• Contractingbusiness 707 0911 Carrier Logo

    A View from The Top

    Sept. 1, 2011
    HVACR Distribution Business interviews top executives at Carrier, Goodman, Johnson Controls, Rheem and Trane. These industry leaders share their insights about the importance and direction of HVAC Systems and Equipment


    When this special issue of HVACR Distribution Business was in the discussion phase, my publisher, John Ehlen, raised the question of how to present an industry overview from the top leadership. With that in mind, we decided to offer our readers an inside view from high-level industry executives to develop a sense of their vision and perspective.

    In the interests of fairness, we asked these executives the same questions so that our reader could better assess their distinctive responses.

    The four questions we proffered are:

    1. What is the state of new technologies that we can anticipate in the near future? What excites you about upcoming products in HVAC Systems and Equipment?

    2. World without Rebates. What impact will the reduction or elimination of rebates have on the marketplace?

    3. What are the challenges you see for wholesalers who sell HVAC Systems and Equipment?

    4. What else would you like to share with our North American Wholesaler audience about HVAC Systems and Equipment that you think would be of interest to them?

    We have listed our interviews here, in alphabetic order by company name.


    Investing in New Technologies Pays Off

    At Carrier, the fusion of variable speed technology with electronic controls is creating a new generation of HVACR products. The advances in variable speed and power electronics as well as the various controls technologies and interfaces allow for greater energy efficiencies and result in products and systems that are more reliable, easier to install and easier to diagnose and service when there are issues. When you bring it all together, it creates some terrific selling opportunities for Carrier distributors, dealers and contractors.

    “It's very exciting, and I think the combination of the two is especially interesting,” says Chris Nelson, vice president and general manager of sales and marketing at Carrier Residential and Commercial Systems. “It's great for the consumer, and I think it's going to be great for contractors and for the distributors as well.”

    While consumers may not understand all of the technologies that go into an HVACR system, they do know what they want: higher-efficiency systems that interface with their other HVACR products and provide them with comfortable heating and cooling, and cleaner and quieter systems that will keep their heating bills low. “It's the demand for the benefit of what those types of technologies can drive that is increasing. And that increase is based on a consumer's expectations for an easier interface with everything that they deal with in their life today,” Nelson says.

    Among the new products from Carrier is the launch of its Infinity variable-speed heat pump with Greenspeed intelligence and converter-driven scroll compressor that gives homeowners the comfort of consistent indoor temperatures while reducing their use of fossil fuels and lowering their electric heating costs. Carrier will also soon launch a new residential control and new high-efficiency furnace with variable-speed technology.

    “We believe that we're going to have a great product lineup that is going to be able to absolutely service the needs and the demands of the consumer with increased comfort as well as energy efficiency,” Nelson says. He stresses the importance of having all three elements — not only the cooling and the heat pump but the furnace and the controls as well. “We're really excited about having made those investments during some very obviously difficult times.”

    These technologies are coming together at a time when consumer demand for higher-efficiency HVACR equipment is much more pronounced. Nelson says the $1,500 federal tax rebate that expired helped to create greater awareness among consumers of higher-efficiency systems. One of the legacies of the federal rebate has been that the awareness has remained high and contractors know how to talk about — and sell — higher-efficiency systems. This has helped to drive Carrier sales of these systems. Even as the sales of these systems fell a bit this year, they remained good.

    “A lot of the contractors and the distributors are very well accustomed to and trained in having those types of conversations and setting up their business to be able to have the tools and programs to support that type of sale,” Nelson says. “Even if you don't have as large of a federal government incentive, it's still a compelling conversation to talk about the ability to save money and improve your comfort level.”

    Even in an uncertain economy, Carrier takes a long-term view of the HVACR industry. “We believe that the replacement cycle is going to be wonderful for us moving forward, and that is a key for consumers,” Nelson says. “As long as we make investments along the way, no matter what the economy is going to do, that actually benefits our channel partners and our customers.”

    Page 3 of 8

    An outcome of those investments is an increased pace in new technology coming from Carrier. And that's where distributors have to stay up to speed. Staying abreast of the new technologies, keeping current with training and making sure that their contractor customers are familiar with new technologies will remain critical for distributors to stay ahead of the competition. “Keeping up-to-date on those technologies and how to best serve their own customer base with those technologies and be well-trained on them, I think it's going to be a challenge,” Nelson says.

