Despite all the concerns surrounding tariffs last year, sales of HVAC equipment were fairly robust. In fact, according to Air-Conditioning, Heating, and Refrigeration Institute (AHRI), the 2018 year-to-date combined U.S. shipments of central air conditioners and air-source heat pumps increased 6.9 percent over 2017, and shipments of gas warm-air furnaces increased 9 percent for the same time period.

While sales were strong last year, some economists predict that the economy may slow a bit in 2019, due to ongoing trade disputes, rising material costs, and increasing interest rates. Still, manufacturers believe demand for HVAC equipment will remain high.



At Goodman Mfg. Co., equipment sales were strong throughout 2018, thanks to favorable economic conditions and unseasonably warm weather. On the latter point, the U.S. experienced its eighth-warmest January to September on record for average temperature, as well as the warmest on record as measured by cooling degree days, said Nathan Walker, senior vice president, Goodman.

As far as economic conditions are concerned, consumers in the HVAC market have been benefiting from a combination of the steady recovery of new construction, low unemployment levels, and high consumer confidence, which help drive spending on large investments such as energy-efficient HVAC systems, he said.

While it is difficult to predict whether consumer confidence will remain strong through 2019, Walker expects that Goodman will see strong growth in the residential sector, which continues to benefit from a recovering housing market and high consumer confidence. Residential replacement demand will also be supported by units from the 2000 to 2006 housing boom that are hitting the replacement cycle.

Mitsubishi Electric Trane HVAC US was also pleased with its sales numbers in 2018, which included double-digit growth in heat pump sales. Its hyper-heating products performed exceptionally well, said Mike Smith, senior manager of marketing communications, and he expects that trend to continue into 2019.

“Our prediction is that our sales in residential new construction will continue to grow in both single-family and multifamily as builders and architects become more aware of this technology,” Smith said. “Builders are becoming more concerned about constructing homes with high performance and giving their customers the technology features they want while being energy efficient. Both the residential and commercial markets place more value on performance and efficiency and recognize the benefits of renewable energy.”

Lennox was also happy with its new equipment sales in 2018, although the company had a manufacturing disruption when an EF3 tornado damaged its Marshalltown, Iowa, manufacturing facility. Even with that impact, the company saw growth in 2018, which indicates a strong economy and a strong industry, said Quan Nguyen, vice president and general manager of Lennox Residential.

“We grew our unit volume over 2017 and would have likely finished in the mid- to high- single digits had we not experienced the tornado,” he said. “I predict a very robust 2019 in comparison to 2018 because of our restored manufacturing capabilities.”

Trane Commercial continued to grow in 2018 by creating value for its customers, said Manlio Valdes, vice president of product management and marketing, Trane Commercial North America. He expects 2019 to be a busy year, as the company will be focusing on innovation.

“This should allow us to continue to grow at a strong pace,” he said. “Our commercial customers are focused on balancing total cost of ownership with environmental sustainability, which is why we expect our high-energy efficiency products will continue to do well.”

On the residential side, Trane remains bullish about the year, with Shawn Laskoski, vice president of marketing and product management - residential HVAC and supply, noting that due to the underlying strength in the economy, the company experienced strong sales in 2018 and anticipates a healthy 2019 as well.



Not surprisingly, OEMs continue to be concerned about tariffs and the effect they will have on the industry, as well as the ongoing uncertainty surrounding HFCs.

“Tariffs have increased the cost of products throughout the industry,” said Nguyen. “In addition to the material costs of steel and aluminum, tariffs have also impacted the cost of other items imported from China, such as smart thermostats. However, the industry as a whole has passed those costs through the channel to the consumer, and it has not impacted demand in 2018. In 2019, tariffs will likely play a role in the price increase, though I think the impact on demand will be muted.”

Goodman will be paying close attention to the California Air Resources Board (CARB), which is promulgating regulations regarding the use of higher-GWP refrigerants, said Walker. Other states have announced intentions to follow California’s lead, which is why Goodman fully supports the U.S. ratification of the Kigali amendment.

“If ratified, businesses will be more certain, as there will be national requirements to move toward the lower-GWP refrigerants,” he said. “Otherwise, we do expect some states to adopt such requirements, whereas other states will continue to allow the current refrigerants.”

