The guessing game
November 29, 2007
Each year, running a successful company can seem like a big game. You roll the dice and see where you land.
Will you lose a turn - or money? Will you be forced to go back three spaces - or close some operations? Or will you successfully make it to the end - and profit?
While some business factors are truly out of your control, you can prepare your business by paying attention to signs within the HVAC and sheet metal industries. To find out where the industry is going next year, Snips asked to some of the leading HVAC and construction associations. The following advice might just help you decide where to navigate your business in 2008.
On the declineThe housing and construction markets, and the shipment of HVAC products are all ending 2007 on a low note.
For most of the year, shipments of central air conditioners and air-source heat pumps were down when compared with 2006, according to statistical releases from the Air-Conditioning and Refrigeration Institute.
As of late October, the ARI reported that U.S. factory shipments for August - the most recent information available - totaled 571,420, down 19 percent from the same month last year. Year-to-date factory shipments in August totaled 4.8 million, down 12 percent from the same period in 2006.
The Heating, Airconditioning and Refrigeration Distributors International also reported the same results for August. HARDI saw an 8.3 percent drop in gas furnace shipments for August when compared with last year, and a 32.2 percent drop in shipments of oil furnaces for the same period.
As for housing starts, the U.S. Census Bureau saw a 10.2 percent drop in September, with multifamily starts falling 36 percent. The Associated Builders and Contractors said it believed that this drop in the residential market would soon impact nonresidential construction.
However, Jeff Taylor, the chief economist for the ABC, said that there is hope. While construction starts are down, housing permits were only down by 7 percent in September, which is a more modest rate for the past 12 months, he said. Housing permits are a better indicator for future construction activity anyway, Taylor added.
“Although the multifamily construction market is feeling the effects of the economic slowdown and the turmoil in the credit markets, most of the decline in starts was in the single-family category,” Taylor said. “Having said that, I believe that the multifamily starts will decline this year to 310,000 units from 336,000 in 2006. There are definitely indications that the boom in nonresidential construction could begin to slow over the coming months, as residential construction remains weak. I don’t expect residential construction to add to the gross domestic product until late next year.”
D.L. “Ike” Casey, executive vice president of the Plumbing-Heating-Cooling Contractors National Association, said that his members were definitely impacted by the drop in the housing market.
“Many residential contractors are facing a decline in business,” he said.
Many experts point to the problems in the subprime mortgage-lending market as one of the main culprits for the drop. A few years ago, many people who could not afford traditional mortgages were steered into high-interest or adjustable-rate loans, called the “subprime” market. As interest rates went higher on the mortgages, the default rate on these type of loans skyrocketed. In response, many lenders are tightening credit requirements and there are now fewer buyers for houses.
But the PHCC saw the problem approaching. The association told its members to examine how they could run their businesses more efficiently and put a plan in place.
“The slowdown in housing was expected by our residential contractors and they have reacted accordingly,” said Casey.
McGraw-Hill Construction recently released its “2008 Construction Outlook,” which is forecasting a drop in U.S. construction spending for next year. The publishing company says this is fueled by tighter lending conditions and weaker job growth.
McGraw-Hill is predicting a 2 percent decline in housing starts, which is following an expected 8 percent decline for 2007.
But it is not all bad news. McGraw-Hill believes that 2008 will see a growth in transportation construction projects. The company is also expecting a continued interest in environmental or “green” construction and further demand for sustainable building designs.
More greenThe American Society of Heating, Refrigerating and Air-Conditioning Engineers agrees. The society is definitely planning on 2008 offering more “green” opportunities.
“There is tremendous pressure on the building-contracting industry to build more sustainable buildings,” said Kent Peterson, president of ASHRAE. “This involves minimizing construction waste and optimizing both energy and water use.”
Peterson said that ASHRAE is focusing on three key areas related to improving building-energy performance. This includes developing better standards based on their actual energy use, developing more effective ways to measure technologies used in high-performance buildings, and expanding ASHRAE’s educational programs to cover integrated-design practices, improved operations and maintenance techniques.
