32•


2011Forecast—HVACR HVACR 2011 forecast a mixed bag (Continued from page 30.)


replacements for several years. While this may be true, so too is the likely negative impact these units will have on the more energy-efficient, prof- itable and properly-matched R-410a system replacements; replacements by the way that HARDI distributors invested heavily in throughout 2010 since we were supposed to be done with R-22 equipment. Another no- table variable would be the uncer-


tainty of the kind of service and call- back issues these field-charged units will present. Returns and corrective repairs are pure profit-suckers for wholesalers who cannot charge back their labor hours, yet unbelievably we’re seeing some “dry-shipped” units being offered with five-year warranties. Coupled with the in- evitable race to the price bottom, I have a difficult time seeing how these units will have a net positive


profit impact for distributors. Large volume multi-unit customer sales may just provide enough cushion to make this work, but seeing the intro- duction of “dry-shipped” larger ca- pacity and even heat pump units obviously goes beyond the apartment and condo complex market and adds significant risk. This risk could have been miti-


gated somewhat in 2011 had the $1,500 federal tax credits for residen- tial high efficiency retrofits been fully extended. While it cannot be over-


•THE WHOLESALER® — JANUARY 2011


stated what an accomplishment it was to have kept the credit in the tax code for another year by getting it added to December’s tax bill, the fact remains that the credit was stripped down to pre-ARRA levels providing only $500 in incentives per household that had not claimed such a credit since 2006. HARDI will work to fully re- instate the $1,500 credit amount next year. In the meantime we’re left with a credit unlikely to drive much de- mand resulting in a strong incentive for early 2011 business to get pulled into 2010 so taxpayers can claim a full, $1,500 credit. Many HARDI members are report-


ing record sales in November with a strong start to December; enthusiasm which is tempered by the likelihood of a severe drop in Q1 2011. January and February are looking like great months for sales, new product, and profitability training for distributor personnel to prevent or at least miti- gate margin slippage that appears to be facing all of us next year. The federal tax credits drove a


major shift in the mix of high-effi- ciency unit sales (while regrettably not helping volume much though). The percent of 15 SEER shipments moved from just 5% in 2006 to 14% in 2009, to an estimated 23% in 2010 according to JP Morgan. While 38% of 2010 shipments are expected to be greater than 13 SEER, we know many HARDI members saw even stronger high-efficiency sales.


Lower margins next year This produced margin growth that


fueled 2010’s improvement over 2009 despite nearly unchanged unit volumes. Imagining a 2011 without this strong mix improvement, or more likely a significant mix slide is concerning. 2011 is looking to be de- fined by a firm’s efficiency; perhaps more so than any previous year. Vol- umes of parts and low-margin units will likely increase while selling big- ticket, high-efficiency systems ap- pears to be facing major headwinds. I’m glad to see analysts like JP


Morgan and others have a bullish out- look for 2011, however distribution isn’t just about volumes and, inciden- tally, the analysts have been looking for those volumes to rebound for sev- eral years now. The profile for prof- itable HVACR distribution in 2011 will be the best-trained, value-added, leanest, and most forward-thinking companies. Easy to say and some- what cliché yet true nonetheless when looking toward a year that is losing its greatest profit drivers.


n See contact information on page 98 • Be sure to visit www.thewholesaler.com for web exclusive articles and videos! •


Talbot H. Gee is executive vice presi- dent & COO of Heating, Aircondition- ing & Refrigeration Distributors Inter national (HARDI).


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