ACHRNEWS

HVAC Contractors Predict Solid First Quarter for 2011

January 10, 2011


The Congressional Budget Office (CBO) is predicting continued recovery for 2011. So is Ben Bernanke, chairman of the board of governors of the Federal Reserve System, and so are many of the contractors with whom The NEWS discussed 2011 predictions late last year. Armed with practical experience and real world data, these contractors are offering their economic and industry predictions, as well as business tips for first quarter 2011.


PREDICTION #1: Money lending will ease substantially

From the beginning of the economic downturn, bank lending, especially to small businesses, has been a particularly difficult issue; one that continues to be addressed by the federal banking community.

“Achieving the appropriate balance between necessary prudence and the need to continue making sound loans to creditworthy borrowers is in the interest of banks, borrowers, and the economy as a whole,” said Bernanke. “Toward this end, in cooperation with the other banking regulators, we have issued policy statements to bankers and examiners emphasizing the importance of lending to creditworthy customers, working with troubled borrowers to restructure loans, managing commercial real estate exposure appropriately, and taking a careful but balanced approach to small business lending.”

Aaron York Sr., founder of York’s Quality Air Conditioning in Indianapolis considers this to be one of the most important factors in the recovery process and thinks that business will be much better in 2011. York suggested that the best business tip for the coming year is to develop and maintain a positive attitude.

“It will become contagious from us to our employees and to the customer who will appreciate it and catch the same positive feeling,” he said.

He went on to predict that higher energy efficiency equipment will become more in demand as the year progresses and that contractor business will be on the upswing, therefore enhancing profits.

PREDICTION #2: Unemployment rates will remain high

The CBO expects recovery to continue at a modest pace, but reports that overall national unemployment should be expected to remain above 8 percent until 2012.

Michael Senter, CEO of ABCO Refrigeration Supply Corp., a wholesale distributor headquartered in Long Island City, N.Y., echoed the CBO’s prediction stating that his company believes the economy will continue to recover steadily, “but all too slowly from a standpoint of decreasing unemployment numbers significantly.”

As for the HVACR industry, Senter predicted an upturn in commercial refrigeration and HVAC opportunities as compared with 2010 and 2009.

“We believe the increase we experienced in commercial activity in the second half of 2010 will continue in 2011,” he said.

His advice to contractors and distributors is to, “invest in great team members where possible, for as the economy improves, these improvements in staffing will be harder and harder to achieve. Make these investments in team building and personnel wisely and prudently.”

PREDICTION #3: Fiscal responsibility will improve

Perhaps more of a hope than a prediction, many of the contractors surveyed agreed that fiscal responsibility at the federal and local levels must be improved.

The CBO began investigating many new fiscal policy options last year. As the office continues to grapple with old and new fiscal strategies, it is considering two key questions:

• What sorts of fiscal policies would encourage greater economic activity and more employment?

• How can short-term fiscal stimulus be reconciled with the imperative to put fiscal policy on a sustainable medium-term and long-term path?

It stressed that, “any policies that widened budget deficits in the near term would need to be accompanied by specific policies to reduce spending or increase revenue over time.”

In the contractor surveys, the concept of fiscal responsibility and restructuring wasn’t mentioned only in regard to the government. John Sedine, president of Engineered Heating & Cooling in Grand Rapids, Mich., suggested that contractors “Take a serious look at how they need to restructure their business to survive. The outlook is that it will take at least five years for us to be back to 2007 levels, if we make it back there.”

Sedine advised contractors to join the Air Conditioning Contractors of America (ACCA) association to take advantage of the resources available to help contractors survive the new business climate.

“As for the HVAC industry, there is going to be continued emphasis on new technology that encompasses renewable energy and green technology,” said Sedine. “However, I think that sales will either be down or flat from 2010 levels in many parts of the country.”

THEY COULD BE WRONG

As with any prediction, there is the possibility that the CBO, Bernanke, and the contractors surveyed are wrong. Although based on research and real time experience, what is predicted to happen and what actually happens can easily be two different things. That is why, despite predictions, Greg Crumpton, president and founder of AirTight Mechanical Inc. in Charlotte, N.C., knows that improving customer service will always be an accurate strategy for successful contracting businesses.

“It is time to place more emphasis than ever on customer satisfaction,” he said. “High quality clients are still investing in building, renovating, and maintaining residential and commercial structures. Those of us willing to learn of their needs and blow them out of the water with quality, caring, and customer advocacy, will survive. Keep your collective chins up; high quality customer care still wins.”

Sidebar: Economy

A few economic predictions from the Congressional Budget Office’s “The Budget and Economic Outlook: An Update.”

• Interest rates will remain very low through the end of 2011 and then rise gradually as the recovery continues.

• Fiscal policy will provide much less support to economic activity in 2011 and 2012 than it has in the past few years.

• Inflation in the prices of consumer goods and services is projected to be about 1 percent in 2010 and 2011, when measured on a fourth-quarter-to-fourth-quarter basis.

• The recovery in investment will continue during the second half of 2010 and increase its pace in 2011 and 2012 as the demand for goods and services picks up and the excess stock of residential housing is whittled down.

• The national average price of a house will have dropped by an additional 7 percent between the middle of 2010 and the fall of 2011.

Sidebar: HVAC Industry

Right or wrong, these are some of the predictions being made by contractors currently working in the industry.

• Improvement in residential markets first.

• Significant surge toward whole home and building performance contracting.

• More big box retailers involved in the industry.

• Many opportunities in the local retail market.

• Confusion as to the phase out of R-22 and dry shipping condensers.

• Capital expenditures still in a holding pattern for the first quarter.

• Fierce competition for business to maintain revenue and market share as new companies move into the market and construction continues its downturn.

• Energy measures side of the business should increase greatly.

• Private sector will be at a standstill.

• Change in the federal tax credits will slow the sales of many businesses.

• Overhead and benefits cost will increase.

• HVACR equipment offering energy savings will lead the way.

• Residential stand alone and multiple dwelling expansions will grow at modest rates.

• Growth in residential maintenance, repair, accessories, and replacement.

• Rebuild year for retail and manufacturing.

• Hangover from pre-emptive sales of operating systems stemming from the federal energy tax credit program.

• More contractors transitioning to energy contractors.

Sidebar: Business Tips

Some business tips from the HVAC contractors surveyed about predictions for 2011.

• Live within your means.

• Don’t give your product away.

• Solidify existing customer base/identify and target potential new customer market.

• Increase measured effective marketing efforts.

• Offer products and services your competition doesn’t.

• Maintain a positive cash flow.

• Work like you did when you first began your business.

• Celebrate the wins.

• Take care of the employees.

• Stick to core competencies.

• Tune up your engineering skills.

• Don’t hesitate to raise prices if the bottom line begins to shrink.

• Take a better look at accounts receivables, overhead, cost, and employees.

• Integrate a line of comfort enhancement products in your product mix.

• Be aggressive in promoting business and very mindful of expenses.

Publication date: 01/11/2011