Timing is everything.
Carrier is learning that the hard way after announcing its plans to relocate its Indianapolis manufacturing operations to a location near existing Carrier manufacturing facilities in Monterrey, Mexico, last month.
Now, let’s be honest, this is nothing new. Over the last decade, numerous HVAC manufacturers have opened up shop in Mexico. But, unlike Carrier, those announcements were not made amidst a highly charged presidential election that features an outspoken New York businessman who’s getting more television exposure than the Kardashians.
In normal times, this would have been relatively big news in Indianapolis and amongst those working within the HVAC industry. It probably would have gained a 30-second spot on the evening news, and that would have been that. However, after Donald Trump stood on the Republican debate stage and proclaimed he would push for a consensus within Congress to tax each and every Carrier air conditioner made in Mexico that found its way back to the U.S., things snowballed. In fact, the Donald continues to hammer that point in appearances.
While this is not great for Carrier, this conversation could and should be good for our country and this industry — if things progress correctly. Sure, the public can pile on manufacturers such as Carrier, saying they’re putting profits over people and not being good U.S. citizens. That might make some feel better and win some debates, but that does not solve the problem.
Perhaps the first place everyone should look is the amount of regulations the U.S. government places on manufacturing. This was mentioned by Carrier executive Chris Nelson in the press release announcing the move, though it was noticeably vague. Environmental regulations are a lot more lax in Mexico. The U.S. needs to find where the tipping point is in balancing environmental concerns and economic growth. Each is important to the long-term health of this country.
The other part of this discussion revolves around HVACR regulations and legislation, which may be the more contentious reason such moves are occurring. Everyone in the industry knows regulations are coming fast and furious. As soon as one efficiency standard is implemented, a working group starts discussing the next increase. With each increase, products get more expensive for every link of the supply chain. This especially holds true for consumers, who already think prices are too high.
I was speaking with an executive for a big manufacturer earlier this year, and that individual’s biggest concern was that rapidly ascending minimum-efficiency standards were going to turn air conditioners and furnaces into commodities.
As a result, consumers may see very little difference when comparing products from various manufacturers. Without distinction, consumers will begin to make their choices solely based on price.
That dovetails nicely into the second topic for discussion, which is obviously the elephant in the room. Companies move down to Mexico to save money. A big part of that is labor cost. At Carrier, it was reported the average union worker on the line was making $23 an hour. That is about four times what the average manufacturing job in Mexico pays.
Once again, everyone can paint these corporations as the bad guys. But, before you do, answer these questions: Are you willing to pay more for an air conditioner because it was built in America? Some of you will say yes. Are your customers willing to pay more for domestic products? Some of them will say no. Can you have significantly higher costs than your competitor, who was at that same customer’s kitchen table about two hours earlier?
For many, these are tough questions. Before we begin to blame Trump, President Barack Obama, or the powerful unions, let’s first make sure these questions are answered.
Is Carrier making a right or wrong decision? I don’t know. It certainly is not a decision they made lightly. Their brand is taking a bit of a public beating — not fun for any entity trying to do what is best for the company, shareholders, contractors, customers, etc.
In today’s world, among many economic and regulatory factors, it’s become very difficult to reconcile what that best looks like.
Editor’s Note: After publication, Carrier contacted The NEWS to say environmental regulations were not a factor in their decision and that “Carrier products are and will continue to be in full compliance with all U.S. rules and standards, regardless of where they are manufactured. Environmental stewardship is a core value and is reflected in our products, services, and operations.”
Publication date: 3/21/2016