Future for HVAC Contractors Looks Like Auto Dealers Today

Rodney Koop, founder and CEO of The New Flat Rate, said HVAC contractors should pass along prices the same way car dealers do. Koop points out that car prices keep rising and people keep buying cars. He’s right. New-car prices set a record in July, with the average price coming in at $42,736, according to Kelley Blue Book. And people were still buying them as fast as they dealers could get them in stock. The average number of days a new vehicle sits on a dealer lot before being delivered fell to a record low of 31 that same month, according to J.D. Power. It’s the same story on the used side.

Higher Prices Lead To Longer Terms

So people will pay more, especially if they can finance the purchase. Consumers increasingly want to finance their HVAC purchases with dedicated credit, and more financial entities are giving them the opportunity to do that. Ally Bank entered the home services market last year, but can trace its history in auto finance back to the end of World War I. Auto finance, like other forms of finance, is all about the monthly payment. As vehicles grow more expensive, finance terms stretch out farther into the future to keep those monthly payments low. Of course, this gives manufacturers the ability to raise prices even more, and a circle of higher prices/longer terms develops.

Speaking of pricing, consumers today have access to more information than ever before, and that includes information about costs. HVAC contractors hesitate to share too much pricing information prior to meeting with a potential customer. Auto dealers were the same way, but companies such as TrueCar and Kelley Blue Book have made it difficult for them to do so. People just expect to know the price upfront now.

Leasing is another way the auto industry provides consumers access to a vehicle with lower monthly payments. Notice I said access. The lessor remains the owner of the vehicle, which provides several benefits but also brings challenges. One of these is what to do with the vehicle at end-of-term. The inability to come up with a good solution for that caused major problems for banks in 2001. That said, if done properly, leasing is a useful tool to increase sales. And now it’s coming to the HVAC business.

Financing can be great for improving customer relations. It gives consumers more options. But it also brings some risk. What happens when something goes wrong with either the payments or the product? These problems can lead to increased scrutiny, and that can lead to increased regulation. HVAC contractors are used to dealing with environmental regulation, but financial regulation could be a new source of concern.

Smart Systems Need Smart Technicians

The other source of growth for regulation comes from data privacy. HVAC contractors are collecting more and more personal information from consumers all the time. Most of it is benign. The temperature a person sets on a smart thermostat usually isn’t as crucial as information from a car’s GPS. But what about when that smart thermostat is connected to that GPS to start cooling or heating the home as the owner approaches? That’s the future Elon Musk envisions.

As HVAC systems grow smarter, contractors will need techs with more computer skills. Cars grow more into rolling computers every year, and as a result, most people can’t work on them. Gone are the days of taking the car to Wally’s Service Station, much less DIY. For HVAC contractors who already find hiring a challenge, visit your local car dealer and ask how easy it is to find qualified mechanics.

The increased demands of consumers, regulators, and the equipment itself will place pressure on HVAC contractors. Larger groups that can hire a full-time privacy manager and attract the most-skilled technicians will have an easier time meeting those demands. Both auto sales and HVAC contracting remain very fragmented businesses, but dealership consolidation has been steadily growing for decades. Now the same is starting to happen in the HVAC business.

None of this is bad news. There will be plenty of opportunities for HVAC contractors who keep up-to-date, hire well, and invest in their businesses, the same way the best auto dealers do. Just make sure that’s you.

I joined The ACHR NEWS a little over two years ago. I had spent the 19 years before that covering automotive retailing, with a focus on the used-car market. I thought there were many similarities between the two fields then. I find even more similarities between them today. In fact, I would say the future of the residential HVAC business looks a lot like the current state of automotive retailing.

One area is price. HVAC contractors have seen double-digit price increases for equipment this past year, along with higher prices for other supplies such as sheet metal and increased overhead costs. This has some in the business worrying about how to pass those higher costs along to consumers.

Rodney Koop, founder and CEO of The New Flat Rate, said HVAC contractors should pass along prices the same way car dealers do. Koop points out that car prices keep rising and people keep buying cars. He’s right. New-car prices set a record in July, with the average price coming in at $42,736, according to Kelley Blue Book. And people were still buying them as fast as they dealers could get them in stock. The average number of days a new vehicle sits on a dealer lot before being delivered fell to a record low of 31 that same month, according to J.D. Power. It’s the same story on the used side.

Higher Prices Lead To Longer Terms

So people will pay more, especially if they can finance the purchase. Consumers increasingly want to finance their HVAC purchases with dedicated credit, and more financial entities are giving them the opportunity to do that. Ally Bank entered the home services market last year, but can trace its history in auto finance back to the end of World War I. Auto finance, like other forms of finance, is all about the monthly payment. As vehicles grow more expensive, finance terms stretch out farther into the future to keep those monthly payments low. Of course, this gives manufacturers the ability to raise prices even more, and a circle of higher prices/longer terms develops.

Speaking of pricing, consumers today have access to more information than ever before, and that includes information about costs. HVAC contractors hesitate to share too much pricing information prior to meeting with a potential customer. Auto dealers were the same way, but companies such as TrueCar and Kelley Blue Book have made it difficult for them to do so. People just expect to know the price upfront now.

Leasing is another way the auto industry provides consumers access to a vehicle with lower monthly payments. Notice I said access. The lessor remains the owner of the vehicle, which provides several benefits but also brings challenges. One of these is what to do with the vehicle at end-of-term. The inability to come up with a good solution for that caused major problems for banks in 2001. That said, if done properly, leasing is a useful tool to increase sales. And now it’s coming to the HVAC business.

Financing can be great for improving customer relations. It gives consumers more options. But it also brings some risk. What happens when something goes wrong with either the payments or the product? These problems can lead to increased scrutiny, and that can lead to increased regulation. HVAC contractors are used to dealing with environmental regulation, but financial regulation could be a new source of concern.

Smart Systems Need Smart Technicians

The other source of growth for regulation comes from data privacy. HVAC contractors are collecting more and more personal information from consumers all the time. Most of it is benign. The temperature a person sets on a smart thermostat usually isn’t as crucial as information from a car’s GPS. But what about when that smart thermostat is connected to that GPS to start cooling or heating the home as the owner approaches? That’s the future Elon Musk envisions.

As HVAC systems grow smarter, contractors will need techs with more computer skills. Cars grow more into rolling computers every year, and as a result, most people can’t work on them. Gone are the days of taking the car to Wally’s Service Station, much less DIY. For HVAC contractors who already find hiring a challenge, visit your local car dealer and ask how easy it is to find qualified mechanics.

The increased demands of consumers, regulators, and the equipment itself will place pressure on HVAC contractors. Larger groups that can hire a full-time privacy manager and attract the most-skilled technicians will have an easier time meeting those demands. Both auto sales and HVAC contracting remain very fragmented businesses, but dealership consolidation has been steadily growing for decades. Now the same is starting to happen in the HVAC business.

None of this is bad news. There will be plenty of opportunities for HVAC contractors who keep up-to-date, hire well, and invest in their businesses, the same way the best auto dealers do. Just make sure that’s you.