CEO Roundtable Resonates with Contractors
Company Executives Examine Economy, Home Automation, and More at 2014 ACCA Conference
NASHVILLE — Contractors tossed their most pressing questions from the audience floor and then listened, laughed, grimaced, and applauded as six HVAC manufacturing executives addressed the issues of the day at ACCA’s 2014 CEO Roundtable forum, sponsored by The ACHR NEWS.
Kyle Gargaro, editor-in-chief of The NEWS and the forum’s host, laid out the ground rules for the capacity audience, stating that this year, the audience will have the opportunity to ask the questions themselves.
“We are going Phil Donohue style, but not Jerry Springer style — there are some ground rules,” said Gargaro. “Anything that is price- or warranty-related cannot be addressed onstage, for we don’t want any of these fine folks on stage to end up in jail tonight. They made it through St. Paddy’s Day in Nashville, so we don’t want to make the CEO Forum their downfall.”
After introductions and a few more chuckles, Gargaro posed the first question: “How do you see the state of the economy for the industry?”
Chris Nelson, president, residential and commercial systems, Carrier Corp., responded, “A very encouraging part of the optimism is that there seems to be a very balanced growth in our industry. There has already been a lot of talk in the news about the residential new construction economy, but we see the consumer economy recovering as well. We see a balance in residential new construction, but also in the retrofit, add-on business market. We think that bodes well for not only this year, but future years as well.”
Chris Peel, senior vice president and COO, Rheem Mfg. Co., said he’s upgraded his outlook from cautiously optimistic to optimistic. “We’ve had some favorable movement. Last year, the industry was up double digits in a lot of cases, which is something we haven’t seen in many years. This is very encouraging to all of our employees, and to everyone in this room, I’m sure. The potential risk is that we are in a global economy, and something can happen, but we have a pretty positive outlook for the year.”
Steve Lauten, president, Total Air and Heat Co., Plano, Texas, asked the first question from the audience. “It seems that in many states, security company employees who are not licensed are being allowed to install thermostats on multistage systems and heat pump systems. We all know that those can be fairly complex, and the security employees don’t know what they are doing. In Texas, we went up against a lobbyist hired by AT&T, and we lost. What can your companies do to support the industry in that regard?”
The panelists answered with support for HVAC contractors in their battle to protect this business segment, but spent more time suggesting that moving rapidly in the home automation market may be more important than attempting to regulate others from entering.
“We are excited that the attention around home automation and home ecosystems is picking up,” said Gary Michel, senior vice president and president, residential HVAC, Trane/Ingersoll Rand. “What we saw last year is that it is one of the fastest growing areas in our market space. We believe the HVAC contractor is in the best position to control that space. We also believe that there is an advantage to having HVAC contractors not only installing thermostats but looking at the entire performance of the home. We see contractors that are in whole-home performance growing their businesses at a rate of three to five times that of those who are not.” Michel also said that precluding others from entering this market may be very difficult, suggesting that governances vary greatly from one state to another.
“The biggest challenge here is not necessarily figuring out how to deal with AT&T or other security system installers,” said Peel. “It’s a consumer’s market for thermostats. Any consumer can go down to the local retailer and buy a thermostat and put it in. It may be too big a battle to fight. What we are focused on is an evolution of products where an average consumer is not really capable of installing a thermostat, and they are not going to get the full value of the system. Our new EcoNet™ platform is not available through any of those channels; it does provide the capability to do whole-home energy management, but it’s not a self-installed product. Our goal certainly is to make that as prolific as we can among our portfolio of products. Therefore, I think technology will actually help solve that problem perhaps more so than regulation.”
Nelson said, “You’re talking about some pretty big names [AT&T and others] that are interested in this [home automation] space. We need to capitalize on the enthusiasm. If everyone in this room has the right consumer solution, it’s going to be great for our industry. I think we should take that as our thought going forward, not how can we prevent other people from doing it, necessarily, but explain why we are better than them, and then take advantage of it. How long have we wanted to have this conversation about whole homes, about energy management, about connected systems? Now, people are coming to our industry and asking about it. We need to capitalize on that and make sure we educate them about why we are the best. Not any particular manufacturer, but industry-wide, we need to do that.”
“And we have an argument why our systems are the most important for an integrated system in a home. This group brings a lot to the table in that conversation,” said Peel.
Doug Young, president and CEO, Lennox Intl. Inc., said, “I think one of the ways that we attack this as an industry is that we really focus our energy and go after it at the national level, and, if we have to, at the state level. We work very closely with the industry associations to lobby and put our best foot forward. .... We’ll continue to fight the best fight that we can. On the other side of the coin, if you think about the system, we are going to continue to drive smart analytics that are really focused on the thermostat. If we can continue to drive awareness and optimize the system performance through a higher-end solution with a better thermostat, we may be able to move consumers away from what would be considered a relatively simple thermostat to a much more advanced thermostat, where they are much more comfortable, and are provided with a better solution. We’ve got to address both fronts; we can’t just work on one.”
