Competition Heats Up in the 1960s

April 25, 2001
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Keil Heating and Air Conditioning in Fairview, NJ in the 1960s.
Contractors worry about utility encroachment. Contractors and wholesalers are dissatisfied with manufacturer warranties, and keep a sharp eye on equipment sales from retailers. Some things haven’t changed a great deal in 40 years. The 1960s also seemed to present a great deal more union strike activity. Radical movements to get the trade certified sprang up. It was hoped that certification would help raise the dignity, hence the profitability, of hvacr contractors. But first, let’s take a look at what kind of profits contractors were turning. At its 1960 annual meeting, the Mechanical Contractors Association of America (MCAA) turned up the following facts about its members’ average operating figures. “The average net profit of the mechanical contractor has continued to shrink, the average for corporations in the business declining to 2.29% of gross business before taxes in 1959 from 2.56% in 1958, and the figure for individuals and partnerships being 4.99% in 1959 compared with 5.42% in 1958. “When these figures were read,” reported The News, “some of the individual contractors in the audience muttered ‘shameful’ and ‘ridiculous.’”

Louisiana Certification

Contractors down in New Orleans were probably taking a cue from the labor unions in June, 1960 when they started threatening to take a little old “vacation” that summer if the city did not come up with a certification program.

The News reported that “A planned mass ‘vacation’ by most of the local air conditioning and refrigeration contractors in protest against the city’s failure to pass a licensing law has been postponed indefinitely.

“The delay followed a ‘wide-open split’ in industry opinion over the advantages and disadvantages of conducting the ‘walk-out.’ Several contractors have voted disapproval of the plan, while others still contend they will form the protest.

“The ‘vacation’ originally was to begin June 1, but already had been postponed two times when contractors announced last week they weren’t sure the walk-out would ever be held. It was last scheduled to start July 15.

“Contractors opposed to the walk-out contended that it would alienate customers, and should be preceded by a heavy public relations campaign.”

By September, the situation was looking much more positive. “Local air conditioning and refrigeration contractors and supplies wholesalers are settling their disagreements amicably with a schedule of monthly meetings,” The News reported in its Oct. 3 issue.

“Announcement of the program of get-togethers followed a month of picketing of a local supply house which contractors had charged with unfair business practices.”

Meanwhile up North, the City of Springfield, IL was also pondering a licensing requirement for ACR contractors: “A proposed city code providing for the examination and licensing of air conditioning and refrigeration contractors is currently being considered by members of the Springfield city council.

“The code, proposed by local air conditioning contractors, would require licenses for firms installing, altering, or servicing air conditioning equipment rated at more than 20,000 Btuh and commercial refrigeration equipment.”

Contained in the proposal were measures intended to block out unqualified or insolvent contractors. “Successful applicants would have to post $1,000 performance bonds and pay annual fees of $35, $75, and $100, respectively.” That was pretty steep for the time.



Ever own a station wagon like this one? In this 60s flashback photo, two members of the Aircond (Smyrna, GA) service team stand by their company service vehicle, actually a 58 Chevy.

Warranty Discussions

Once upon a time, hvac manufacturers had five-year warranties for their equipment. Contractors didn’t like them and told the manufacturers so. The manufacturers said they would drop them.

From the June 13, 1960 News:

“Manufacturers are gradually dropping the five-year warranty but have not yet reviewed the terms of the one-year warranty as suggested by the resolution of the 1959 National RACCA convention,” held that year in Los Angeles, CA.

“Examples were pointed out wherein due to defects in manufacturing or design during the one-year period, replacement was necessary and the contractor was required to pay most of the cost of replacement.

“Also, contractors very often were only reimbursed for a percentage of these costs or in some instances, not at all. Some contractors indicated that they were starting in to charge back against the manufacturer the cost of replacement of defective equipment.

“It was also pointed out that in some instances, the reason for the failure was due directly to the contractor and not the manufacturer.”

Rick Martin, R&M Heating and Cooling, Colona, MI, an upscale residential contractor, shakes his head at today’s extended hvac warranties. The automakers also have them, but the difference seems to be that it takes a lot more effort on the customers’ part to meet the terms of those warranties. If they haven’t met their terms of regular maintenance, the products (cars and trucks) are not covered under warranty. Period.

