Good, Better, Best

Jan. 1, 2011
Like most manufacturers, Johnson Controls expects 2011 to be “better” than 2010, despite many unanswered questions

Happy New Year to the HVACR industry. It's time to put 2010 behind us and look forward to a better 2011. Johnson Controls agrees with industry analysts who report that we can all be cautiously optimistic about our industry's performance during the New Year.

For most of us in the unitary products business, 2010 was a strong year, despite the economy. Several factors contributed to that strength. Extreme weather in just about every corner of the country increased demand for new heating and cooling products as well as replacements and retrofits. The federal tax credit on energy-efficient equipment, which expired Dec. 31, 2010, prompted many homeowners to invest in new heat pumps, gas furnaces and air conditioners. Meanwhile, state, municipal and utility incentives played a significant role in overcoming the continued slow pace of new construction business.

Regulatory and Business Factors Will Be Key

As we look ahead to 2011, several key factors will impact the industry. They fall into two categories — regulatory and business.

On the regulatory side, the federal tax credit will be high on everyone's list this year and beyond. Will Congress extend the tax credit or make it even more attractive to homeowners? That's anybody's guess but the tax credit would certainly boost business for many HVACR manufacturers, distributors and dealers. In addition, regional efficiency standards, financing legislation and refrigerants (the development of new ones and the phaseout of old ones) will continue to impact our industry.

On the business side, the nation's economy and its many tentacles will be leading factors. Again, key questions arise: Will the economy snap out of its doldrums this year? Will the job market improve? Will consumers have the confidence and financial resources — as well as a long-term outlook — to purchase new homes and invest in new, energy-efficient heating and cooling systems? Other factors include the availability of capital funding for small businesses and consumer financing for retrofit projects.

Although many of these factors are similar to those in the past, their overriding uncertainty creates a multitude of questions for all channel partners — manufacturers, distributors, dealers and homeowners alike. This uncertainty is challenging the way we develop new business and keep current customers happy, make manufacturing decisions, plan inventories and create marketing plans for this year and beyond.

Manufacturers Are Cautiously Optimistic

In light of these challenges, it's not surprising that HVACR manufacturers are “cautiously optimistic” about the 2011 economy but not quite as optimistic as they were heading into 2010, according to a Fall 2010 survey of more than 1,000 International Air-Conditioning, Heating, Refrigerating Exposition (AHR Expo) exhibitors.

Fifty-seven percent of survey respondents expect a “better year” in 2011, while 9 percent expect a “much better year.” Twenty-seven percent think 2011 will be the “same as last year” while only 7 percent predict a “worse year.” Furthermore, the survey respondents expect the strongest demand for products in the renovation/upgrade sector (39.3 percent), followed by replacement (30.7 percent) and new construction (30 percent).

At Johnson Controls, we anticipate slight growth in the residential new construction (RNC) and replacement markets while the commercial market should remain flat. We also are cautiously optimistic about the growth of our own business, which will be largely achieved through both organic growth and channel development.

So, as a distributor or wholesaler, you may be wondering, “What does all this mean to me? How can I take advantage of the positive factors, safeguard my business from the negative factors and prepare for the unexpected?” Good questions.

As in years past, distributors and wholesalers who think strategically and develop plans to leverage nonorganic growth opportunities will be most successful in 2011. While some factors — for example, the possible extension of the federal tax credit — are out of your control, you can control your own destiny to a certain extent. Think outside the box, capitalize on new opportunities and keep moving in a positive, growth-minded direction.

Andy Armstrong is director of marketing and communications, unitary products, Johnson Controls Building Efficiency, Milwaukee, Wis. Contact Andy at [email protected].