FORT WORTH, Texas - “Candid.” “Refreshing.” “Highlight of the conference.” Those were just a few of the comments heard at the end of the highly anticipated CEO Forum at the recent 41st Annual ACCA Conference. The NEWS’ editor-in-chief, Mike Murphy, asked the CEOs of Rheem, Carrier, and Lennox tough questions that were submitted by contractors from around the country.

The session drew a large crowd of ACCA contractors, who were eager to hear what their OEMs had to say about the recession, the refrigerant transition, and how the stimulus package would affect the HVAC industry. Those participating in the forum were Bill Hanesworth, vice president and general manager, Rheem; Robert McDonough, president - residential/light commercial systems, Carrier; and Doug Young, president/COO - residential heating and cooling, Lennox.

STIMULATING THE ECONOMY

The economy was on the minds of most conference attendees, and it was no surprise that the first question concerned the slowdown and how it will affect manufacturers. Hanesworth noted that Rheem will be in a totally different environment for the next few years, and ongoing R&D will be mandatory. McDonough added that some of Carrier’s markets have contracted 30-40 percent, so the company has had to make some difficult decisions. “All of us recognize things will get better. In our company, we’ve invested $28 billion in research - we’re basically investing in the future.”

Young agreed that investing in research is crucial now, so Lennox will be ready when the market turns around. “We see this as a point of balance. How do we balance the near term and the long term? We’re going to invest more in R&D this year than we did last year, so we will be able to excel when business comes back.”

Given the federal tax credits recently passed by Congress, the three CEOs were asked how those might help the HVAC industry. Young stated that while his company is still trying to digest the information surrounding the tax credits, “consumer confidence needs to rebound first. It’s early, and the tax credits will help, but we don’t know how much. It’s more about the economy and when it will come back.”

McDonough agreed, noting that the tax credits will have some effect, however, he is concerned that the high SEERs required to take advantage of the tax credit may be overreaching a bit on the part of the government.

“There is a lot of 10 SEER equipment out there. We don’t want to set the bar so high that it’s out of reach economically. I’m afraid the stimulus will appeal to a narrower band of people. We’re going to have to package incentives, such as utility and manufacturer rebates, along with tax credits. We need to work together if we’re going to help consumers.”

Financing these new systems was on the top of Hanesworth’s mind, and he stated that the rebates are a good thing, however, “Credit is still a problem. My concern is that customers aren’t qualifying for credit.”

That led directly into another question, which concerned what will happen with major consumer retail finance sources in regard to consumer financing in HVAC. Hanesworth added to his previous statement by saying, “Companies are reducing the amount of credit they’ll make available. We may need to find ways to supplement that. Financing companies don’t want to offer 12 months same-as-cash anymore. Until the economy levels out, it will be hard to do anything. Things need to stabilize first.”

McDonough was dismayed to note that rejections for credit are higher, which is why Carrier has consolidated its financing suppliers. “Every time dealers present an offer, we want them to present financing. Things are choppy right now, and it’s a hard issue to combat at this point.”

Lennox has also seen its credit rejections rise, and Young stated that the company has reached out to financing companies to see if they couldn’t reduce the number of rejections. “This world has turned upside down, but nothing will change until there is more credit available.”

When Murphy followed up with a question as to whether or not manufacturers would ever self-insure loans to consumers, Hanesworth said, “Right now, I don’t think we would. But we may have to rethink our strategy.” The other CEOs did not add to Hanesworth’s comment.

THE REFRIGERANT ISSUE

Next to the economy, the most talked about topic at the ACCA conference was the upcoming phaseout of R-22. It seemed natural to ask the CEOs how they thought the upcoming refrigerant transition would play out and whether the Environmental Protection Agency (EPA) would be making any more rulings that might further restrict supplies of R-22.

“This is going to be a very difficult transition,” said Young. “There is some clarity about regulations in that EPA said contractors can replace like-for-like equipment, however, on new construction, it has to be R-410A. On the service side, we have a long way to go. EPA says that today about 20 percent of R-22 should be reclaimed, but right now we’re at 6 to 7 percent as an industry. We have equipment being installed today that uses R-22, so that will be in place a long time and need service in the future.”

The economy is also resulting in consumers repairing equipment rather than replacing it, which may exacerbate the need for dwindling supplies of R-22.

“We’ve shifted our sales to parts, and we expect more of the same this year,” said Hanesworth. “We saw that shift when we went from 10 to 13 SEER. A lot of people are just going to hang on to what they have and not replace it with R-410A equipment.”