“The industry has been lackadaisical in educating the consumer,” Martin said.

By 1966 the problem had not been resolved, and wholesalers started voicing their dissatisfaction. “‘We should bend every effort to make warranties stronger, not longer,’ Norm Sulenes of Tempera-ture Supply Co., Billings, Mont., urges,” reported George Hanning in early 1966.

“He suggested at the 30th anniversary convention of the Air-conditioning & Refrigeration Wholesalers that warranties be limited to a fair period of time — not longer than one year.

“‘Usually, when a product has served well for a year, chances are it will give the user many years of trouble-free service,’ he declared.

“‘The longer the warranty, the more paperwork and less profit for both the wholesalers and manufacturer. If a manufacturer should desire to give a warranty beyond a year, shouldn’t the extra time be for the purpose of ‘shelf life’ and this extra time not be advertised to the user?’

“Sulenes asked whether better consideration shouldn’t be given to compensate wholesalers for defective merchandise.”



Labor Shortages

The intense growth of the air conditioning market required a fresh infusion of servicers to meet the demand. Training would be required to bring them into the trade with a decent level of skills and knowledge.

“‘Unless immediate steps are taken to intensively train increased numbers of men, an overwhelming shortage of qualified air conditioning servicemen will soon plague the public, the industry, and organized labor.’

“This warning was sounded by Daniel M. Brown, president of the Refrigeration & Air Conditioning Contractors of Chicago, in a talk before its Servicemen’s Training School graduates, industry suppliers, contractors,” it was reported in the June 13, 1960 News.

“‘Because air conditioning now exists in less than 20% of office space, 1% of industry plants, and in only a minute percentage of homes, new systems will continue to be installed at the present high rate during the next 10 to 12 years.

“‘Each new installation will require competent service and maintenance throughout its life. The replacement market will also add heavily to the demand.

“‘With an inadequate supply of skill creating great pressures for use of unskilled men for this work, the public will likely experience both excessive costs and dissatisfaction with operation of equipment unless steps are now taken to create a larger source of servicing skill,’” said Brown.

On July 12, 1967, the warning continued to be sounded, and the lack of skilled “mechanics” felt in pockets around the country.

“The booming air conditioning industry in the metropolitan [New York] area has openings for 3,000 to 5,000 mechanics trained in refrigeration and air conditioning work, according to Martin H. Quinn, vice president and general manager of Carleton Stuart Corp., distributor of Carrier Air Conditioning Co. products.

“Quinn said that 5,000 to 8,000 jobs could be available due to the tremendous increase anticipated in the residential market, if trained manpower were on hand.” An estimated 2,000 to 3,000 qualified mechanics were already available at the time.

There were other threats to contractors’ profitability, like the hovering shadow of utility and retailer competition.



Direct Sales and Utilities

One air conditioning contractor organization decided to take a stand.

On Dec. 5, 1960, Phil Redeker reported that “Finding fault with many of the current industry marketing practices, the Refrigeration & Air Conditioning Contractors Association (RACCA) is instituting a campaign to correct these practices — by consultation and persuasion if possible, with an expressed desire on the part of many members for more direct action should such methods fail to bring the desired results.”

From the RACCA resolution:

“We the members of the RACCA, in convention assembled this Nov. 20, 1960, do hereby resolve:

1. That the practice of the manufacturer in attempting to sell both to the contractor and in direct competition with the contractor be condemned as against the public interest and against the interest of the Refrigeration and Air Conditioning Industry.

2. That the Association make a full, fair, and complete investigation of each instance of this practice of direct-to-user sales.

3. That after verification of each instance of such practice, the Association shall bring the results of such investigation to the attention of the public, our legislative bodies and to all members of the industry.

4. That to assist in the investigation, all members of the industry report to the Association any example of direct manufacturer-to-user sales.”

Then there were the utility product promotions. “In a closely reasoned decision that could have far-reaching effects,” The News reported in May of that year, “the New Jersey Board of Public Utility Commissioners ruled that residential electric heat promotion practices of Atlantic City Electric Co. are ‘neither arbitrarily, unlawfully, unreasonably, or unjustly discriminatory nor unduly preferential.’

