ORLANDO — The Air Conditioning Contractors of America (ACCA) always places at least one exclamation point squarely on its annual conference and trade show — the CEO Forum.
On March 1, Kyle Gargaro, editor-in-chief of The NEWS, moderated what has become a must-see event for attendees. ACCA Chairman Bobby Ring Jr. captured the essence of the forum when introducing Gargaro, stating, “You never know what someone is going to say up here.”
And, with that, The NEWS continued an 11-year-old tradition of hosting and moderating the association’s premier event before a near-capacity audience.
Lee Rosenberg, chairman of Rosenberg Indoor Comfort, San Antonio, former ACCA national chairman, and a founding member of Service Roundtable, said, “As you can tell by the attendance, this is by far the most popular session for contractors to attend. We get the opportunity to hear industry leaders’ views about the economy, legislative and regulatory issues, and business trends that can make a difference in our businesses.”
Six executives took the stage including: Chris Nelson, president, residential and commercial systems, Carrier Corp.; Dave Swift, CEO, Goodman Mfg.; Gary Michel, senior vice president and president, residential solutions, Ingersol Rand/Trane; Rodney Rushing, vice president and general manager, unitary products, Johnson Controls Inc.; Doug Young, president and COO, Lennox Intl.; and Chris Peel, COO, Rheem Mfg.
Questions for the panelists were submitted by ACCA members prior to the event. Gargaro opened by asking about the economy and its effect on the HVAC industry.
Rushing, of Johnson Controls, said that though the last few years had been slower than most had hoped, “It has been consistent with what we expected; a slow lift, I would call it. We expect that 4 to 5 percent growth is likely in the next few years.”
Young commented, using a keyword from Rushing that resounded with the panel a number of times, “We know that there is a lot of add-on replacement pent-up demand, but the question is when is that really going to lift our businesses? Are we at the bottom of that add-on replacement point and are we really digging out from that point yet? Cautious optimism is still appropriate until we see that momentum. Then, we expect it to be very strong.”
Peel, of Rheem, expressed caution as well, “Sequestration cuts are looming. A 2 to 3 percent growth would be very nice — but very fragile.”
Young generated laughter from the audience as he answered Gargaro’s question about why the government’s “fiscal cliff” deal included a retroactive 25C tax credit extension. Young asked in government speak, “Why would we give a credit to someone who already did something that they didn’t know they already spent the money to do anyway?” After a pause, Young said, “I’m not even going to try to explain my question,” which brought more laughter from the audience. Comments on the tax credit extension varied from Young’s questioning of the necessity, to Goodman’s Swift, who said, “I think it is a good opportunity for marketing to consumers,” he said, referencing consumers who may still find a need that an incentive could trigger.
Nelson, of Carrier, said, “After prior tax credits expired, consumer behavior changed,” inferring that the incentives may actually have made a positive difference.
Michel, of Ingersoll Rand/Trane, said, “Thirty-eight states have utilities that have rebates,” and that rebates and credits are often needed and beneficial, or else they would not be so prevalent in utility marketing schemes.
Others on the panel suggested the tax credits actually pulled forward some sales thereby leaving a trough where an otherwise more level flow of sales would have been. Rushing said, “If the government is going to spend the money I think they should really ensure that licensed, certified contractors are the only ones that can offer the incentive.”
ACCA members wanted to know about the confusing “No Action Assurance” letters from EPA that were sent in January to producers and importers of R-22 and R-142b refrigerants. In effect, the No Action Assurance letters informed producers they will not face fines and penalties if they keep production of new HCFCs at or below certain levels. Those are reduced levels as compared to 2012, which are down from 2011.
Peel said, “Clearly the allocation effects are kicking in,” referencing the increasing market prices of R-22 product that contractors are experiencing.
Several of the panelists expressed concern over the continued use of dry-ship R-22 products, though all noted considerably less use of the refrigerant than in the past two years. Swift took a somewhat contrarian approach, suggesting that some consumers still prefer the dry-charge option, especially those who find themselves strapped for cash. “The replacement and add-on market is not growing as much as all of us would like to see. The more options consumers have, the better it may be,” said Swift.
Discussion turned to HVACR industry business segments, centering on which areas appear the quickest and most likely to rebound from the economy’s doldrums.
Peel, of Rheem, said, “The replacement market used to represent between 37-40 percent of our industry, now it is closer to 27 percent.” All generally agreed that residential new construction (RNC) would lead the charge, and Michel of Ingersoll Rand/Trane said, “High efficiency is expected to represent the most growth in RNC for Trane.”
More related to product segments, Rushing noted “The growth of mini-split products is much higher than the growth of the unitary business.”
“However, mini-split, or ductless, products are still considered a small portion of total purchases in North America,” Nelson said. “People want to have more control of their systems. Remote or mobile solutions are a growth area for all of us.” He added that multifamily RNC is expected to grow in the near future.
Michel noted, “Rather than think of themselves as contractors, ACCA members should think of themselves as home-performance experts — that is a growth market for HVAC.” He also said that there is a huge need to “educate home builders to better understand how to help our systems to be designed into the structure in such a way as to make them both efficient and comfortable for the owners.”
When Gargaro asked what advantages manufacturers are willing to give NATE (North American Technician Excellence) contractors, Young said, “We start with the premise that NATE is good for the industry. However, a better-satisfied consumer results in a more profitable situation for us and for contractors. At Lennox, I think we spend more resources today in support of NATE than perhaps any other manufacturing company. The training we provide leads to NATE certification.”
Many manufacturers and distributors provide training, training sites, and test sites, and some assist with NATE certification test costs.
Swift, who is also the chairman of NATE, described Goodman’s involvement: “There is a role for manufacturers to play; I believe incentives are needed, and we at Goodman are offering to pay for the certification test and also offer lower prices on some products. We think that if we really do reap the benefits of lower warranty costs, as a result of NATE technicians, then we should contribute an investment toward that.”
As the discussion turned to technology, the manufacturers led with a discussion on open protocols versus proprietary protocols. Rushing, of Johnson Controls, said, “Historically, our products have long life cycles. We are now marrying an industry that has been slow with one that is inherently fast because these intelligent control products change rapidly.” Rushing also suggested that a manufacturer may better serve customers by maintaining a consistent communication protocol within its own line of products because other, broader protocol changes may be difficult to predict.
Nelson, of Carrier, seemed to concur when he said, “All of us are working on things, but I don’t know if we all know how the future plays out with communication protocols. As Rod [Rushing] mentioned, there really is no agreed upon protocol.”
Peel said, “When you don’t have interactivity at a component level, it often is left to occur at a higher level such as Wi-Fi. We should really develop agnostic interdependence, but we don’t have a protocol that allows us to comfortably do that yet.”
Following the discussion point brought up by Peel, Michel stretched the conversation in a different direction. “At Ingersoll Rand/Trane we envision a world in which we ask whether we really need a thermostat control on the wall when you can actually control a system from your phone? That changes protocol discussions with regard to product development.”
As time ran out on the CEO Forum, Swift had the final comment and all were left to ponder his final question: “I would like to know why everyone doesn’t standardize to Emerson’s Climate Talk protocol? I think we can’t afford to continue building proprietary products that won’t communicate.”
As is always the case, the ACCA CEO Forum answered some questions, left some unanswered, and prodded the ACCA membership to continue thinking about what questions they will ask the industry’s manufacturing leaders at next year’s event.
Past CEO Forum videos are available at http://www.achrnews.com/video.
Publication date: 3/25/2013