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- EXTRA EDITION
2006 has been a year of big change for the HVACR industry because of one key issue: 13 SEER. While the increase in minimum efficiency requirements has been a big story the past couple of years, the actual January 2006 implementation of the standard has shaken out several stories, namely matching the systems for the greatest efficiency, duct leakage, parts and equipment shortages, equipment fit, and 10-12 SEER inventory depletion.
The NEWS’ contractor consultants were asked what they thought were the biggest stories of 2006 and several agreed that 13 SEER was right up there.
“The implementation of 13 SEER on Jan. 26 definitely affected our manufacturers and residential contractors,” said Ann Kahn of Kahn Mechanical. “For 2007 and forward this will mean stepped up development for the manufacturers as the bar will most likely continue to rise as the years go on. It will also mean additional sales for the residential dealers as older, lower-efficiency units now in service begin to fail.”
David Dombrowksi of ARS of Raleigh said that 13 SEER will bring out better salesmanship and customer service. “The mandated 13 SEER issue had a dramatic effect not on the equipment itself but on the importance of differentiation among the dealerships,” he said. “We can no longer sell on SEER and payback; we must now sell our product on our ability to offer the ultimate in customer service. With a more level playing field, the dealer with real 24-hour service, professional technicians, and a clear business model based on ethics and honesty will secure their rightful place in the market.”
Larry Taylor of Air Rite Air Conditioning Co. agreed that 13 SEER will change customer service, but may wind up driving a wedge through the HVACR contracting community. “Division between contractors seems to be getting wider due to the 13 SEER mandate,” he said. “Price-driven contractors are providing less service and reliability to consumers; while the nonprice-driven contractors are moving in the upward direction related to the whole house or home performance contracting system processes.
“This movement will make the industry split into two distinct business models. The poor consumer will not understand the difference, and our industry will take harder hits on its image than we ever have in the past.”
But will consumers readily accept higher prices for 13 SEER equipment? Scott Getzschman of Getzschman Heating & Sheet Metal said that this is definitely a consideration. “Certainly the top story was the upgrade from 10 SEER to 13 SEER,” he said. “It has affected every manufacturer over this past summer.
“They all struggled with design changes and positioning of product lines to remain competitive. I feel as the year ends they will all catch up and the playing field will begin to level out not only in product offering but in price as well. The biggest issue is affordability for the consumer.”
Arthur Pickett of Royal Air Systems does not believe that increased efficiencies justify increased equipment costs. “13 SEER and the considerable price increase attached to the products is a problem,” he said. “I don’t feel it was justified - but we’ll see what next year brings.”
Aaron York of Aaron York’s Quality A/C said that for the most part, the transition to 13 SEER has been pretty seamless with the exception of equipment availability. He also said, “The transition once again proves that the HVACR contracting industry is highly flexible, very talented, and ready to handle any challenge. Even the new refrigerants have been handled with relative ease. This industry has proved since the early 90’s with refrigerant certification and the subsequent changes that it is capable of doing far more, and better, than anyone ever imagined.”
IT'S NOT ALL ABOUT 13 SEER
IT’S NOT ALL ABOUT 13 SEER
The spike in fuel prices earlier in the year caused more than a few headaches for HVACR contractors. The consultants were no exception. “The merciless spike in gasoline prices affected everyone over the summer months. There is no doubt in my mind that the lower prices we are seeing today will not linger,” said Kahn.
“Contractors, along with the rest of the world, will be faced with the challenge of fitting these ups and downs in energy pricing into their budgets from now onward.”
Ken Bodwell of Innovative Service Solutions said that 2006 was a roller coaster ride for gas prices. In Florida, where his business is located, gas prices started the year around $2 per gallon and rose to $3 per gallon during the summer; now dropping to $2 per gallon.
“Everything I read indicates that gas prices will return to and remain around $3 per gallon,” Bodwell said. “Our initial plan was to maintain our current pricing structure with business as usual and taking internal measures to control waste. As our suppliers started adding fuel charges to the invoices, it became necessary to pass those costs on. Most of these costs were reflected in material and freight charges.
“As the cost of fuel continued to rise, we implemented a flat-rate fuel charge early in the year. As a commercial service mechanical contractor, we experienced very little push back from our customers, primarily because of the media coverage surrounding fuel costs.”
Hank Bloom of Environmental Conditioning Systems noted that fuel costs were not the only thing giving him headaches. “Rising gas costs and material costs are very difficult to recoup after a job starts,” he said.