“The commission’s ruling followed 27 days of hearings into two formal complaints directed against Atlantic City Electric’s payments to promote the use of electric heat in its service area.”

By June 26, 1967, utility promotional activities had been brought to the attention of Congress.

“A comprehensive questionnaire designed to reveal the amount, source, and precise uses of utility promotion funds was mailed to a large number of the nation’s energy suppliers last week in preparation for hearings next month before the Subcommittee on Regulatory and Enforcement Agencies of the House Small Business Committee,” reported News staff writer Gordon Duffy.

“Rep John Dingall (D.-Mich.), chairman of the subcommittee, made the announcement here June 21 at the 85th annual convention and exposition of the National Association of Plumbing-Heating-Cooling Contractors. He invited all others with evidence they feel might be helpful to the subcommittee to send it to him.

“‘It is quite clear that small businessmen are being injured by some of the practices which are prevalent today,’ said Dingall.”



Oil VS. Electric VS. Gas

Contractors were caught up in other types of competitive situations. In the Northeast, for example, oil heating contractors found their markets threatened by electric utilities.

Then, in 1967, Public Service Electric & Gas Co. in Newark, NJ, decided to sell electric heat and gas cooling to even out its summer and winter loads. Contractors just had to go with the flow and train employees to work on different types of equipment.

The “oil jobbers” did lead a valiant effort to fight the electric encroachment. “The National Oil Jobbers Council has raised more than $25,000 from its state organizations to fight utility subsidies, Ed P. Godwin Jr., chairman of the NOJC utility subsidies subcommittee, declared.

“This money will be spent primarily on the planning and presenting of testimony before the subcommittee of the House Small Business Committee, which plans to investigate the effect of regulatory agencies on small business, he told members of the North-american Heating & Aircon-ditioning Wholesalers Association here.

“He urged the wholesalers to join the NOJC in its fight against utility subsidies — particularly those of the electric utilities.”

George Keil, retired owner of Keil Heating and Air Conditioning, Fairview, NJ, said that in the 60s his company had to train oil mechanics to do air conditioning work. “We lost some guys to air conditioning because it was cleaner.”

Fuel dealers’ associations in his area included the Fuel Merchants of New Jersey. “They were active, they were concerned about keeping a curb on utilities.”

Despite the tough competitiveness of the times, there was also a kind of trust, said Keil. “I think we had a closer relationship with our wholesaler,” he said recently. “We had a key to one wholesaler’s shop, since it was a foregone conclusion that every Christmas and New Year’s a customer would have a breakdown.” That wholesaler was Montgomery Engineering, a Carrier distributor in northern New Jersey. Then the company became Carleton Stuart. Now it’s Carrier.

Even among direct competitors, “We would go to each other’s houses. We had a good relationship,” and competitors often helped each other out — at least it seemed that way.

Keil now lives in Florida. “I don’t particularly care for air conditioning myself,” he said.



Sidebar: Market Snapshot

In 1967, it was reported that “Three refrigerant producers (Du Pont, Allied, and Union Carbide) are capturing 80% of the refrigerant market, although there is some confusion over their relative market penetrations.

“Du Pont (‘Freon’) is put at the top by everybody. Freon’s market penetration is estimated to range from a low of 40% to a high of 50% in both the oem and replacement markets.

“Several sources put Allied Chemical (‘Genetron’) in second place, with 15% to 20% of the market.

“These same sources place Union Carbide (‘Ucon’) third, with 15%.”



Sidebar: Refrigerant Price Wars

These days, a contractor is lucky to have a reliable source of R-12, and then the price is sky high. Canada is even considering destroying any remaining R-12. But in February of 1969, “The price per pound for Refrigerant-12 in bulk quantities has been dropped to 23 cents, several refrigerant producers told The News here, during the ASHRAE show,” in Chicago, IL.

“Among the producers interviewed, some feel the drop from 25 cents will affect the always volatile aerosol market; others believe not.”

Moreover, “several wholesalers at the show told The News that in some regions, the wholesalers are waging refrigerant price wars.

“Although there is continuous talk in the field about which of the refrigerant makers first dropped the bulk price, none of them would admit having been the first. Each maintained that it has only moved to meet competition.”

Publication date: 04/30/2001

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