Making dollars and sense
December 1, 2008
In their 28 years of running the family plumbing and HVAC company, Keith Bienvenu and his three brothers have rarely seen business this bad. “This is definitely one of the worst economic situations we’ve seen,” Bienvenu said.
Bienvenu Enterprises in Metaire, La., has been serving residential and commercial customers in the New Orleans area since 1937. Even with many homes and businesses needing to rebuild after hurricanes hit the region, Bienvenu said many customers are still watching their pocketbooks.
“We use to stay busy year round,” he said. “It’s been kind of sluggish to say the least. People are scared to spend the money, even in the wake of (Hurricane) Katrina.”
Fortunately, the company has been able to keep busy, even if it no longer has the steady stream of work the company is used to.
Bienvenu Enterprises is not alone. While 2008 was a prosperous year for many in the construction industry, U.S. bank failures and a tumbling stock market in the last quarter of the year have brought huge economic challenges. And those challenges have not been reserved for just residential or commercial HVAC and sheet metal contractors.
“All around the country, contractors are in the same boat,” Bienvenu said.
Slowing downFrom big cities to rural farmlands, contractors in all markets are seeing their businesses slow down.
That includes Randall Golay, president and owner of Cornstates Metal Fabricators in Des Moines, Iowa.
Golay said 2008 would best be described as a “Jekyll and Hyde” year.
While the first half of 2008 was very busy at his company, Golay said that by summer, work tapered. And in the last few months of the year, new business has completely slowed, save for those already under way.
“Most of the projects in the pipeline are continuing on,” Golay said.
But he also said that his commercial HVAC company grossed $7.5 million last year. With the recent drop in construction projects, Golay believes the company’s business will be down this year by 35 percent.
The agricultural sector has been a large source of work for Cornstates. The company has installed systems for feed mills and even the local John Deere manufacturing plant.
“The farm economy was booming,” Golay said.
But now investors are pulling back. He explained that if John Deere isn’t selling equipment, the manufacturer will not hire Cornstates to provide any installation work.
“We’ve had to cut back on personnel,” Golay said. “New jobs weren’t starting. We hope to bring them back by next summer.”
That’s why Golay said he believes that the current economic woes will certainly be the biggest challenge for 2009. He said that he doesn’t see things getting back on track until the presidential election is over and the stock market finally stabilizes.
But Golay, with over 48 years of industry experience, is optimistic.
“I’ve been through this before,” he said “I’ve seen ups and downs like this and eventually things will settle down and come back.”
West Coast woesMeanwhile, on the West Coast, Tulley Mechanical Inc. in San Francisco is experiencing some of the same problems as Cornstates in Des Moines, Iowa.
“It’s been a roller coaster all year,” said Chris Tulley, owner of Tulley Mechanical.
The company, which specializes in sheet metal and HVAC design-build work, first saw a lull in business back in February. After that, Tulley said the company was “fairly busy until two months ago.”
The company has been able to stay busy due to projects that have already been scheduled.
“California has always been a little recession-proof,” said Tulley. “But it has kind of flattened out.”
In order to make sure his company doesn’t follow suit, Tulley is trying keep his company lean by using new fabrication machinery and other equipment that will keep work in the shop productive. He said that shaving minutes off of a job could be very important, especially when “labor is 100 bucks an hour.”
In the Midwest, contractors are trying similar moves.
Matt Cramer, president of Dee Cramer Inc. in Holly, Mich., is also trying to keep his operations as lean as possible.
The residential, commercial and industrial HVAC and sheet metal company has found that reducing time spent on a job by just minutes will save money on the entire project. Training employees to keep operations efficient is just one of the strategies Dee Cramer is using to make sure the company weathers the current economic downturn. And along with that downturn has come some operational challenges.
Cutthroat competitionCramer explained that one of the biggest challenges for Dee Cramer this year has been dealing with competition. When bidding on projects, the company usually competes against five other sheet metal companies. With the number of projects dropping in the sluggish Detroit market, Cramer is seeing about nine sheet metal contractors bidding on the same jobs.
“My odds of getting work are very low,” he said. “Banks are in trouble. They are raising rates and people are not going to get loans for construction.”
Cramer is also finding that he is competing with companies that are bidding on jobs they would not normally bother with. For example, Dee Cramer has long worked on many hospital projects. Since work is scarce, many sheet metal contractors that have never worked on hospitals are bidding such projects.
The additional competition often saves developers money, but these newcomers to such projects may not always be qualified.
“Customers might say, ‘I’m going to get the best price,’ but only five are qualified for the work,” Cramer said.
Cramer is trying to combat this by not only educating employees on how to stay lean, but training them on how to use new technology that will make projects more efficient and affordable. One of those technologies that Dee Cramer is using is known as building information modeling.
The software allows a company to draw a building in 3-D before it is built and work around electrical, plumbing and piping.
“I can make sure my ductwork is not moving into fire protection or piping,” Cramer said. “I can building jobs virtually before it is even in the field.”
DiversificationSome companies have been able to stay profitable -- or just afloat -- by diversifying their business offerings.
Allied Heating and Air Conditioning in San Rafael, Calif., started in 1984 as a residential and light-commercial HVAC company. It has continually added to its roster of services. Eleven years ago, the company extended its reach into institutional work, such as laboratories. More recently, the company added a piping division.
According to Sargon Michael, president and CEO of Allied, diversifying has helped the company to stay on top of business, even during hard times.
“This year has been a very good year,” Michael said. “Revenues went up and it was one of our best years.”
For a little while, anyway.
“That was the case until two months ago,” he added.
Although some projects have leveled off, the company has a comfortable backlog of projects to keep them busy and keep employees working.
“Competition is getting tougher,” Michael said. “More contractors are sharpening their pencils to bid.”
In an effort to stay busy, the company has started doing more work on public projects, such as schools and colleges, where more funds for construction are available.
Changing focusGuy Gast, president of Waldinger Corp. in Des Moines, Iowa, said he also believes that diversifying is the key to overcoming the down economy that may continue into 2009.
Waldinger is a full-service mechanical, electrical and sheet metal contractor working primarily in the Midwest and Southeast.
Gast said he and his company have been “surprised by the number of really large projects” that are available in the Iowa, Kansas and Nebraska markets. But at the same time, he said, projects in the alternative fuels market and the decline in residential construction has put pressure on Waldinger.
In the short term, Gast said that success would be measured by Waldinger’s ability to adapt to such changes. The company has shifted some of its work into health care, as well as expanding a focus on Waldinger’s service and maintenance business.
“That diversity has always allowed us to react to pressure on any one segment of our business,” he said.
Like Cramer in Michigan, Gast has started to see contractors bidding on projects they would not traditionally bother with. He explained that with the residential market declining, many residential contractors are moving into light-commercial work or even larger projects such as schools.
“I’m sure we’ve lost some business because of that, but again, having multiple markets to focus on allows us to lessen the impact,” Gast said.
But that may not do much good if, as Gast believes, the worst is yet to come if the weak credit market continues and the government bailout doesn’t work as planned. This will mean that contractors will have to start competing more on price. In order to do this, Gast said companies will need to make sure their processes are smooth and that everything they do is cost effective.
That is Waldinger’s strategy going into 2009.
“This year, we will be focused on attention to detail, application of our processes to small cost categories,” Gast said. “At the end of the year, I expect that we will have a lot of successful people in our organization because they will embrace this challenge.”
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