Wrestling with Inventory Questions

September 18, 2006
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Just because 13 SEER is the new manufacturing standard for HVAC equipment, does that mean contractors have to take a different approach to selling and pricing their remaining inventory of 10 and 12 SEER units - if they have any left?

The NEWS conducted an informal poll of nearly 50 residential contractors across the United States and Canada to get a first-hand assessment of how the 13 SEER transition has actually affected the movement of old inventory in the market. Consumers are still being peppered with misinformation as they decide between 10, 12, and 13 SEER purchases.

While contractors had a lot of time to prepare for the arrival of 13 SEER product minimum, the same cannot be said of their customers. Despite the many news stories and direct mailings from contractors, not all customers have embraced 13 SEER and its added costs.

It appears that different contractors took different approaches to the 13 SEER changeover. Some decided to stock up on 10-12 SEER units while others, like Wayne Mulholland of Tri-County Mechanical of Azle, Texas, said he had good reasons not to.

"We didn't need to stock up on 10-12 SEER systems because our sales have been mostly high-end systems of 15 SEER and above for the past two years. A rough estimate would be that 10 and 12 SEER systems represent 20 percent of our business.

"We do work with some home warranty companies and have kept some 10 SEER products for them."

Scott Barnfield of Scott's Refrigeration & A/C Inc. of Frankford, Del., said, "We did not stock up on lower SEER equipment. We had been selling 13-18 SEER equipment to customers for nearly a year with no problem in doing so."

One contractor left the decision of keeping extra inventories of 10-12 SEER up to his distributor.

"I did not stock up as my main supplier said he would be," said Cliff Rhodey of Even Temp HVAC Service, Hot Springs, Ark. "If something is not available, it stimulates the customer to upgrade to a better efficiency unit, which is what the customer needs most of the time anyway."

Another contractor followed the advice of a distributor and stocked up on some units. "I would not have done so at regular pricing, but I found a distributor who wanted to clear out inventory so I picked up a dozen 12 SEER at below wholesale," said Frank Bartol of Bartol Refrigeration, New London, Conn. "These are to be used for appropriate replacement jobs only."

Other contractors found themselves in the middle of new construction work, jobs they had bid on based on the availability of 10-12 SEER products. That was why Dave Hutchins of Bay Area A/C in Crystal River, Fla., kept an inventory.

But two contractors, Richard Bergen of Aircond Installations, Brandon, Manitoba, and Rich Mentzel of Chill Wind Mechanical Corp. of Hollywood, Fla., decided to stock up on 10 SEER units ahead of time. "We stocked up on 10-11 SEER condensers and air handlers," said Mentzel.

Contractors were asked if they experienced any shortages of 13 SEER components, and if so, how they addressed the shortage problem. Some had not seen any yet, while others had experienced or at least heard rumblings about future shortages.

Only one, Scott Barnfield, said he has been affected by any shortages. "We have had, and still have, a severe shortage of TX valves for R-22 and R-410A," he said. "It seems as though the manufacturers of those items did not prepare for the changes that were coming. We are also experiencing a shortage of air handlers, which I have been told is because of shipping issues with the Teamsters. The suppliers supposedly have adequate stocks on order but transportation is a serious problem."

Bartol takes a cautious approach to bidding on work, because he isn't quite sure if equipment will be available when he needs it - or if it will fit. "We have been selling 13 SEER since it became available," he said.

"The challenge has been dealing with the inventory-availability side of the phase-in, as well as the physical size of the new products. It has taken longer to quote jobs because we need to check if the new equipment will fit and then, if it fits, are there any available."

Rhodey acknowledged a shortage of TXVs and some coils while Hutchins said, "It's rumored that TXVs may be in short supply."

Bartol believes that carrying different brands is a safeguard against shortages. "Anyone who sticks with a single brand may have had some trouble," he said. "With the ability to sell different brands it has been a nonissue."

Contractors have been trying to find solutions for cash-poor customers.

CUSTOMER INPUT

"There was adequate time to prepare myself and our company; but customers still have a little sticker shock," said Bergen. "However, when they price shop, they get shocked by everybody."

Mulholland said that some people simply cannot afford to replace an entire system - and he prefers to soften the sticker shock.

"The only feedback we get from customers is of hardship in being able to afford to replace a complete system, especially when a heat pump condenser is required, or when we are replacing a pre-1992 model," he said. "We have found that in some cases (we have not yet been burned), we can add a TXV to existing coils and add a 13 SEER condenser, or we can downsize a new coil to agree with an older condenser.

"We inform all customers and have a sign-off for this mismatch. In 98 percent of the cases we can arrange financing for new systems. That's where I get to upsell to 15 SEER or so."

Mentzell said complaints are coming from customers who don't like the initial costs versus payback ratios.

Barnfield had a very easy time explaining the issues to his customers. His company geared up for 13 SEER and R-410A as soon as they were informed of when the regulations were to go into effect.

"Most customers understand the reasons for the changes and some have an issue with needing to replace all sealed system components," he said. "Most do come to understand why when we fully explain the situation. When the energy savings are explained [cost] becomes less of an issue, because utility rates here have increased by over 69 percent."

MISINFORMATION ABOUNDS

Two contractors talked about the misinformation concerning 13 SEER that is being spread throughout the market. "Customers are replying as though they know what they are talking about, even though they are wrong," said Bergen. "It seems that they are searching the Internet to find out if they are being ‘taken for a ride' and finding a lot of misinformation."

Hutchins has been getting lots of calls from homeowners, questioning what they have been told by other HVAC contractors.

"Most of the time they have been misinformed," he said. "They are being told things like, ‘13 SEER is the new state code' or, ‘It's illegal to install less than 13 SEER.' People are also being told they can't use a 13 SEER indoor unit on a 10 SEER outdoor unit, or that the existing indoor unit can't be used with a 13 SEER outdoor unit. Yes, it is true that using the existing indoor unit with the new 13 SEER outdoor unit is limited to matched systems, per the brand you may be selling," concluded Hutchins."

For Bartol, it all comes down to two types of customers - those that have and those that don't have. "Customers who have money in the bank have been receptive to the change," he said. "A small percentage have had money issues, which makes efficiency a moot point."

In the end, many of the changes that the 13 SEER transition has brought to the market may be more easily handled by those customers who can better afford the changes. Those who cannot, will be trying to make sense out of all the options that are presently being offered in the field.

Publication date:09/18/2006

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