Don't look for this year to be an easy one for the heating and cooling industry, but there likely will be opportunities for growth - as long as fuel prices don't get out of control.
That's the overall opinions of a number of major HVAC manufacturers Distribution Center contacted for their predictions on business conditions for 2012.
Distribution Center reached out to Ken Rothgeb, vice president of sales and marketing for Rheem's air-conditioning division; Jamie Byrne, vice president of sales with Trane; and Bob Labbett, the vice president of marketing and distribution services at Emerson Climate Technologies. We asked them to use their crystal balls to tell what they think the year will bring for the industry overall, as well as their companies in particular.
And for good measure, we also spoke to Alan Beaulieu, president of the Institute for Trend Research and chief economist for the Heating, Air-conditioning & Refrigeration Distributors International (HARDI). Beaulieu spoke to HARDI members at the group's conference in Hawaii last September, and we wanted to see if any of his predictions on 2012 had changed since the start of the year.
Expect a generally flat year for 2012, according to Byrne and Rothgeb.
"We're hopeful for a slight improvement over 2011, primarily due to the impact of the multi-family market, but overall we see the industry remaining flat," Byrne said. "We're taking a very realistic view of what 2012 will bring. We're optimistic that we may experience a slightly stronger year than 2011, but are well aware of the economic challenges that impact us all. Our focus is on providing the best products for every segment of the market and offering the support and tools to our dealers so they can be successful."
Rothgeb said there are several negative economic trends that prevent major growth right now, among them the continuing foreclosure crises.
"U.S. homeowners are dealing with unprecedented realities, which ultimately still affect HVAC purchases," he said. "For example, approximately 7 million U.S. homeowners are 'under water' on their mortgages. When these homeowners experience a need for a new HVAC system, they're less prone to upgrade to a more technologically advanced and efficient model. That's because even though the upgraded HVAC system will decrease monthly utility bills and add value to their home, the homeowner will still be under water with his/her mortgage. So, there's very little incentive for them to invest in a more advanced system if they're still going to take a loss on their home when it sells."
Labbett said the best the industry can hope for in 2012 is slow-to-moderate growth.
Consumers in 2012 will be seeking out energy- and money-saving products, and manufacturers have to respond, Rothgeb said.
"The current forecast for escalating fuel prices in the coming months is a concern as that has significant cost impact on all business and consumers both directly and indirectly," he said.
"The industry experienced a significant shift to a lower-tier, value-type product mix in 2011, and we expect that to continue in 2012. A key issue for 2012 will be the need for energy-efficient HVAC products that meet a price point consumers can reach."
Byrne echoed his comments.
"One of the major challenges in 2012 will be adapting to the rapidly changing consumer behavior," Byrne said. "Consumer buying patterns continue to change, post-recession, and as a manufacturer, we need to continue providing products that consumers want and need. Consumers want to get the most for their money. They want quality and value, and are viewing purchasing decisions through the lens of a challenging economic time."
REFRIGERANTSAnother subject on which there was agreement was industry ambiguity due to proposed changes in the use of refrigerants such as R-22. The issue concerns Labbett and Rothgeb.
"The dynamics of efficiency regulations and new refrigerants will continue to have a significant impact on the market," Labbett said.
But Labbett pointed out that Emerson is being proactive despite the uncertainties.
"We continue to spend on product research and development to maintain our technology leadership and to expand our offering with value-added services," he said. "Driving business efficiency is also a top priority to improve how we operate and to exceed our customers' expectations."
At Rheem, Rothgeb said his company is also continuing to invest in new products.
"Rheem's recently opened Advanced Technology Integration (ATI) lab, located just outside of Indianapolis, will substantially bolster our R&D efforts for these next-generation solutions while also improving our speed to market," he said.
Officials with all three companies said the distributors that make up HARDI's membership continue to be a vital part of their success.
"Our focus is pretty basic," Labbett said. "Make it profitable for wholesalers to promote, select, and sell our products. This starts with contractor engagement to create awareness for our offering, which drives pull-through sales. It also includes providing the tools wholesalers need for proper product selection and aftermarket support. We're doing this with monthly branch webinars, online chat forums, roundtables, newsletters, mobile apps, and training programs. We are also helping wholesalers manage inventory better and maintain adequate service-fill rates."
Byrne said Trane has introduced a number of new products and programs aimed at helping distributors and dealers, including a new application designed for tablet computers such as Apple's iPad.
"In October 2011, Trane introduced the Trane MAP (Mobile Application for the Professional) to its Trane Comfort Specialist (TCS) dealers. This mobile app gives dealers access to all the sales tools they need right at their fingertips," Byrne said. "While this program is relatively new, it is turning the selling process on its ear and has greatly impacted our sales force, making them more effective and efficient by leveraging technology. It's also helped our dealers stay in tune with consumers, who are already using mobile tablet technology in their everyday lives."
Rheem is revamping its marketing programs to offer more support to dealers and distributors in 2012, and expanding financing options for homeowners, Rothgeb said.
Although the HVAC manufacturers said they expected 2012 to be a relatively flat year, HARDI chief economist Alan Beaulieu is more bullish on the outlook for the association's wholesaler members. He said it should be a pretty good year for most of them. "[HARDI members] should expect to sell more products," Beaulieu said. "Some of it will be new; some of it will be the repair stuff that they have been doing in the last year. But consumers in general will have a little more money; businesses will have a little more money - so HARDI members make a little more money."
If there are any problems on the horizon, Beaulieu said they may occur in inflationary pressures, especially when it comes to commodity prices for metals such as copper and aluminum.
"It's really benign right now, and that certainly is good news, and HARDI members can take solace in that," he said. "But I think that is going to be relatively short lived. As 2012 unfolds and China begins to ramp up its production and the U.S. and the world ramp up their production, I think we're going to find there's some upward push in commodity prices."