April 2024 Newsletter

A Word from our President

luke 2024

by – Luke Parthemer-Fenix Heating & Cooling

The weather is finally starting to change.  Hopefully it will be a busy and profitable summer for everyone.  A big thank you to Pete Albea with Nu-Calgon for doing a great presentation for us last month.  We had a great turn out.  This month come join us at the Wichita Area Technical School (WTI) on south Meridian.  This is a great opportunity to meet and ask the instructors questions.  Also see first hand what they are teaching in the classroom and give your feedback.  Come join us for a FREE LUNCH and a chance to win $100.  Hope everyone has a great month.

Please feel free to email or call Luke at (316) 945-4842 or lukep@fenixheat.com with any concerns or questions.


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March’s General Meeting

Thank you Pete with Nu-Calgon for the great information you brought to the meeting, we had 25 in attendance. Pete was full of information about the different changes with new products for air care in the home and cleaning solutions.  Big congratulations to Jeff Martinez from WTI for winning $100!!!

Hope to see you @ future meetings!! All general meetings are held on the 3rd Thursday of every month except August & December.


2024 Meetings

 
April 18th                WTI @ WTI
May 16th                WSU Tech @ WSU Tech
June 20th               Dave Lyons 1hr code @ Scotch
July                        NO MEETING
August                   Planning meeting (3rd Tuesday)
 
Reminder to RSVP on website @  kccaks.com

This list is subject to change due to speakers not able to make the date we have selected for them.

HVAC Contractors Need to Adapt to Repair Market

Homeowners Less Likely to Spring for a Replacement System

By Kyle Gargaro

More homeowners are looking to have their HVAC system repaired rather than replaced. (Courtesy of Environment Masters)
March 17, 2024

Repair or replace is a question homeowners often need to answer, and it greatly impacts an HVAC contractor’s business. During COVID, the residential HVAC industry saw a replacement market boom. But in 2023 and now the beginning of 2024, there has been a shift to a repair market that HVAC contractors need to be aware of as they run their businesses.

According to numbers from the Air-Conditioning, Heating and Refrigeration Institute (AHRI), shipments of unitary air conditioners and heat pumps were down 16.7% in 2023, compared to 2022. Gas furnaces were down 23%.

“The replacement market is performing worse when you strip out new construction,” said industry leader Matt Michel. “Housing starts were down around 5%, according to the St. Louis Federal Reserve, so the replacement market for unitary air conditioners and heat pumps was down in the low 20s.”

Distributors are seeing similar numbers, according to the Heating, Air-conditioning, & Refrigeration Distributors International (HARDI).

“We definitely are seeing a shift here. And that shift has actually been visible for some time,” said Tim Fisher, HARDI director of market intelligence.

HARDI receives data from FieldEdge on the invoice and quote trends exhibited by their users. Invoices reflect work that has been completed, whereas quotes reflect potential future work and are most often provided for new system installations. HARDI has found that, over time, the ratio of new invoices to new quotes is a useful indicator of whether a market is trending more toward repair than replace and vice versa.

The numbers show the annual growth rate bottomed out in the spring of 2022 but remained negative through most of the year, indicating that replacement trends were broadly higher in 2022 than in 2021. That figure increased through 2023, peaking in May but generally remaining positive for most of the year. While the three-month growth rate has slowed in recent months — an encouraging sign — they don’t expect much of a negative drift in 2024, meaning that repair versus replace trends will broadly remain similar to where they were in 2023.

So why is this change happening? It can’t be attributed to any single factor but rather a combination of items. Certainly, higher costs of both HVAC systems and housing in general play a role.

“Adapting to the economy is something contractors need to do. We can’t just assume people are going to reach into their pocket and replace,” said ACCA CEO Bart James. “Contractors need to help customers get through the current need. People are slowing down on their spending. People are worried about what is coming and how they are preparing for it. Wages and other things are not keeping up with how fast prices are going up.”

James said reading the numbers shows there is a shift in the home improvement market.

“Just look at the Walmart and Home Depot quarterly projections. Walmart did well with more visits but had smaller purchases, while Home Depot did not hit their numbers. That tells you that people are handling investments into housing differently. That will catch up with HVAC, too. “Contractors need to prepare by making investments in their team to meet the needs of the customer. And that need is not always a replacement option but also can be a repair option,” James continued.

The sluggish home resale market is another reason for the shift towards a repair market. “Home improvement spending, in aggregate, tends to follow existing home sales totals nationally,” Fisher said. “People invest more in their homes prior to selling to boost its value, and new homeowners spend more in their first year of moving than homeowners who stay put. This has major implications for HVAC replacement demand, which, historically, peaks when existing home sales are at their highest and falls off when existing home sales decline.

