Our 2014 Executive Forum from left Brent Schroeder Gary Michel John Galyen Chris Peel and Mark Kuntz

HVACR Manufacturers: 'On the Record' at Comfortech Executive Forum

Nov. 6, 2014
What's the outlook for growth in 2015? How can warranties be improved? Will continued efficiency standards eliminate the "Good, Better, Best" approach? Executives answered these questions and more at Comfortech 2014.
Chris Peel
Gary Michel
Mark Kuntz
John Galyen
Brent Schroeder

During our 2014 Executive Leadership Forum, HVAC contractors heard from the manufacturers. Five executives came to the stage to comment on industry issues and trends. Questions received by CB readers and HVAC-Talk contractors were posed by Bob Mader, Contractor magazine, and Mike Weil of ContractingBusiness.com.
Thanks to Chris Peel, senior vice president, Rheem; Gary Michel, president, Trane Residential; Brent Schroeder, president, Emerson Climate Technologies air conditioning business; Mark Kuntz, vice president, product development, Mitsubishi, and John Galyen, president, Danfoss North America. Here’s some of what they had to say.

Industry Outlook
: “Rheem is optimistic for slow and steady growth across the entire business.”
John Galyen: “Danfoss sees the second half of 2015 as being stronger. We had a very good June and July of 2014. We’re investing in variable speed, microchannel and advanced controls; those types of things are becoming more in demand and adopted more readily.”
Mark Kuntz: On construction: “We’re seeing some good signs as to where that’s headed in 2015. It’s giving us some confidence that we’ll see some growth.”

Will Regulations Eventually Affect Product Affordability?
Chris Peel: “As regulatory requirements roll through the industry, it does nothing but add cost. Whether it’s HVAC, automobiles, or any other industry, the cost from ongoing regulatory burdens get passed on to the consumer. That’s part of the opportunity we have as an industry: to communicate better with elected officials, and make sure we’re doing the right things economically as well as in terms of energy efficiency.”
: “It’s important that we join together as an industry and have a voice in what legislation and regulation should be. We’ve got to have a voice in educating the marketplace and educators about what can really solve the problem. We sit in the best place as an industry to propose solutions that balance reliability and efficiency with the cost equation. Obviously, if regulations keep coming, we have to continue to meet them, and it’s our responsibility to make it cost effective and of value to the homeowner as well, so that there is a payback.”
Mark Kuntz: “It’s making sure regulators and regulations are rational, given those that are in process; it’s also incumbent on us to explain to the homeowner what they’re getting, to the extent that we can demonstrate value around energy efficiency and other inclusive features. The automotive industry has done a remarkably good job in taking the mileage CAFE standards, and putting a lot of things around it. So that a compact economy car today is much better in every way, not just in improved mileage from 10 years ago. We as an industry have a chance to do that: explain to them that what they’re getting is more, to make it somewhat more palatable.”
: “Historically, as an industry, the equipment purchase has been focused on first cost, and more than 70% of equipment shipments over the years are oriented to the federal minimum efficiency standard. That’s not changed much, although the efficiency standards have changed. Most of the equipment has a useful life of 15 years or much longer. So if you look at lifecycle costs with the technologies we have today, the first cost premium is paid back in a reasonable period of time. But somehow the focus remains on first cost beyond the secondary benefits of improved performance, improved comfort and the things customers get with improved equipment.”

Where do you see the future workforce coming from? Has your company made efforts to attract people to the HVAC industry?
Gary Michel:
“Home automation, efficiency, and all the work that’s going on related to building performance is making this a much more exciting and attractive industry. And obviously, we need a good pool of talent. At Trane, we spend quiet a bit of money on training technicians, business partners, and contractors. But the other part is getting involved in community colleges and technical schools. The way we can do that, is to show them the new developments. The things all of us are talking about are new and exciting technologies applied to a very large marketplace.”
Brent Schroeder: “Many of us are involved with schools. We are a long-time supporter of a local vocational high school with a strong HVAC program. Developing careers in HVAC was one of the catalysts for Emerson’s new Innovation Center, to be built in concert with the University of Dayton. There, we’ll be able to develop products with students from the university around home automation and system innovation, in residential, commercial, industrial, and supermarket applications as well as precision cooling applications. The state-of-the-art innovation center will attract the best engineering students to our industry. That’s another way to address the issues we have, when trying to get the best people to work in our businesses and in our industry.”
John Galyen: “The workforce ‘gap’ is the largest challenge we have. U.S. labor statistics say that 50% of technicians will retire in the next 7-10 years. The demand for HVAC technicians will increase. The industry has recognized that perhaps we’re not attractive enough of an industry to bring in new contractors. There will be a significant impact without sufficient numbers of contractors available to do the service, repair, and installations. We talked about affordability earlier, and not having enough workers will make it all more expensive. Danfoss is engaged in this issue with AHRI and ACCA, and want to figure out how we can be more a part of the solution.”

