Manufacturers Eye Economy, Efficiency

March 24, 2008
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Manufacturers agree that regulatory challenges in the United States and abroad will require significant attention so that they can continue to manufacture the products that customers want at prices they find reasonable.


In some respects, it doesn’t seem right to compare 2007 to 2006. After all, that year was dominated by the transition to 13 SEER, which helped propel the manufacturing industry to record high levels of equipment sales. But we are a nation that loves its statistics, so it’s only fair to note that the Air-Conditioning, Heating, and Refrigeration Institute (AHRI) stated that combined U.S. factory shipments of central air conditioners and air-source heat pumps for 2007 totaled 6.4 million, which is down 9 percent from 2006. Heat pump shipments in 2007 totaled 1.9 million, which is down 10 percent from 2006.

The Manufacturers Division of the Heating, Refrigeration and Air Conditioning Institute of Canada (HRAI) showed similar results, with shipments of residential air conditioning equipment decreasing by 9 percent in 2007 compared to 2006. Shipments of residential furnaces in 2007 only decreased by 1 percent from the previous year, stated HRAI.

Manufacturers are not deterred by the slower sales; instead, they are eager to address all the opportunities in 2008, which include showcasing new, efficient product lines and embracing greener ways of doing business. While excited about the new prospects, manufacturers are also keeping an eye on the slowing housing market, as well as watching for new regulations at the state and federal levels.

HOUSING MARKET CHALLENGES

Residential new construction has been hit hard over the last few years, and many economists don’t predict a quick turnaround. The Census Bureau recently reported that new housing starts were down to an annualized rate of 1.187 million units in November, which is the lowest number in 16 years. Excessive new home construction in many parts of the country has also resulted in record high inventories, which will take awhile to work through.

“The new housing market being down has affected our business, but the add-on/replacement (AOR) and commercial business has kept things moving pretty well,” said Andy Armstrong, director of marketing, Johnson Controls-Unitary Products. “In addition, our Source One parts and accessory business has been very strong as well.”

The AOR market has definitely helped cushion the blow from the softening housing market. As Francis Dietz, vice president, public affairs, AHRI, noted, “The replacement segment, in both heating and cooling, although impacted by the 13 SEER implementation and housing downturn, has helped buffer the drastic decline in the new housing construction market.”

The credit crunch has also slowed the recovery of new construction and the replacement work that comes from the purchase of existing homes. However, Armstrong noted in the AOR market, “We’ve seen improving approval rates and a greater percentage of jobs financed than anytime in the past.”

Commercial construction has also remained fairly strong, but this sector may slow down in 2008 as well. The American Institute of Architects (AIA) recently announced that weakness in the overall U.S. economy is translating to a tempered forecast for the nonresidential construction market, and spending is expected to increase by a modest 0.7 percent in 2008. Led by demand for institutional projects, the group expects growth in 2008 to be at a slower pace than recent years, with commercial projects likely to see the most decrease.

Tom Quigley, vice president-marketing, North America Residential, Carrier, remains bullish on the commercial market, though, noting that it is “still very strong and based on research, we believe the commercial market will continue to expand.”

Andy Armstrong

CHANGEOVERS AND COMPETITION

This year also brings the industry closer to Jan. 1, 2010, the day on which manufacturers will only be able to use pre-existing supplies of R-22 to produce new air conditioners and heat pumps. Manufacturers have been preparing for this date for years, and as Quigley noted, Carrier produced its first Puron® (R-410A) units in 1996. “To prepare contractors for the refrigerant changeover, Carrier University is offering technical training in aspects of installation, including Puron refrigerant training.”

Training from manufacturers, associations, and distributors is helping contractors better prepare themselves for the refrigerant changeover.

As Dietz remarked, “As more and more HFC-based products enter the market in anticipation of the 2010 changeover, we are preparing for the HCFC phaseout by working with our friends in the contractor community to raise awareness of the impending deadline and to train them in proper installation techniques for HFC-refrigerant products.”

Armstrong added, “We’ve been very aggressive training all of our channel partners for several years to prepare for the advent of R-410A. We are very proud of our industry-leading commercial offering of R-410A products, and every residential product we make is available in R-410A. We feel very well prepared for 2010.”

An issue that may be more difficult for manufacturers to respond to is that of counterfeit heating and cooling products that have been trickling into the marketplace. In a global economy, foreign competition is simply a fact of life; however, in this case, intellectual property rights have sometimes been compromised, which has caused great concern for U.S. manufacturers.

“Our staff have been working closely with counterpart associations in other countries, with U.S. Customs and Department of Commerce officials in the U.S. and overseas, and with our members themselves to ensure they are aware of resources that are available to them and steps they can take to protect themselves,” said Dietz.

Manufacturers want the opportunity to compete on a level playing field, which means manufacturing to the same or similar standards and certifying compliance using the same or similar methods. For that reason, Dietz added, harmonization of standards and certification programs is one of AHRI’s biggest international priorities.

NEW OPPORTUNITIES

The green movement has definitely come to the heating and cooling industry, and manufacturers are eager to showcase the innovative, energy-efficient products they have been developing and manufacturing for some time. Dietz noted that an added benefit to the green movement is the fact that consumers are more aware of energy efficiency and thus are seeking more energy-efficient products.

One of those energy-efficient products is Carrier’s Hybrid Heat® dual-fuel system. This system pairs a gas furnace with a heat pump, providing the homeowner a cost-effective way to heat a home based on weather conditions, thereby using less energy. “We strive to produce more energy-efficient and environmentally-sound products well into the future,” said Quigley.

Armstrong added that sustainability is part of the mission statement at Johnson Controls, so green impacts everything at the company. “All of our engineering, product management, distribution, and marketing functions are considering new and exciting ways to make green a positive force throughout our distribution channel.”

In an effort to become even greener, some states are looking at implementing their own global warming initiatives, which could result in a patchwork of different regulations. This could have an impact on manufacturers, who would then need to provide different products to different states, depending on the various regulations.

While this may seem like a daunting task, Johnson Controls applauds states’ vision to embrace green initiatives.

“To deal with this trend, we’ve focused our residential engineering resources on building a very flexible product line. It’s one that we feel will address upcoming global warming initiatives very well,” said Armstrong.

Quigley added that Carrier, too, is very aware of the issues, actions, and regulations that are being proposed in response to global warming.

“This is a highly complex area and we continue to dedicate resources to providing the products with high-energy efficiencies and environmentally sound refrigerants that meet legal requirements and consumer needs.”

Looking ahead, it is likely that energy efficiency and energy conservation will continue to be huge issues for U.S. manufacturers. In addition, noted Dietz, “Regulatory challenges here in the U.S. and abroad will require significant attention so that we can continue to manufacture the products our customers want at prices they find reasonable.”

These issues will definitely keep manufacturers very busy for the foreseeable future.

Publication date: 03/24/2008

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