Without Kigali ratification, the U.S. market could become more fractured, and the resulting regulatory uncertainty would hinder the development of economies of scale, complicate development cycles, and possibly impact costs, said Nguyen.

“The transition from HFCs to new refrigerants is going to happen globally, regardless of the U.S. position on the matter,” he said. “That is why Lennox has been proactive in transitioning out of HFC refrigerants, having already introduced several non-HFC products in various categories. For residential systems, one possible short-term replacement for R-410A may be R-32, which is already being widely used in Asia and Europe.”

Mitsubishi Electric Trane HVAC US has already been using R-32 in some international markets since 2013, and it continues to prepare for the likely phasedown of HFCs in the U.S.

“One challenge that comes along with this, however, is that lower-GWP refrigerants are sometimes flammable, so U.S. product safety standards and building codes would need to be updated to ensure safe use of any refrigerants introduced to the market,” said Smith. “Due to the different flammability classification and thermophysical properties of the viable replacement options, we foresee a need to develop all-new equipment in the future.”

Another issue that Mitsubishi is watching closely this year is California’s energy efficiency standard for buildings, Title 24, which dictates that in 2020, every newly constructed single-family home in the state must follow a compliance path to zero-net energy construction and incorporate solar systems.

“High-performance heat pumps are well-suited for buildings that run on renewable energy,” Smith said. “By using solar electricity efficiently, they mitigate the challenges that come with current limitations in battery technology. While the legislation represents a terrific opportunity to utilize heat pumps to electrify more buildings, there is concern that delays to compliance will cause confusion in the market. Another concern is a likely increase in construction costs in a market that is already more expensive than the national average. This piece of legislation is one that we are watching closely, as it could have a tremendous impact on our business in California.”

For Goodman, another high priority this year is the potential shift to a new metric for gas-fired furnaces, which becomes effective July 1, and is scheduled to be regulated by three separate metrics with three separate test procedures.

“There is a proposal to a single metric (AFUE2) with a single test procedure, which should help reduce the regulatory burden on manufacturers, as well as reduce confusion for homeowners regarding which metric is most important for them,” said Walker.

Furnace regulations are also top of mind at Lennox, particularly the fan efficiency rating (FER) ruling, which limits the power consumption (watts per cfm) of furnace fans on certain HVAC equipment. After July 3, furnaces may only be manufactured with an electronically commutated motor (ECM), which can be either constant torque or variable speed (inducer fans are not covered under the regulation). In response, Lennox is offering a full line of FER-compliant furnaces that come with variable-speed airflow to precisely adjust the flow of air and control humidity levels for a more comfortable environment, said Nguyen.



The strategic electrification movement that is taking place around the U.S. is just one of the opportunities that Mitsubishi is watching this year. This endeavor involves utilities, state legislatures, and municipalities drafting policies to reduce the amount of fossil fuels being used by 80 percent by 2050, along with increasing the generation of renewable energy.

“By using clean energy to power our vehicles and heat our buildings, we are addressing two of the highest fossil fuel utilization segments,” Smith said. “As more markets look for alternatives to fossil fuels, the expansion of high-performance heat pumps will contribute to growth in these markets.”

The growing IoT market will also be an opportunity for contractors this year, said Nguyen.

“Studies show that 26 billion devices will be IoT connected by 2020, and smart home HVAC technologies continue to advance to meet increasing customer demand,” he said. “Many homeowners enter the market with smart thermostats, which allow people to control their air conditioners and heaters from an app on their smartphones.”

As for challenges, the biggest one for HVAC contractors remains trying to find skilled employees in a tightening labor market. Goodman hopes to help its dealers with this problem through its new Build-A-Tech training boot camps, which are designed to help ramp-up the skills of technicians and installers so that they are more effective and profitable to the dealership.

Lennox also offers Build-A-Tech and Build-An-Installer programs that are designed to help hone the skills of technicians and installers. Nguyen noted that these types of training opportunities are becoming more vital as new HVAC technologies become more sophisticated and the technician shortage becomes more acute.

Even with these challenges, Nguyen remains bullish about the year ahead.

“Unemployment is near record lows, and consumer confidence continues to be very strong,” he said. “In addition, the HVAC industry has the tailwind of the millennial echo, the period in the early 2000s when the new home construction market was very robust. Those HVAC systems are nearing the end of their useful life, which should boost the industry, even in a moderate-growth economy.”

Publication date: 3/25/2019

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