With increasing standards, is there a danger of losing the differentiation of “good, better, best” with products?
Chris Peel: “That’s part of the fun and challenge of what we do. We have people who work on these types of solutions, and we feel that while we are approaching the physical limits of our ability to improve efficiency until we hit a ceiling, there are opportunities, with electronics controls, diagnostics, and other features that introduce a new element. There are opportunities in the foreseeable future to do that.”
Gary Michel: “There’s still a difference in quality and reliability in all ranges. If the bottom is closed up a little bit, there are still technologies — such as variable speed — where cost effective solutions provide improved comfort, efficiency and a better payback. There is still an opportunity to differentiate. The other piece to the puzzle, is the way homeowners look at a home today. They’re not just looking at the equipment itself, but how it’s put together, how it’s part of a whole-home solution, not only from an efficiency standpoint but also comfort and use of technology in the home. ‘Home intelligence’ allows for interaction of many home systems, and there’s lots of room to differentiate.”

Warranty Hassles: What Can Be Done?
Gary Michel: “You eliminate the hassles. That’s got to be paramount. For Trane, it’s about eliminating the issues that cause the warranty to be issued in the first place. We spend a lot of time and effort to make sure we live up to our brand promise. In our case, reliability has been recognized by third parties, by consumers, and we’ve got to continue that.”
Chris Peel: “The average ticket on a big box retail sale is substantially higher than the industry average, which goes against the statement that big-box shoppers are value shoppers. Every product Rheem will offer within the last 12 months has been new. We’ve spent more time testing, validating , and designing these new products more than any time in our history. There’s a tremendous amount of waste in the system related to how warranty claims get processed to begin with.”

What are you doing to make it easier to communicate with contractors?
Chris Peel: “Rheem has been mobile-ready for four or five years. We have robust apps for tablets that contractors can use when talking with customers. As we look ahead to the devices that are most popular, much of Rheem’s training will also be mobile-ready. We have the ability with our new system to have real-time “how to” videos and to link directly with a local distributor to find inventory on a particular part. It’s exciting. It goes to the earlier question of attracting talent and the resources available for contractors and manufacturers. The kid that’s played video games is looking for a career, and they have a comfort level with these devices and a comfort level around apps. When you can scan a QR code and obtain diagnostic data and how-to videos, that makes them feel more comfortable.”
John Galyen: “Danfoss sees it as a fantastic opportunity. In the digital world it becomes easier to reach all contractors. We were surprised to learn that more than 70% of contractors are using a smart phone in their job. This is a fantastic opportunity. Danfoss is investing in a digital platform that will allow us to expand on the web, Ipad, tablets, phones. We have an e-learning portal and we recently released a universal expansion valve kit for ice machines, with a QR code that can be used with a smartphone or tablet.”
Mark Kuntz: “We recognize the imperative to have more self-diagnostics build into the unit and a tablet-based means of plugging in, having the unit report to the technician what’s wrong with it, and offering steps for that specific fault. It can also put you in touch with live help if needed. It addresses both the rising complexity and dwindling number of highly technically oriented people.”
Brent Schroeder: “Another aspect to this is that we can use technology and digital media to talk to homeowners, building maintenance managers, and others. Just as it’s hard to call on every one of the industry’s many thousands of contractors, it’s even hard to contact every end user. Emerson has developed an industry help site, called AC&HeatingConnect, where we provide general industry information. It’s not a sales or marketing site. This is another source of data for homeowners or facility managers. We’ve had more than 300,000 visits to the site since it was launched last year, most of which are from homeowners with questions related to SEER, refrigerants, or what to do when a HVAC system breaks down, and more. Using that technology is another way to reach people.”