Dombrowski said that there is another side to higher fuel prices: the effect of the family budget. “With families concerned about rising gasoline prices and the general perception of instability, we found fewer families willing to make the long-term commitment toward replacement equipment,” he said. “Areas where it would have made sense from a viewpoint of return on investment to replace versus repair has seen people choosing to simply put band aids on units. Gasoline charges, to families, have taken any extra funds that they may have had to upgrade equipment simply to drive to work.”
Bloom said that another big story in 2006 with a familiar refrain is finding qualified workers who want to work, and that continues to be a problem. Bodwell agreed. “This is the No. 1 problem we face as contractors,” he said.
“In our case, we thought we had positioned ourselves properly for 2006. However, in May we lost three experienced chiller technicians to a closed shop, which sent us scrambling to cover our customer base this summer.
“As a corporation, we believe we are very proactive in technical training, communication, and offer a very strong benefits package. Therefore we are not exactly sure why they left. It could have been compensation, benefits, or a guarantee of the type of work. But whatever the reason, it does send us a signal that technicians are aware of the manpower shortage and given the right set of circumstances will make a change.”
“Manpower shortage is continuing to increase at a very rapid rate,” said Taylor. “If we, as an industry, do not get our pricing up and wages more attractive we are in deep trouble going forward.”
Another issue that has become a big story among HVACR contractors in 2006 is the importance of IAQ. “IAQ still seems to be on a lot of our customers’ minds,” said Getzschman. “I see us continuing to strengthen our product offering and visibility in the marketplace in this division. I feel it has become more of an issue because people are staying home more and they are doing more remodeling projects, which makes them focus on indoor air quality issues.”
Manufacturers getting into the contracting business is another story that is worth watching, according to York.
“According to surveys published by and in the HVACR news media, Lennox is now the largest HVACR contracting firm in the USA,” he said. “With Johnson Controls heavily in the contracting business, buying York, then a contracting firm in Louisiana, it appears they have designs on the contracting industry.
“Will the HVACR contractor go the way of the mom and pop appliance repair shops of 40 years ago? Will the manufacturers become our competitors? It surely seems like this just might be their intent.”
York didn’t stop there. He said there is another story that contractors need to pay attention to: extended warranties.
“The five- and 10-year warranty on new equipment parts suddenly has removed the capability of the contractor to realize any profit on materials,” he said. “Candidly, they lose money on every warranty part by the cost of completing extensive paperwork, returning materials, handling those parts free of charge, etc. just to get a credit for the warranty part they have replaced. All the contractor gets is the price of labor.
“Fair? Not at all. It will not be long before we can only sell labor with little or no materials on which to realize a profit. Where do we go from here? Is there hope for the contractor? Or is this just another giant step forward to eliminate the contractor and become a contractor competitor?”
A LAUNDRY LIST OF TOPICS
- UV Light Enhances IAQ for ASPCA. “I think this was a great story because it helps educate contractors on the viable and effective use of UV light technology,” he said.
- Safety Equals Manageable Insurance Costs. “All HVAC contractors suffer from rising insurance costs,” Donnici said.
- Super Seal Sealants. “This story was of particular value because of its new technology and ease of use and solution to small problematic leaks in systems,” he said.
Bodwell talked about two other stories that have been in the headlines this year; commodity fluctuations and insurance costs.
“The price of copper and other construction-related commodities has forced us to stay on top of these rising costs and have created a need for escalation clauses in our proposals and retrofit agreements,” he said.
“We have not seen unreasonable price increases on equipment, and since the type of work we perform is specialized, equipment, costs are not an issue.
“While insurance costs have been challenging to many contractors, we switched to a leased employee situation many years ago which positioned us as part of a large insurance pool; thus allowing us to offer a strong benefits package at a reasonable cost. Prices have gone up but not at the same rate as an independent provider.”
Taylor talked about the stories surrounding refrigerants. “What are we going to do with recovered R-410A?” he asked. “We are having real problems finding a place that will take it back. What are we going to do about the lack of recovery of R-22 by contractors? There are many out there that are not recovering and reclaiming. This will lead to a giant shortage beyond the current projected shortage.”
Dombrowski noted that keeping up with code requirements will make any HVACR contractor better. “With increased requirements in insulation, documentation, testing, and very specific design criteria, the dealer that has made a consistent investment in training will be in a position to adapt easily to the new requirements,” he said. “They also will be postured to secure an increased sale price to cover these additional materials and indirect costs.”
Getzschman is one contractor who will keep his eye on the economy and its effect on new construction. “I feel an issue that is affecting not only our industry but actually all sales venues is the slowdown in the economy, which affects consumer spending for new homes or replacements,” he said. “The Midwest tends to be more conservative so we are seeing more of a wait and see attitude from consumers before they build or upgrade.”
Publication date: 12/25/2006