Eight Million And Counting

January 16, 2006
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Congratulations HVAC. A record breaking 8 million units have shipped in 2005, and the counting continues. According to the Air-Conditioning and Refrigeration Institute (ARI), as of November, shipments of central A/C units and air-source heat pumps totaled 8,016,756 units, placing the industry on track for roughly 8.1 million units total shipped in 2005.

The previous record was in 2004 when just over 7.4 million units were shipped.

Combined U.S. factory shipment monthly gains were 5 percent lower than October's 73 percent increase over 2005, but were still 68 percent higher than November 2004, totaling 629,583 units.

"We are tremendously pleased with the record November shipment compared to last year," said ARI president Woody Sutton.

"There are a number of factors that contributed to this, the record number of new home sales nationwide and the rebuilding of the Gulf Coast probably being chief among them."

Heat pump shipments were up 45 percent from November 2004, totaling 168,960 for November and 1,972,400 year-to-date.

This brings 2005's 11-month heat pump shipment totals 12 percent above the 2004 11-month totals.

A SECOND-HALF BOOM

The first half of the year showed little to no growth with April and May reporting significant unitary shipment decreases. The second half, however, boomed with gains increasing substantially in the fourth quarter causing an overall 15 percent shipment increase for the first 11 months of 2005.

"Phenomenal, isn't it?" asked Dave Pannier, president, Residential Systems, Trane, American Standard Heating and Cooling brands. "The level of industry activity is phenomenal."

Pannier credited some of the increase to pre-buys, which he believes to be true for the industry.

"It isn't true for Trane," he said, however. "Most of our growth has come from 13 SEER, even though we have seen some growth in our less than 13 SEER market."

The approaching 13 SEER deadline wasn't the only issue that HVAC faced this past year. "The industry overcame unprecedented challenges in 2005 while meeting record demand caused by above average summer temperatures, numerous natural disasters, inventory build up of new 13 SEER products, and record breaking 10 SEER orders for installation in 2006," said J.R. Jones, president, Rheem Air Conditioning Division.

According to ARI, distributor shipments were up 60 percent from November 2004 resulting in distributor inventories up just 4,122 units from October 2005. "While manufacturing shipments are up so high, it is not reflected in a large bulge on the distributor level," said Pannier. "It appears a lot of the manufacturing increase is flowing through to the market."

"As pleased as we are with this year, however, if the 1992 transition from 8 SEER to 10 SEER is any guide, we can expect somewhat of a dampening in shipped units in 2006, as we transition to the 13 SEER minimum," said Sutton.

According to a study done by J.P.Morgan's Steve Tusa, residential volumes decreased in 1992 when the efficiency standard was raised despite a significant new housing increase. ARI estimates the 2006 installation cost of a 13 SEER unit will increase approximately 31 percent over the 10 SEER installation cost in 2002. Tusa's study confirms Sutton's expectations predicting near term volatility for the industry, however, seeing the 13 SEER mandate as an overall net positive.

"Stockpiling 10 SEER in 2005 will impact the 2006 air conditioning market causing a mild first-half 2006 downturn in manufacturer orders and production output, unless North America experiences a repeat of extreme high temperatures seen from Canada to Florida in 2005," said Jones.

"Rheem expects the U.S. economy to continue its expansion in 2006, but at a lower rate when compared to 2005. Consumer confidence is expected to rise due to higher employment numbers and rising household net worth, caused by increased home values, growth in home equity, and higher savings in retirement and mutual funds. This bodes well for home-related durable goods sales including residential heating and cooling systems. Rheem sees risk from continuing raw materials shortages, rising material cost, critical component parts supply, energy and transportation costs, health care costs, rising interest rates, and a downturn in new housing starts," said Jones.

Publication date: 01/16/2006

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