“Both the 3-month and 12-month growth rates bottomed out earlier in 2023, and while still negative, have slowed significantly,” he continued. “We believe that home sale totals are at or nearing their trough, and over the duration of 2024 should steadily improve and finish at or ahead of 2023 totals.”

The final reason is the cyclical nature of HVAC. It reflects the shipment cliff from 15 years ago, when the industry contracted 40% after peak shipments in 2005. Contractors cannot replace what was never installed.

How do HVAC contractors deal with this shift? Michel believes they should embrace the repair market.

“The money is better in replacements,” he said. “It always has been and always will be. However, margins are better in service. For the next couple of years, anyway, contractors should focus on building up their service business and making money on it.”

Since service involves more labor, and labor carries more overhead than equipment and material, keeping a close watch on overhead expenses is a must.

“Contractors need to build the service base, watch your marketing expenses drop, and down the road, the replacement margins and close rates to a satisfied service base will rise,” Michel said. “Once we get past the shipment cliff, the replacement market will begin a decade-long run with every year being better than the year before it. We know this because it’s what happened in the past, and when it comes to replacements, the past truly is a prologue.”

Contractors in most parts of the country are already feeling the pinch of a slower market, and their experiences in 2024 are unlikely to be much different from their experiences in 2023 though rebounds from the milder temperatures we saw during peak months last year would go a long way in improving demand in 2024.

HARDI advises contractors should consider the following six tactics in ’24:

  1. Offer financing options: Any homeowner considering a new system is likely going to feel some sticker shock if it’s been a few years since they last bought a system. Financing a new system helps to alleviate that shock, making the big sticker prices much more palatable monthly payments.
  2. Protect margins: Work to ensure that your pricing for jobs is consistent with market trends, and attempt to pass through as much of the higher system costs as possible. Likewise, now is a critical time to manage operating expenses closely. Together, good cost management and smart pricing can help protect business margins in 2024.
  3. Educate homeowners: Many homeowners may not fully understand the long-term benefits of replacing their HVAC system versus frequent repairs. Offer educational materials, such as blog posts, videos, or pamphlets, explaining the advantages of a new system in terms of energy efficiency, lower maintenance costs, and improved IAQ. Also, be sure to make clear to your customers which incentives they may qualify for through IRA or other state-level rebate/incentive programs.
  4. Focus on value proposition: Emphasize the value proposition of a new HVAC system, highlighting its reliability, longevity, and performance. Help homeowners understand that investing in a replacement now can save them money and hassle in the long run.
  5. Offer maintenance packages: Create maintenance packages that bundle regular servicing with discounts on repairs or replacements. This can encourage homeowners to invest in preventive maintenance and build a long-term relationship with your company.
  6. Diversify services: Explore diversifying your services beyond just HVAC installations and repairs. For example, you could offer IAQ assessments, smart thermostat installations, or energy audits to provide additional value to homeowners and generate new revenue streams.

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risk management corner

Protecting Your Equipment With Preventative Maintenances 

With inflation costs continuing to rise, preventative maintenance for your equipment and machinery is essential. Staying on top of regularly scheduled maintenance and having trained people available to make repairs is essential for many businesses to maintain daily standards of operation.

The Rising Cost of Repairs

Have you considered the losses you may incur if a key piece of machinery or equipment is broken down for a day, a week, or longer? Items that may impact your equipment or machine upkeep and repairs can include1:

• General wear and tear from regular use
• Unpredictable supply chains if replacement parts are needed
• Higher costs for replacement parts and more demand for repairs
• Old equipment with parts that are harder to obtain
• Less outsourced technicians available to make repairs quickly

Coverage Check

In addition, when was the last time you checked your coverage limits? Don’t risk being underinsured if an important piece of equipment breaks. Costs for replacements could be higher than what you are covered for.

Staying on Top of Preventative Maintenance

How can you take action now to help reduce the changes of running into these issues1 ?

• Ensuring you have enough insurance coverage for replacements or repairs should a failure occur
• Scheduling regular maintenance checks to prevent disruptions
• Embracing new technologies and methodologies, including upgrading pieces of equipment if necessary
• Screening current maintenance plans, using analytics to weigh failures, and adjusting procedures
• Hiring the right people to make repairs if outsourcing is necessary
• Training internally and cross-training to prevent knowledge gaps

To learn and to find resources on creating a preventative maintenance plan, reach out to your local Federated® marketing representative today.
1. https://www.mckinsey.com/industries/electric-power-and-natural-gas/our-insights/maintenance-and-operations-is-asset-productivity-broken. Accessed 1/22/24