Rod Rushing, Johnson Controls, suggested that saying one thing but doing another in the field can show a lack of support for contractors who are fighting off non-HVAC competition.
“I think at the highest levels, it’s about continuing to support organizations like ACCA and NATE [North American Technician Excellence]. That is fundamental to elevating the performance of our industry, and getting the right contractors. We know from our own experience that when equipment is installed right, our opportunity to please the customer is much better, and our cost to serve goes down. More fundamentally, it’s about the programs we set up that require our brand partners to have NATE certification, and working with our distributors to make that [NATE] training available,” said Rushing. “We have to remain involved as a partner with the organizations that touch that, but we also have to make specifically sure that when we put our brands in the market, we’re doing what we say we’re going to do to support the industry.”
Don Langston, president, Aire Rite Airconditioning and Refrigeration Inc., Huntington Beach, Calif., asked a commercial market question. “Energy choices are being affected by part-load compressor operation, variable-refrigerant flow, and multi-speed variable-frequency drives on indoor fans. Can you speak of advanced technologies in the next few years? This is a tremendous factor in the energy choices that are being made by commercial building managers and owners.”
Nelson responded, “All the products you mentioned are going to continue to grow; you will continue to see more applications. The key to unlocking it all is not the specific hardware that you reference, but the building automation controls. There is so much information coming through a building in so many disparate ways that our studies would say that building owners and facility managers don’t even understand and optimize the capabilities of the equipment that they currently have, much less what will be coming in the future. We think the key is to integrate those systems in a building automation system that gives real-time information to building owners, to help enable them to either make the proper decisions to operate their equipment on their own, or, in the world of big data, autonomously, so those systems can make their own decisions. It is how we extract data from those systems that will really drive the value in the future.”
Brent Schroeder, president, air conditioning business, Emerson Climate Technologies, said equipment will continue to grow smarter. “There is good hardware-compression technology available today in the commercial space, but Emerson is doing a lot to invest in our commercial portfolio to take advantage of the part-load requirements. You will see us come out with more products that have tandems and trios, uneven tandems, uneven trios, and trios with a fixed and variable-speed product together. This will give OEMs a lot of different options to optimize system performance around the part-load requirements in what we think is a very cost-effective manner.”
Rushing said, “We all know there is a variety of products that give you the capability to serve that partial-load requirement, so the technology is there. I think the challenge is: How is the market going to get there? It’s either going to come through regulations or through industry standards that will shift to part-load requirements. The underlying issue is the affordability of the technology. Obviously, as that part of the industry matures, the cost of providing those systems will go down. There are a lot of options in that space to provide alternatives to your customers. I think, from a product management standpoint, we have to get real about getting those products in the portfolio, we have to get the scale in the industry so we can really drive the cost down, and it meets a broader need rather than just a regulatory requirement.”
Steve Schmidt, president, Frederick Air Inc., Frederick, Md., asked, “What happens when government regulations exceed the ability of technology to reach higher efficiency ratings for residential air-to-air a/c and heat pumps?”
Michel said, “First, I don’t think that innovation and the ability to get to higher efficiency ratings is tapped. We will continue to address that, and we have recently launched an even higher efficiency machine, because we can, but that’s not the point. The point is, what really matters to the homeowner, and how do you apply the technologies that are available for the homeowner to ultimately have what they want? How do we provide a more comfortable home that costs less to operate?”
“I find it intriguing to think about, being forced to get to a higher efficiency,” responded Young. “If you just look far enough out, we are going to have to make a change on the refrigerant front. We are going to have to move away from R-410A and go to a new refrigerant. As the manufacturers are working with the supply base on what that new refrigerant might be, I think what we are finding is that the efficiency levels in the future are going to be more challenging, not less.
“I don’t think we are capped on the efficiency levels today, but I think we are pushing the upper limits,” continued Young. “More importantly, I think in 2020 we will be very challenged as an industry to keep our heads above water of the efficiency regulations. All of those refrigerants have a lower efficiency index than what we are using today. So, I think the challenge will be greater in the future, not less.”
Schroeder said the challenge is not to provide 28, 30, or 35 SEER, but to deliver 15, 16, or 17 SEER in a way that’s more cost-effective to the homeowner. “That’s a lot of the discussion around next-generation technology — not how efficient we can make the equipment, but how can we deliver what is already an efficient rating more cost-effectively. As an industry, we have to work closely with the DOE [U.S. Department of Energy] and the regulatory bodies, because, quite frankly, they don’t necessarily appreciate the cost-benefit of some of the things they are suggesting. Anything we can do to educate them on the applied costs of some of these technologies, or what the return to the consumer might be, I think that will help us have regulations that are manageable and beneficial to the consumer.”
In closing on the energy-efficiency discussion, Peel said that the industry is somewhat a victim of its own success. When the policy makers see that 23-28 SEER products are available, they assume that even higher is obtainable. However, the cost-benefit connection is not always made by those charged with regulating the efficiency standards.
To hear the complete recording of the CEO Contractor Roundtable, visit http://bit.ly/2014CEORoundtable.
Publication date: 4/14/2014