Manufacturers Prepare To Meet Challenges

April 29, 2003
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William G. Sutton
It would appear that manufacturers are on the same page as their dealers when it comes to assessing the issues affecting the industry. The key priorities outlined by the manufacturers who spoke with The News for this article jibed pretty closely with the concerns of the contractors who were interviewed for this issue. Members of both groups singled out the overall state of the economy as the key area to watch.

“The recovery of the commercial marketplace is the biggest issue in our industry,” said Tom Huntington, president of York International Unitary Products Group, Norman, Okla. “Mechanical contractors are being very cautious in investing in their businesses until they see recovery of the commercial market.

“On the heels of that, indoor air quality is an issue, but I see it as more of an opportunity for contractors to upsell equipment. Many people are going to change their business model to reflect the need to sell indoor air quality.”

William G. Sutton, president of the Air-Conditioning and Refrigeration Institute (ARI), Arlington, Va., agrees that a healthy economy will stimulate more building and buying.

“The No. 1 issue is the state of the economy,” he said. “With prewar uncertainty now behind us, an increase in consumer spending and confidence would spur business capital expenditures.

“A strong pickup in the second half of the year would boost hiring and expansionary capital spending. The unemployment rate has held steady at almost 6 percent. More workers would stimulate nonresidential construction, which is just beginning to pull out of its steep dive. That would be helpful for large unitary and large tonnage liquid chiller shipments, which have lagged due to the economic slowdown here and abroad.”

Dave LaGrand

IAQ, Distribution

Dave LaGrand, president and CEO of Nordyne, O’Fallon, Mo., targeted five issues to watch in the HVACR trade. “The big issues are in five categories: efficiency, environmental, IAQ, industry image, and distribution channels,” he said. “The challenge is to prepare ourselves for the changes in the minimum efficiency standards, which will change the scales of good-better-best in our product offerings. We also are preparing for 2010, when the final changeover to alternative refrigerants must be completed. In the interim, we must anticipate the changeover rate. Related to this is the training and education required on the alternative refrigerants for dealers, distributors, and consumers.

“It would be ideal for our industry to work together to educate the consumers on IAQ issues, e.g., mold, which will require a good deal of education throughout the channel. Industry image has a lot to do with attracting people to our industry and promoting quality products and installations, e.g., using NATE-certified technicians. It is our intention to support these activities.”

LaGrand also talked about the effect large retailers could have on the industry.

“Large retailers are involved in the distribution channel and selling directly to consumers,” he said. “Some manufacturers have chosen to align themselves with these large retailers. Here’s the key question: Is it possible for an HVACR contractor to find a successful way to work with the large retailer without losing his own relationship with the consumer and keep his own identity? We believe that the large retailers are interested in owning the consumer relationship, and, at the end of the day, it probably isn’t possible for two entities to own that consumer relationship.”

“This industry has already transitioned over into a retail industry,” said Huntington. “The question is, who are going to be the successful retailers? Is it going to be the independent HVAC contractors or is it going to be the ‘big box’ retailers?”

Dave Pannier, president of Trane Unitary Products, Tyler, Texas, added another trend to a growing list of items to keep an eye on. “The more contractors I talk to, the more receptive I am getting to the use of more sophisticated controls,” he said. “Even the simpler residential systems on the market can be controlled by remote monitoring.

“Contractors are looking for more opportunities to tie themselves in to the systems they install, keeping an ongoing maintenance and service contract business. The industry is going to start to see a shift — possibly not a dramatic one — to remote monitoring on all levels. It is an interesting opportunity that I am hearing more about.”

“We are also seeing an impact of the ‘white goods’ products like Maytag, Whirlpool, and Westinghouse, which are factors in the HVACR industry which will impact the traditional market,” noted Mike Schwartz, president, North American Distributed Products, Lennox Industries, Richardson, Texas. “Manufacturers who don’t have brand recognition are going to have some real challenges. It is easier to sell a brand that is recognizable in the kitchen or laundry room.”

Halsey Cook, president, North America Residential, Carrier Corp., Indianapolis, said, “We need our brands to stand for something. We don’t want this to be a commodity market. Brand is important to the end user, but brand will still come after the dealer’s name.”

War And The Economy

Schwartz is cautiously optimistic about the postwar economy. “A quick outcome to the Iraqi war is not having a positive effect because it was expected, but the good news is that it does not have a major negative economic effect,” he said. “The unrest could have an effect on the anti-American sentiment in the Middle East and Europe, which could affect our whole economy, and that concerns me.”