He also said that ASHRAE has formed a new task group targeting contractors and design-build firms.
“Given that HVACR and water heating are responsible for about 75 percent of residential and 64 percent of commercial building-site energy use, cost-effective energy efficiency is critical for the economy, the environment and energy security,” said Peterson. “The call for energy-efficient systems and building will continue to grow in importance not only in our industry but to the general public.”
That is why Peterson said he believes the new task force is important. He claims that the task force will help contractors and designers work together to ensure sustainability.
“Successful green buildings are the result of a team effort - owners, designers, contractors and facility managers that work together to produce and maintain facilities that are energy efficient, have healthy environments to provide comfort and safety to occupants while minimizing the impact on natural resources,” said Peterson.
ASHRAE will also be working in the area of new codes to tackle energy efficiency. For example, the association will be focusing on net-zero-energy buildings. These buildings, on an annual basis, use no more energy than is provided by on-site renewable energy sources.
Peterson said that ASHRAE would be working on providing guidance through its standards, including a proposed standard for “high-performance” structures. The association is also providing research and special publications, such as the Advanced Energy Design Guide series.
“Several of our Advanced Energy Design Guides are targeted at the design-build community and show prescriptive paths for constructing small commercial and retail buildings that use 30 percent less energy than code,” said Peterson.
ASHRAE will be taking its energy-efficiency and green-building goals to legislators. Peterson said the organization would be working with federal policymakers to ensure better energy-efficiency measures and a reduction of carbon emissions.
“Regardless of how the upcoming elections pan out, our current energy status will remain a top issue and our efforts to address these issues will remain the same,” said Peterson.
Political issuesEnergy efficiency and green building will be top political issues next year for other associations as well.
The Air Conditioning Contractors of America is watching energy legislation moving through Congress.
According to Charlie McCrudden, the ACCA’s director of government relations, while the legislation has many benefits, it “contains a few misguided provisions that will negatively impact ACCA members.”
One of these provisions would allow the U.S. Department of Energy to create new regional minimum energy-efficiency standards for residential and commercial heating and cooling equipment.
Currently, there is only one national efficiency standard that applies to all furnaces and air conditioners. Air conditioners must meet a 13 seasonal energy-efficiency rating, while gas furnaces must have an 80 percent annual fuel-utilization efficiency standard.
Under the proposal, three separate regional standards could be created. The ACCA and the PHCC are opposed to the legislation.
Recently, a U.S. House committee held a hearing on energy issues for small businesses. Mitchell Cropp, a past chairman for the ACCA and president of residential HVAC company Cropp-Metcalfe, testified before the committee Oct. 17.
Cropp-Metcalfe serves customers in Virginia and Maryland. Cropp told lawmakers the regional standards would hurt companies like his.
“As a contractor that serves multiple states, I am very concerned about the enforcement of regional standards along the borders between regions,” he said. “I see this scheme creating a ripe opportunity for moonlighters who could purchase lower-efficiency equipment in one region and install it in an adjoining region.”
McCrudden said that the ACCA would also continue to push for tax credits for home and building owners who choose to upgrade to higher-efficiency equipment.
Finally, McCrudden believes that due to global warming and ozone depletion, new policies on refrigerant management could become a political issue in 2008.
“The HVACR industry is looking to voluntarily address these issues in advance of the federal government stepping in with heavy-handed regulation,” he said. “This Congress, and potentially the next (presidential) administration, will be looking to move forward some type of bill that may review refrigerant-management policy.”
McCrudden also said that the 2008 elections would have a tremendous impact on the ACCA and its members. A new administration will take over, and many Congress members have announced their retirements. This means there will be a new president and Congress to educate on issues important to the HVAC and sheet metal industries.
“Anytime you have this much turnover, it takes time to educate the new members of Congress, their staffs, and political appointees about your issues,” said McCrudden.
Besides energy efficiency, the ACCA wants to educate legislators on a variety of other issues that will be important in 2008. McCrudden says this includes working on making health care affordable for small companies, repealing the estate tax and accelerating the depreciation period on commercial HVAC equipment.
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