    He acknowledges the uncertainty that many HVACR distributors feel when they look at the economic landscape. It makes long-term planning difficult. Still, he says, you have to base your business on how to best satisfy your customers. “As long as you're investing in things that you believe will benefit your partners and consumers, it's always the right time to spend,” he says.


    Better Technologies Lead to More Smarter Products

    At Goodman, proprietary technologies are creating more robust solutions for homeowners, contractors and wholesalers by making HVACR products that are smaller, run more efficiently, use less refrigerants and are easy to install and operate. With the ultimate goal that, the systems run so well, there are fewer or no callbacks.

    “The technologies that are going to have a dramatic impact on the industry are going to be those things that will effectively and efficiently affect how heat transfer takes place, and that's really what Goodman's whole strategy is about — trying to become the world's best at heat transfer,” says David L. Swift, president and chief executive officer of Goodman Global Group Inc.

    Goodman's SmartCoil™ condensing coil represents how Goodman has used technology to create a more efficient, smarter air conditioning system with copper tubing that is smaller (5mm) and smarter. A smaller diameter tube requires less copper and less refrigerant in the manufacturing process. “That has enabled us to have a higher quality product because we tend to put more investment into the manufacturing process so, ultimately, you get a higher quality unit,” Swift says.

    Advances from the component manufacturers will also continue to drive efficiencies higher — from new compressors, new compressor technology and more variable speed motors — and that will give homeowners and contractors greater choices when it comes to HVAC systems, says Swift.

    Two-step distribution system in HVACR may be “one of the best-kept secrets” in the United States because there are tremendous opportunities for every part of the value chain to be profitable,” Swift says. “In HVAC, there is an incredible amount of value-add that is brought by the wholesaler and by the contractor that makes every job at a consumer level a unique job,” he says. Every home is virtually its own project with special challenges, requiring support from the contractor, the dealer and the distributor.

    When the $1,500 federal tax credit for high-efficiency systems ended last year, it created a shift to lower-tiered systems. “There is no doubt about that,” Swift says. Given the slow recovery of the U.S. economy and the tight credit market for the financing of large systems, it should come as no surprise that it's a difficult sales environment today. “Taking all those things together and now taking away what was a very rich $1,500 program has, I think, caused consumers that would have bought before and would now potentially be buying to certainly explore a lower price point.”

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    One dynamic that has changed has been the uncharged R-22 condensing units, which has allowed the contractor to create a new, lower price point for the homeowner. Swift explains that a typical compressor repair to a consumer may average $1,000 and comes with a one-year warranty. Now a contractor can offer a new R-22 uncharged condenser for about $1,500, potentially increasing its efficiency and it includes a five-year limited warranty.

    “We've seen our sales of uncharged R-22 units be very successful in the market,” Swift says. “We think because of the macro-economic environment that we find ourselves in, it is fortuitous for the homeowner and for contractors because it now gives them an option other than having to go out and buy a brand-new R-410A refrigerant system, which many would just not be able to afford, particularly without the tax credit.”

    Given the economic conditions and a decline in the overall HVACR market in terms of units sold, Swift says it's more important than ever for Goodman to maintain strong partnerships with its wholesalers and distributors. “It's a partnership that's been critical for a successful business over the years,” Swift says. “They are customers in one sense but, more importantly, partners. I think the challenge of the environment that we're in is growing the business of everybody in the value chain.”

    For Goodman, that begins with meeting the needs of the homeowner and giving their distributors what they need to satisfy their dealers. That means making sure they have the inventory to supply their distributors. For distributors, it means staying plugged in to their customers, knowing what they should stock and having the right kind of systems in place so they know their sales and inventory data and won't get caught short.

    “It's all about responsiveness,” Swift says. Those distributors that can step it up and meet the needs of customers during the hottest days of July are the ones that are going to win a larger share of business. Swift will not accept being “good enough” — even in a difficult sales climate. “It's very easy to look at a result and convince yourself that it's good enough from the sales environment that we're in, but I certainly don't expect that from my sales team or even from any of our distributors.” From Goodman's perspective, he adds, “It's very important to have distribution that is focused on growth even in an environment that is as challenging as it is today.”

