment for many years. Most of what we sell is high efficient. And we have no problem with the new laws and rules."

Swanson said that in 2006 an educated consumer would be a plus for any HVAC contractor. He used his own story as an example.

"One thing that has surprised me has been the number of clients who are asking for or about equipment that qualifies for the energy tax credits available," he noted. "In the hype about the 13 SEER, this seems to have gone mostly unnoticed because people seem to know what SEER is, but not the tax credits. The first five systems we sold this year were qualifying equipment at the client's request. I look for this to be advantageous for us."

Williams summed up his outlook for HVAC contractors this year. "This will be a challenging year for all of us in the HVAC trade," he concluded.

"I can assure this, we will all get a lifetime of knowledge this year that will definitely help us with a more stabilized 2007."

Publication date: 02/27/2006

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