Contractors' Outlook Remains Cautious
Weighted and averaged into one number, a CCI of 50 or above reflects anticipated growth. The number for December 2011 was lower than 12 months earlier, when the CCI was 61.
Even though the recession was technically over several years ago, and some economic indicators point to a modest recovery, HVAC contractors remain cautious, as evidenced by the Air Conditioning Contractors of America (ACCA)'s December Contractor Comfort Index (CCI), which measured 53.
The CCI is a survey of the association's contractor members who are asked how positive they feel about new business prospects, existing business activity, and expected staffing decisions in the short-term future. Weighted and averaged into one number, a CCI of 50 or above reflects anticipated growth. The number for December 2011 was lower than 12 months earlier, when the CCI was 61.
IT'S THE ECONOMYThe reason for the lower number is that there has not been a full recovery yet, and the economy will continue to be a concern until there is more stability in general, noted ACCA CEO and President Paul Stalknecht. That being said, some contractors are doing really well, despite the poor economy.
"We have been hearing from some contractors that 2011 was one of their best years, and we heard that about 2010 as well," said Stalknecht. "To us, that says that contractors who focused on their businesses and made good decisions when the economy was the toughest are able to continue to thrive regardless."
The best contractors, he added, have refused to participate in the recession, doubling down on their investments in marketing and operational improvements. "They've managed the downturn well and are set to explode when and if the economy begins to pick up."
One issue that did have a big impact on the industry in 2011 was the reduction in tax credits, which resulted in lower revenue for contractors during this past summer compared to the previous cooling season. "The fact that there are no more 25c tax credits at all, at least for now, may not have as much of an impact. The big shock was the comedown from 2010 in 2011, so contractors may be better prepared for the change in 2012," said Stalknecht.
Even though the 25c tax credits are gone, Stalknecht is quick to point out that there are still some state and local credit and financing programs available, and contractors should make sure they understand what's available in their area. In fact, ACCA has a website tool designed to help contractors find available programs online at www.acca.org/consumer/dsire.
Some contractors are not as concerned with the loss of tax credits, as they have found that diversifying their service offerings has boosted their sales. "Our members are not just cooling and heating contractors anymore. They are focusing on energy efficiency, indoor air quality, and how to make their customers' homes or businesses better as a whole. Smart contractors will continually look for ways to improve their operations and build on existing relationships."
Building on those existing relationships has resulted in many HVAC contractors expanding into other service fields, including home performance, solar, plumbing, security, and energy management. In fact, Stalknecht sees this as one of the most significant trends currently taking place, however, he advises contractors to be cautious when expanding their offerings. "It's easy to sink a lot of money into a new business area, but if contractors don't know enough about it, or if they aren't prepared to manage it, they can lose that money just as easily."
This is why it is more important than ever for contractors to think of themselves as business owners, not technicians, said Stalknecht. "Those contractors who still think of themselves primarily as tradespeople, focused on technical skills while ignoring business leadership skills, will find themselves being squeezed out. To grow into a new business area, contractors have to understand first and foremost how to lead a business."
LOOKING AHEADWhile contractors remain concerned about the economy, they are also carefully monitoring the activities of the U.S. Department of Energy (DOE). Over the next 12 months, the DOE will be developing an enforcement policy for the regional energy conservation standards that take effect on May 1, 2013. Regional standards have never been tried before, and an effective enforcement policy must both protect the upstanding contractors and distributors while limiting any burdens, including paperwork and recordkeeping requirements, noted Stalknecht. Contractors are also very concerned about the DOE setting "Workforce Guidelines" for contractors that would require a new certification.
Another area of concern is the politicization of the Department of Labor and National Labor Relations Board (NLRB) rulemakings regarding union organizing practices, said Stalknecht. "Both agencies are in the process of rewriting rules that govern how a company can respond to and address an organizing drive. In the past year, the NLRB has required employers to post information related to organizing rights in the workplace and tried to shorten the time frame between the filing of a union petition and a certifying vote. The Department of Labor is looking to limit what an employer can do or say to its own employees before the certification."
ACCA will continue to support its members in these areas by working extensively on Capitol Hill, as well as in state capitals and with local chapters, in order to help contractors overcome their legislative and regulatory challenges. "Our members are definitely more engaged in government affairs than ever before, and they've mobilized to send thousands of messages to elected officials through our grassroots programs."
Another way in which ACCA plans to continue supporting contractors is through its Quality Assured (QA) recognition program, which is required for any contractor who plans to install systems in Energy-Star labeled homes. "We are also working on an existing home program that will help contractors distinguish themselves as the best of the best in the industry because they perform quality installations, with properly sized and installed systems, which ultimately make the homes more efficient," said Stalknecht.
This program will come at a perfect time, as there are many aging units in the field that need to be replaced, and contractors will be able to capitalize on that. "There are also many opportunities for contractors to help customers become more energy efficient. It's a matter of contractors capitalizing on the opportunities and showing their customers the value and ROI on replacements and upgrades."
While the coming years may provide plenty of opportunities for some contractors, others will falter, which is why there may be some consolidation activity on the horizon. "I don't think we will see consolidation on the same scale as the 1990s, but we may see more and more contractors combining with each other, and with outside parties, in order to deal with the new complexities of multiple technologies, multiple services, and more stringent regulations," said Stalknecht.