Huntington is optimistic about a quick turnaround to the economy. “After Sept. 11, a lot of money left the stock market and is just sitting out there,” he said. “We believe a lot will be spent on the commercial real estate market. We see a quick recovery in the next two quarters in the commercial HVACR market. There will be renewed confidence by investors.”

Pannier thinks it is the residential customers who will lead the charge back. “The segment of the market that has been hit the hardest is the commercial segment, from the small building to the largest application. The consumer end of the market has maintained its relative strength. The most recent data shows that the consumer market is basically unfazed by the Iraqi conflict. There is still a lot of money available to consumers due to the refinancing market and interest rates.

“I believe that a bigger portion of the market is moving toward planned replacement rather than emergency replacement. That is a phenomenon of the consumer becoming more knowledgeable about their home comfort needs. That is a good marketing opportunity for contractors who remind consumers that it is not in their best interest to wait until an emergency to replace the equipment.”

Sutton emphasized the importance of low interest rates as a stimulus for the economy.

“The Federal Reserve Board has responded to the weak economy with interest rate cuts,” he stated. “Historically low mortgage rates have prompted lots of refinancing, which freed up money for remodeling and system replacements for residential central air systems.

“New residential construction has been at a torrid pace thanks to low mortgage rates. The combination of a lively market for replacements and new construction boosted central system air conditioner and heat pump shipments to a record 6.7 million units last year. As of the end of the first quarter of this year, shipments are up one percent.

“Even if new construction cools off, as expected, there is a strong market for replacements and service with 60 to 70 million units in service.”

“New construction trends will slow down, but this is still a very robust and competitive market,” noted Cook.

“Our industry rebounded in 2002 from a downturn in 2001, the rebound was helped by a warmer summer,” said LaGrand. “The weather helped to overcome a jittery economy. Our industry is fortunate because our systems have become a necessity and a way of life for most end users.

“A contractor who can successfully differentiate his company and market his service and maintenance agreements, IAQ business, or zoning approach is better prepared to do well in spite of the weather.”

Schwartz doesn’t believe in waiting for the weather to change, either. “We feel strongly about building relationships with consumers beyond the emergency service calls,” he said. “One way to do that is to establish service contracts, which allows contractors to better manage their work during slow times. It also gives them the opportunity to get their name in front of the consumer and spread word-of-mouth recognition.”

Labor, Education

Sutton thinks that the HVACR trade is turning the corner in its efforts to attract new people.

“We are making progress in attracting talented people to the industry,” he stated. “Slowly but surely, thanks to lots of dedicated folks, the message is getting through that this is a great industry with rewarding career opportunities. Despite this effort, there is a shortage of workers for HVACR work and many trades in America.

“All of us need to write our U.S. senators and House members and urge them to support funding for career technical education. Applied technology training is vital to the health of our industry and the more than 1,350 programs nationwide that serve as an important pipeline to HVACR careers.”

Huntington indicated that certified technicians are the wave — and the hope — of the future. “The shortage of trained technicians on the residential side continues to be a problem, but I have seen an encouraging trend — a resurgence in vo-tech schools dedicating more seats in the classrooms to HVACR,” he said. “Vo-tech schools have rededicated their focus to HVACR in the past year. This is a new trend that is a reaction to the climb in unemployment rates. This is a bit of a safe haven for the unemployed workers.

“Young people should understand that there is a bright career in front of them in HVACR. It is only through proper training that they will have this positive view of the industry.

“All of our service personnel within the Unitary Product Group are NATE certified. We are a proctor for NATE, and some of our technicians are NATE certified in all of the disciplines. We use the NATE logo in our literature and on our Web site. We truly support them.”

Pannier also sees certification as a way to stem the tide of a “graying” workforce.

“The aging of the service technician population is a concern,” he said. “As they retire, do we have a sufficient number of people to step in? One way to resolve this is to make sure that middle school and high school age students are familiar with opportunities that are available to them in the trade and paint a good picture of these opportunities. And do we build more technologically advanced equipment that will require less skill to install (i.e., plug-and-play systems)?

“There is a lot of training out there from many different sources, i.e., ACCA, PHCC. These training programs are available to contractors. It is important to be NATE certified, which involves an appropriate course of training.”

“Our industry is poised for the next level of growth, and I think we see that extend out into the decade,” Huntington said. “It looks like the U.S. will continue to see a demand for new housing that even exceeded predictions five years ago — almost 1.6 million new homes per year over the next decade.”

“Consumer confidence will continue to improve,” said Sutton. “And the need for people around the world to improve the quality of their lives through refrigeration and comfort cooling is as real as it was before the war. People keep finding new uses for our products, and the HVACR industry is ready, willing, and able to serve world markets.”

Publication date: 05/05/2003

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