    Johnson Controls

    Driving New Products through the Best of Technology

    Johnson Controls leverages the engineering and manufacturing expertise from its automotive and battery division to create better customer experiences, innovative technologies and new products. For example, Johnson Controls' engineers are using sustainable soybeans for automobile seating, and they've taken their leadership position in start-stop technology and put it to use in hybrid cars. All of this is part of Johnson Controls' commitment to using the best of new technology.

    On the HVACR side, heat transfer and compressor inverter technologies are driving Johnson Controls as they continue to focus on maximizing efficiency and quality while minimizing the size and cost of the systems, says Andy Armstrong, director of marketing for unitary products at Johnson Controls. “Both, when properly harnessed and balanced, also offer improved comfort to the customer,” he says.

    In addition to its systems, Johnson Controls introduced the York® Affinity™ Residential Communicating Control, a high-definition, touch screen thermostat that reaches out and “talks” to every communications-enabled device to ensure that each is working together at maximum efficiency. Armstrong notes that while this product has been well-received, Johnson Controls is not resting on its laurels and expects additional features will be released to give homeowners even greater control of their home comfort systems.

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    “New products and tools are always very exciting because of the opportunities they bring to our distributors and dealers,” Armstrong says. Johnson Controls recently launched the Green Ohm Rebate and Incentive Finder as a way to assist contractors and homeowners. With the Green Ohm Rebate and Incentive Finder, a contractor or home-owner can find every national, state, county, city and utility incentive, rebate, financing and discounts for its York, Coleman and Luxaire “Good, Better & Best” products available from their local dealer. Armstrong promises that the technology, which launched this year, will be enhanced in 2012 to give dealers and homeowners even more tools to improve their comfort and savings.

    The federal tax rebates of 2009 and 2010 shifted the mix of product to higher efficiency and with the reduction of those incentives this year, the product mix shifted dramatically, Armstrong says. But he notes that even with no new federal tax credit on the horizon, it is “highly likely” that the mix will shift back to what Johnson Controls saw during the time of the federal tax credit. Other external forces at work, however, such as the slow economy, unique weather trends, new financing regulations, low consumer confidence and looming changes in federal regulations, will also influence the future product mix, he adds.

    “Whether it's a federal, state, county, city or utility incentive, we feel the end consumer will continue to have multiple options to improve their home HVAC system for years to come,” Armstrong says. “We feel that rebates and other external incentives will continue to play a large role.”

    While the federal tax rebates allowed most distributors the opportunity to step back and enjoy the benefits of increased sales of high-efficiency products, 2011 means that it's time to get back to the basics of a disciplined marketing and sales program. “Distributors who do the best job of building marketing programs, training in the sales process and doing the difficult job of following up to ensure these tools are leveraged will ultimately be the winners in this very competitive HVAC market,” Armstrong says.

    There's no one-size-fits-all marketing and sales plan. Every territory and every customer is unique and has unique needs, Armstrong says. In fact, this is why two-step distribution is so critical in HVACR — manufacturers rely on distributors who know their markets and know their customers. What plays in Peoria may not play in Plano. “It's time we started to celebrate and leverage those unique characteristics rather than forcing them into inefficient and nonproductive activities and products,” Armstrong says.

    Armstrong recalls early in his career telling his sales manager that the company's sales programs wouldn't work in his territory. The sales manager laughed in his face and said, “Everybody thinks their territory is different. You just need to sell the program.” Says Armstrong: “After 22 years in the industry, it's become more and more clear that is not the case.”

    So what advice does this sales veteran who dared to defy his sales manager tell distributors? “Understand your strengths, then build a plan that leverages what you do best.” Johnson Controls helps distributors tailor their plans by offering a direct-to-dealer incentive program that allows distributors to help their dealers create custom offers. If an instant rebate works best, then a Johnson Controls distributor builds that plan. Others may go with an extended warranty or an industry-leading financing program.

    “It's time to embrace the unique skills of your team and your dealers,” Armstrong adds. “York, Coleman and Luxaire can help you do it.”

