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A Future Manufacturer Distribution Model?

In the race to gain an elusive hold on market share, to satisfy shareholders with quarterly earnings, and to satisfy their customers with improved quality and better customer relations, it’s hard to find a clear winner among HVAC manufacturers.

As equipment manufacturers are being bought, sold and reorganized in the HVAC industry, it makes us wonder what this week’s news will bring. The real question is: “What’s brewing in the manufacturing world and how will the next trend affect contractors and their customers”? Let’s take a look at one distribution solution that occurred in the automotive industry some 50 years ago and consider if something this favorable could ever come to the HVAC industry.

Paul Burnett, a retired General Motors vice president, shared an amazing story with me years ago. Besides being one of the best story tellers there ever was, Paul drew amazing parallels between the auto industry and the HVAC industry that calls for the best HVAC manufacturer to stand up and consider breaking the mold of today’s distribution channels.

Manufacturers and Contractors

In the race to gain an elusive hold on market share, to satisfy shareholders with quarterly earnings, and to satisfy their customers with improved quality and better customer relations, it’s hard to find a clear winner among HVAC manufacturers.

The HVAC contractor, the one who actually owns the end user and the only real customer a manufacturer can claim, has become a pawn in the marketplace. Valuable relationships between contractors and manufacturers are rate and loyalty is a thing of the past. Few HVAC contractors find any value in their companies at retirement time. Their sorry reward is an annual “dealer” trip and a second mortgage on their home to meet payroll.

It’s estimated that as much as 70% of equipment sales in some wholesale houses are sold for cash over the counter. The saddest part of the story is that this type of sale is the most profitable business for most manufacturers.  It’s a common complaint that only 20% of contractors generate profitability for the manufacturer.

The Auto Industry in 1960

If you are much over 50 years old you will remember a prominent street corner in your town where you grew up that housed a little car dealership. There was a string of 100 watt light bulbs stretched out front about 12 feet off the ground, about 20 cars were on the lot and each had a little building in the back called a sales office.

This represents today’s typical HVAC Company. A small business, struggling to make ends meet and buying equipment as the current stock is sold. Trudging along, living the dream. These small business owners often serve customers one at a time, and fights to survive from one month to the next.

Along Comes Paul Burnett

In the early 1960’s Paul was a young GM employee sent on a mission. GM had an idea: “There has to be a better way to distribute our product than to sell a few cars a year to little Mom and Pop businesses. What if we truly partnered with the best company in each town and helped them build their little businesses into real companies? What would that do for them? What would that do for us?”

So to answer those questions, Paul hit the road in a shiny new car. He would pull into a town out west and stop by a café and ask the locals about each car lot and its owner. Paul would select the best three and stop by and check them out. He was looking for good people, real relationships, loyalty, and honesty. He also searched for people with a basic desire to get rich and who delighted in meeting their customer’s needs.

Paul would pretend he wanted to buy a car from each car lot. At the end of the day, he would to return to his motel and compare notes. He would then decide which car lot owner met his qualifications.

The next morning he would be waiting at his car lot of choice when the owner arrived. He would greet them, tell them he was not buying a car but asked them a question.” If you had the opportunity and I was willing to help you, how rich would you care to become?”

A Partnership Was Formed

These fortunate car lot owners became the forerunners of today’s Auto Mega Dealers. A true partnership would then be entered into. In exchange for the car lot owner’s loyalty, an exclusive dealership was granted in that marketplace.

General Motors would then provide the best auto dealership education in the world, build a huge new facility, help hire, train and inventory a highly profitable service department, provide the biggest car inventory in town, train a sales staff, provide the best financing and advertising that blew the competition away.

The rest of the story is history. Based on a true partnership, both parties prospered handsomely.

GM and the Car Lot Owner Prospered

A few years ago I visited another friend of mine in a massive auto dealership in Los Angeles. He introduced me to the company owner. I asked if he had ever heard of Paul Burnett. He bowed like a prince to me, and then explained that because of Paul Burnett’s visit to his grandfather, his family owned over 100 auto dealerships, sold tens of thousands of cars per year and had amassed a family fortune worth hundreds of millions of dollars.

Could this happen to the HVAC Industry?

I’ve told this story to a half dozen manufacturer CEO’s and a couple dozen HVAC contractors. In all cases every person acknowledges such an opportunity needs to happen and they would be eager to do their part to bring such a change about in the HVAC industry.

Personally, I believe our industry is ripe for such a change. Several manufacturers and a host of the best-qualified contractors are prepared to abandon the race to the bottom and take this industry by storm.

“We must be willing to give up what we are in order to become what we will be.” ― Albert Einstein

Rob “Doc” Falke serves the industry as president of National Comfort Institute an HVAC based training company and membership organization. If you're an HVAC contractor or technician interested in a free NCI how-to procedure to plot pump GPM on a pump curve, contact Doc at [email protected] or call him at 800-633-7058. Go to NCI’s website at for free information, articles and downloads.

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