McDonough added, “There’s a lot of pressure to repair rather than replace due to the economy, however, the phaseout of R-22 could lead to a dialog on replacing rather than repairing. But we’re talking about big-ticket items, and people are thinking twice before spending that kind of money.”

That repair vs. replace conversation is going to be extremely difficult, said Young, and the R-410A issue is not going to help. “We’re getting into more treacherous water with the consumer, and R-410A may complicate things even more.”

The result is that consumers may look for other options that do not include repairing or replacing their cooling systems, said Hanesworth. “Window unit sales are up, and there seem to be a lot of people looking at that option instead.”

LABELING AND MAINTENANCE

Offering private-label equipment is one way in which contractors like to differentiate themselves from the competition; however, the CEOs were not too thrilled with this idea when asked about it at the forum.

“It’s not something we’re excited about,” said McDonough. “We spend a lot on name recognition, and there’s a lot of equity in that brand name. While I don’t reject private labeling as being unacceptable, I don’t see how we can derive value from it.”

Young agreed, stating that the purpose of a particular brand name is that it stands for something, and a private label doesn’t have that same kind of status.

Maintenance is another issue that contractors are concerned about, and the CEOs were asked if they would consider doing more to promote the importance of maintenance to their dealers, as well as to end users. Young stated that “everyone recognizes the importance of maintenance. We try to instill in the customer how important this is. The challenge is getting people to believe it. We will continue to push that.”

Communicating systems will also help with maintenance, noted Hanesworth, and almost all manufacturers are developing these types of systems. “It helps when the thermostat reminds homeowners when maintenance is needed. Hopefully we’re getting close to the point where people think about system maintenance as they think of getting the oil changed regularly in their cars.” He added that service agreements are the best way to keep customers thinking about regular maintenance, and these also help contractors hold onto their customer base.

McDonough agreed, noting that contractors have the most direct link to customers, and they are the ones who need to have an ongoing dialog about maintenance. “I think we do a good job, though. We do a lot of training, and we provide a lot of manuals.”

CALIFORNIA AND THE FUTURE

Everyone has heard the term, “As California goes, so goes the nation,” and the CEOs were asked about the current regulations regarding HVAC in the Golden State.

Young asserted that “The state has some aggressive goals, including increasing efficiency 50 percent by 2020. However, very few jobs are permitted, and it takes a long time to get a permit. We’ve seen the effect of beating people into submission, so we need to turn it around and look for a different opportunity, such as NATE [North American Technician Excellence]. NATE helps the state and the consumer, and if California can tie NATE into its utility programs and make the permitting process easier, people will get onboard.”

California is addressing the crucial issues of proper installation and maintenance, but requirements in these areas can make it difficult for all consumers to benefit, said McDonough. “California is developing a long-term HVAC vision for the state, however, sometimes the threshold is so high that it’s impossible to reach. There are definitely real - and realistic - opportunities that can be found, though.”

As for the future, all the CEOs were eager to discuss the equipment they plan to offer over the next few years. McDonough noted that different technologies will take hold, as evidenced by the fact that sales of ductless and geothermal systems are growing. “We’re working hard on designing more user-friendly controls, and we also have a long way to go with variable-speed technology. There’s a move to go to EER instead of SEER, though, and that concerns me because it could affect how we use variable speed.”

Young stated that it is necessary for manufacturers to challenge conventional thinking about efficiency. “One way to do that is the use of solar power to augment the unit. We have to think about how we can change conditions in the home without relying on the grid. It’s true that ductless and geothermal will have their place, however, we have a ducted base, and that’s not going to change.”

While it’s exciting to talk about what the future may hold, there are continuing issues surrounding the systems that are currently offered to consumers. As McDonough noted, “We can design more-efficient equipment, but there are poor installations and leaky ductwork, and that doesn’t help.”

Hanesworth agreed, stating, “I think we need to focus our attention a lot more on installation. We need to make sure sizing is right and installation is right.” He added that Rheem is currently researching products that marry hot water with heating and cooling.

The contractors in the audience responded favorably to the CEOs’ visions of the future and to their assessments of current issues in the HVAC industry. One attendee - Debra Risher, Belair Engineering and Service Co., Mitchellville, Md. - thought it was the best CEO Forum ever conducted at the conference, adding, “It was fabulous.”

Publication date: 03/23/2009