    Page 6 of 8


    A Broad Product Line Means Many Solutions

    The high-efficiency HVACR products that are generating ever-growing interest among consumers are in Rheem's sweet spot. Rheem is unique in that the company develops products that cover a broad spectrum of HVACR products — from the water heating side to air conditioning. Rheem continues to invest in its products and technologies so that they will continue to lead the industry in terms of total comfort solutions.

    Rheem's new products embody the breadth of its technology as it integrates air conditioning and water heating products to develop new solutions. With water heating and HVAC accounting for more than 60 percent of a home's energy consumption, Rheem is in a good position to build on its market share. “We refer to these new products as hybrid solutions, as they integrate both air conditioning and water heating technologies to achieve significant improvements in energy efficiency,” says Chris Peel, Rheem's senior vice president and COO.

    On the commercial products side, Peel talks about a new Rheem product targeted at plated food restaurants that removes the heat from a kitchen and uses it as a source for heating water. “You have a very, very efficient way to get hot water, and it's pretty much a limitless supply,” he says. Field trials of this system are under way with plans to make it available in the market later this year. Peel says the results have already shown very short paybacks in terms of energy savings. Not only is Rheem excited about this launch, but restaurant owners and contractors have expressed a lot of interest in the solution as well.

    Rheem is also launching its second-generation hybrid electric water heater with the industry's first color touch screen interface. This new product also showcases Rheem's rebranding efforts. “We have a brand-new look, color scheme, very modern appliance-grade look to our products that we're implementing across all of our product lines — cooling, heating, water heating and HVAC,” Peel says.

    The hybrid electric water heater is another hybrid solution that is more than two times more efficient than Rheem's current electric products, Peel says. Not only is it more energy efficient, but Rheem has added advanced technology into the product. In fact, all of Rheem's new residential products that are in the launch phase over the next year will have embedded technology in them. As a standalone product, they each have their own value proposition, but when they are integrated, it creates a much more powerful value proposition.

    A third new hybrid solution that Peel points to is Rheem's hydro air handler. It takes a Rheem tankless water heater for domestic water heating and connects it to an air handler, allowing the homeowner to use hot water not only for shower and washing needs, but also for space heating.

    “We're really excited about these solutions,” Peel says. “Obviously, they're unique to Rheem in terms of our ability to execute on these. There are competitive products in some of the product categories, but none with the breadth of the product lines that we've launched or are going to be launching over the next few years.” Rheem continues to make a “substantial investment” in its electronic capabilities, and the company has opened a new R&D center focused on developing integrated solutions.

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    Peel says the $1,500 federal tax credit created an “artificial middle” between those that will always choose the high-efficiency solutions and those who are focused on lowest cost value products. “The rebate created a temporary demand for a middle tier of products, that were clearly not supported by the market after the rebates went away,” he says. Consumers are smarter and doing more research. Peel points to the redesigned Rheem website as a way to help educate and attract them to Rheem products.

    Peel acknowledges that the economic climate has created uncertainty within the HVACR market. “And uncertainty creates conservatism in business for the distributor and the manufacturer as well as the contractor, and those things certainly affect business,” he says. For the distributor, the challenge lies in how to maintain a steady flow of inventory and the right product mix that will meet the needs of the customers. No distributor wants to be out of stock or have too much of the wrong inventory clogging up his warehouses.

    Rheem's goal is to ensure that there is continuing and transparent communication with its distributor partners. “Transparency from what's selling through to what needs to be manufactured to what materials need to be ordered is critical to keeping costs down for all of us and keeping our balance sheets in check through this challenging economy,” Peel says.


    Tapping Into How Consumers Live Their Lives

    As electronics continues to expand and become integrated into HVAC controls, expect to see more products that put comfort at the fingertips of homeowners. For Trane, its ComfortLink II Control™ exemplifies this integration. It will allow consumers to control the environment within their home on a touch screen or, if they're across the street or across the world, they can use a smartphone or laptop to check in and make adjustments to their home's HVAC system.

    Trane has tapped into the way that people live their lives. Today's consumers are accustomed to having information available whenever they want it. Why should it be different when it comes to the HVAC system in their homes?

