When the first round of tariffs on steel and aluminum were announced earlier this year, many HVAC manufacturers responded by raising prices on their equipment. This led to concerns that higher prices would cause customers to repair their systems, rather than replace them, and a second round of price increases from some OEMs later in the summer magnified that concern.
However, based on a recent report from the Air-Conditioning, Heating, and Refrigeration Institute (AHRI), it seems that customers were not fazed by the higher price of cooling equipment. Indeed, year-to-date combined shipments of central air conditioners and air-source heat pumps increased 7.3 percent through August, with central air conditioner shipments increasing 4.8 percent and heat pumps increasing 12.3 percent. Contractors reported similar findings, noting that even though cooling equipment was more expensive, homeowners still opted to buy new systems.
NO SUMMER SLOWDOWN
Sales of residential heating and cooling equipment increased about 15 percent this summer at Homesense Heating and Cooling in Indianapolis, which co-founder Brian Schutt considered to be good but not great.
He noted that while increased equipment prices due to tariffs did not impact the company’s sales negatively, it certainly increased its prices, which were 5 to 10 percent higher than a year ago.
Schutt used his blog, as well as local news coverage, to let his customers know that the tariffs would result in higher equipment costs.
“Our goal is to always provide an unmatched client experience, and sometimes that means being a consumer advocate,” he said. “The goal in promoting the looming price increase was to help homeowners who were on the fence about purchasing a new system make a decision that would save them a significant amount of money.”
Even though Total Comfort Solutions LLC in Walla Walla, Washington, did not advertise the impending price increases, its residential add-on replacement sales were up 21.5 percent this summer compared to last year, according to Maureen Hall, office and accounting manager.
She noted that the company experienced a 15 to 30 percent increase in the price of equipment this year, yet customers still opted to replace their systems rather than repair them.
“Customers have asked why the price is so high, and our sales consultants have told them about the tariffs and how prices go up all the time,” said Hall. “But we are very happy with how well our sales went this summer. I would say it was between a good and a great season for us.”
And there is no question that it was a great season for Hagerstown Heating and Cooling, Hagerstown, Maryland, which saw its cooling equipment sales jump 40 percent this summer compared to last year. Owner John Poyle said that tariffs had no effect on sales, even though equipment costs increased between 4 and 8 percent.
He believes that’s because the customers who are purchasing replacement systems typically do not buy them very often, so they do not see the yearly increases.
In addition, he credits his employees, who truly believe in the quality and value of the products they are selling.
“If our sales went down due to an equipment cost increase, I think I should be looking to replace my comfort consultant,” joked Poyle. “We have had all technicians use some of the IAQ products, and when our staff needs new equipment, they purchase the elite systems so that they can understand what all the buzz is about in the field. When everyone is on the same page, the synergy really works.”
Cooling equipment sales were also up this summer at Classic Aire Care in St. Louis despite the rise in costs.
“We didn’t notice an effect from tariffs on sales, and it really wasn’t a topic of conversation amongst our customers,” said Trevor Miller, vice president of sales and operations, Classic Aire Care. “We had a good, long season of warm weather from April through the first part of October, which helped keep our phone ringing. We were very happy with our business this summer.”
Miller noted that they did not use the tariffs in any type of advertising and that the team just focused on providing the highest quality systems for their customers.
“We try to offer several options and let customers choose for themselves what works best for their home and family,” he said. “When we can sit down and discuss options with homeowners, most end up seeing the value of purchasing comfort and a quality installation.”
David Laury, director of sales, Laury Heating, Cooling, Plumbing, Vineland, New Jersey, offers a similar sales approach — that is, offering several systems and allowing customers to choose what works best for their situation. While his company’s equipment sales were flat this summer, he noticed that fewer customers purchased premium brand-name systems, citing higher costs as the reason.
“It’s becoming more difficult to sell the higher-quality equipment now due to tariffs, so we’re selling more of the less expensive brands,” said Laury. “Customers just can’t afford the higher-end units right now. We are also located in one of the poorer counties in the U.S., which makes premium units a tough sell.”
Laury said that prices on equipment have increased anywhere from 3 to 20 percent this year, depending on the brand, which definitely affected the type of units purchased.
“We primarily sell base level 13- or 16-SEER units in our area,” he noted. “We do sell some of the 17- to 21-SEER variable-speed units, but that’s usually a little north of here, where people are more concerned with comfort and efficiency. Where we are, customers are usually more concerned with price.”
HEADING INTO FALL
In addition to higher equipment sales this summer, many contractors noted that customers were increasingly interested in purchasing Wi-Fi touchscreen thermostats. According to Miller, these types of thermostats seem to be all the rage.
“I wouldn’t say they’re driving the sales, but they are an added accessory that people can get excited about,” he said.
Schutt saw a jump in the number of clients opting to buy extended labor warranties on their new equipment this summer, while Poyle noted an increased interest in the REME HALO® in-duct air purifier. In fact, the purifier sold so well that Poyle is entering into a self-branding program with the manufacturer.
Ductless systems sold briskly this summer, said Hall, as did IAQ filtering systems and prepaid maintenance contracts.
“We talk to our technicians frequently about why it is a benefit to the customer, our company, and them to help sell all of these items,” she said.
Heading into fall, most contractors are optimistic about heating equipment sales, although there are some lingering concerns.
As Schutt noted, the business is weather driven, so if it is not a cold winter, then customers won’t call. That said, he is planning for a 30 percent increase in sales from last winter and plans on hiring staff to support that demand.
“Looking further, though, I have concerns that the macroeconomic impact from questionable federal economic policies, like exiting the Trans-Pacific Partnership (TPP) and the tariffs directed at China, Mexico, and Canada, will reduce disposable income, consumer confidence, and ultimately curb HVAC equipment demand, among other broadly negative results,” said Schutt.
Laury agreed, adding that “Due to the tariffs, I think it will continue to be harder to sell the higher-end furnaces. Our numbers will be about the same, but we will be selling fewer high-quality units. If you can do something to make these tariffs go away, I’d appreciate it.”
Publication date: 10/29/2018