    “Consumers are looking for better convenience and control and just overall better comfort,” says Jamie Byrne, Trane's vice president of sales. “We're trying to address those needs by giving them the ability to take control of all those things as well as control of their energy management.” Trane's ComfortLink II Control includes features such as an outdoor temperature display as well as the weather forecast, which is available through the home's wireless network, and the ability to monitor the indoor and outdoor temperature over time to better manage energy and comfort.

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    The heart of the ComfortLink II Control is the seven-inch high-definition touch screen control panel. “This is a Trane-designed system,” says Dale Green, vice president and general manager at Trane. “We developed this from the ground up and we spent lots of time getting the user interface right and a lot of time on consumer research and testing.” Trane recognizes many different consumers are out there — some want to simply hit the up and down arrows when they're hot or cold, while others want to customize their controls. Making it simple — and giving consumers the flexibility they want — is what Trane has designed in its new product.

    As Byrne and Green point out, it's not just that Trane has developed a truly state-of-the-art product, but it's something consumers can relate to and use in their everyday lives. It's also a product that is a differentiator for contractors. “Now the contractor is not just selling hot and cold air,” says Green. “The contractor has the ability to offer a total solution around comfort, safety and efficiency.”

    For HVACR distributors, the challenge comes in recognizing — and then adapting to — this mind shift in what is important for the end-users. It goes beyond HVACR systems, by looking at the homeowner and how he and she live their lives. “This is how I manage my life. And, oh, now I can manage my comfort, potential energy savings and other devices on it,” Byrne says about what a homeowner's thinking.

    Recognizing these kinds of shifts in consumer preferences are also important for distributors to stay ahead of competitors so they can be the first ones who are in their local markets with the new products and technologies. “Wholesalers really need to step back and take a good, hard look at their businesses and decide: How am I going to innovate? How am I going to provide a solution that is superior or gives me a competitive advantage?” Green says.

    While the highly touted federal tax rebates provided a boon for HVAC dealers in 2009 and 2010, Trane dealers understand that there is value in the energy savings and comfort solutions offered by Trane products. “So as the federal tax rebates move away, we've been positioning and working with our dealers to get back to the basics, doing the proper in-home analysis and selling the solutions that consumers are looking for,” Byrne says. It comes down to the basics of explaining to customers that a Trane system is an investment in their homes. After all, Byrne adds, “Does anybody really think that energy costs are going down?”

    While Byrne and Green are proud of Trane's innovation on the product side, they also spend a lot of resources on how they can create more value through the supply chain. “There are no sacred cows anymore,” Byrne says. “We continually look at and evaluate our entire operation. That's not just from a product standpoint, but from our service and solutions offerings as well.”

    So while the integration of electronics will continue to play a major role in driving Trane forward, you can be sure that the company also has its eye focused on helping its network of distributors to succeed and how, in turn, those distributors can help their customers. “The wholesalers of tomorrow will only be as good as the dealer network that they have tomorrow,” says Green. “If they're making their customers more successful in their business, then they are going to be rewarded long-term. And that's something that in tough times people end up migrating to. In the end, you have to stick to a broader and better set of values, and that comes in a lot of forms in helping your customers be more successful.”

    Michael Maynard is a business writer based in Providence, RI. He writes frequently on HVACR, construction and architecture issues. Contact him at[email protected].

    Tom Peric´ is the editor of HVACR Distribution Business magazine. Contact him at 856/874-0049 or[email protected].


    When this special issue of HVACR Distribution Business was in the discussion phase, my publisher, John Ehlen, raised the question of how to present an industry overview from the top leadership. With that in mind, we decided to offer our readers an inside view from high-level industry executives to develop a sense of their vision and perspective.

    In the interests of fairness, we asked these executives the same questions so that our reader could better assess their distinctive responses.

    The four questions we proffered are:

    1. What is the state of new technologies that we can anticipate in the near future? What excites you about upcoming products in HVAC Systems and Equipment?

    2. World without Rebates. What impact will the reduction or elimination of rebates have on the marketplace?

    3. What are the challenges you see for wholesalers who sell HVAC Systems and Equipment?

    4. What else would you like to share with our North American Wholesaler audience about HVAC Systems and Equipment that you think would be of interest to them?

    We have listed our interviews here, in alphabetic order by company name.