How will the new 13 SEER mandate affect the value chain in the HVAC industry? Contracting Business convened a panel consisting of a manufacturer, wholesaler, and three contractors at HVAC Comfortech 2005 to give you their insights. Here are the highlights:

Karl Zellmer,
vice president of air conditioning sales, Copeland Corp.,
Division of Emerson Climate Technologies, Sydney, OH.

For manufacturers, the change to 13 SEER has meant a vast redesign of equipment. For contractors, it means developing a different set of selling skills.

Energy efficiency will no longer be a strong selling tool. You can't upsell on payback and energy savings when the difference in energy usage between a 13 SEER and a 14 SEER product is about a "pizza per month." Comfort, sound, reliability, and advanced diagnostics will make the difference in upselling customers to 14 SEER and higher, and more fully featured equipment.

Then there's the size issue. On average, 13 SEER equipment will be 40% to 50% larger than 10 SEER equipment. Will 13 SEER units fit in your installation trucks? Will you need to assign more installers to each job? Will the unit even fit through the back gate? In addition, your warehouse space just became 40% smaller. This means you may have to look further ahead to order, as manufacturers won't be able to deliver as many units on the same trailer space.

The new 13 SEER units will have a higher refrigerant charge. It's more important than ever to follow manufacturers' guidelines on changing the indoor coil. If you don't change to match the indoor coil, at a minimum you will lose capacity and efficiency, so your customers won't get what they're paying for. In a worst case scenario, a new 13 SEER condensing unit will be hooked up to an old, dirty coil, resulting in refrigerant floodback damaging the bearings in the compressor.

In addition, the cost of the equipment has increased, so more customers may opt for compressor replacement rather than replacement of the entire condensing unit. Between that and coil matching, that means more training for your technicians, especially on R-410A, which is the refrigerant much of the 13 SEER equipment is moving towards. Also, with the higher cost of equipment, you may need to look into new financing programs for your customers, and expanded lines of credit for your business as well.

In short, energy efficiency is being deemphasized. Quality installation and attention to the whole system, including ductwork, and features such as variable speed blowers, multi-capacity compressors, zoning, variable speed blowers, and reduced compressor sound, will be the new pegs on which to upsell.

Jim Adcox,
vice president of membership,
Johnstone Supply Co., Portland, OR

"A huge concern is warranty issues. If we sell a new unit, and the contractor doesn't match the coil and burns the compressor out, he'll want a warranty credit. The manufacturers won't allow us to keep sending in warranty claims that weren't their fault."
— Jim Adcox, Johnstone Supply

Wholesalers have three strategies to choose from when it comes to 13 SEER. The first is to be the last guy standing: buy as much 10 SEER equipment as you can, and hang on as long as you can. The second is to completely cut off 10 SEER and go 100% into 13 SEER and hope everyone goes along with you. The third strategy is to talk to contractors to determine whether they plan to move some 10 SEER and some 13 SEER equipment, and stock some of both. That's the approach Johnstone is taking.

Wholesalers do have some concerns about 13 SEER. We don't know what it will mean for the component versus replacement market. Will we start moving more compressors? All indications say yes, so we're trying to figure out how many compressors to stock in our central distribution centers, and what kind of stock position to take at the store level. At our three central distribution centers we're only stocking 13 SEER equipment. At our local warehouses we'll try to stock whatever our customers want for as long as we can stock it.

Another thing we look at is credit. All our stores run open credit, and we need to be able to collect our money just like contractors need to collect theirs. With the equipment being more expensive, our receivables are increasing. therefore, we really need to be sure our contractor-customers can get higher credit limits and be sure they can collect the increased job costs from their customers, so they can stay current on their accounts.

Finally, a huge concern is warranty issues. If we sell a new unit, and the contractor doesn't match the coil and burns the compressor out, he'll want a warranty credit. The manufacturers won't allow us to keep sending in warranty claims that weren't their fault, and we definitely can't afford to absorb these costs at our level.

We're plan to minimize this by doing a lot of certification work with North American Technician Excellence (NATE), and doing a number of " Johnstone University" programs on 13 SEER. So we're working with contractors to bring them up to speed. We're always talking with contractors to find out what training or other information they need, and provide it for them.

Andy Rodenhiser,
president, Rodenhiser Plumbing,
Heating and Air Conditioning, Holliston, MA

In the Northeast, we only have about 20 or 30 cooling days a year, so selling 13 SEER has always been a challenge. But the impact of this goes beyond our sales force. Our technicians, foreman, salespeople, and office staff are all involved in the sales effort. Education and training has been the big focal point for us so that all our people understand what's happening and can effectively help grow the business around some of these changes.

About 90% of our sales are already 13 SEER and higher. We have customers who are moving, and who want to put in something cheap to satisfy a home inspector, and customers who simply don't use their cooling very often. These groups just want 10 SEER, and we see them as being difficult for us from a competitive standpoint. Fortunately, they're not a major portion of our business.

We use a rebate through the utilities as a major way to help defray the higher cost of 13 SEER units, but what will happen if those rebates go away, or start being shifted to units with even higher SEER ratings? That's something we're already beginning to see.

We try to identify and incorporate best practices, and that's why we're teaching our people that the line set must be replaced and the coil must be matched.

We have training sessions twice a week: Monday we have technical training, and Tuesday we have sales training. It's important to keep the information flowing, and keep our technicians abreast of what's happening. Both types of training are important: all your people must be aware of the values and benefits of your company and not just the values and benefits of the products you sell.

Each of us should also make a commitment to educating our clients, and share information openly so that the general public knows and understands what's happening. The sooner that happens, the better the situation will be for all of us.

Mark Swepston,
president/CEO,
Atlas Butler Heating & Cooling, Columbus, OH

I look at this as a great opportunity. Everybody will be on a level playing field. There will always be "bottom feeders," but now you have a legitimate chance to outsell them.

We need to ask the manufacturers and suppliers to increase prices, but to keep them even for everybody so that everybody makes more money.

There are some technical issues, but about 40% of our sales are already 13 SEER or higher, and we replace every coil and line set.

Regarding warranty concerns, I grew up in this industry as a service manager, and I never had a manufacturer check if an installation was done right to guarantee a warranty. I truly don't believe that will change. I've heard that rhetoric before, but the manufacturers simply don't have the time or money to go out and chase it. The manufacturers will, however, identify the few contractors for whom it's a major, recurring problem, and flush them out. That's a good thing.

So, basically, I don't see a problem with the new 13 SEER mandate. In fact, we should be thanking the federal government for increasing our bottom lines.

If you've been around long enough, you remember the transition to 10 SEER. We took that in stride and we'll take this in stride.

Dewey Jenkins,
owner,
Morris-Jenkins Air Conditioning and Heating, Charlotte, NC

We are a replacement and service business. As such, the first thing I think of when I see this change coming is the size of the evaporator coils. We do most of our work in crawlspaces, attics, or closets. So evaporator size is critical to us and I hope the manufacturers are doing all they can to keep coil sizes reasonable so we can work with them.

Aside from that concern, contractors need to remember one thing about 13 SEER: it means opportunity.

Think about what the change to 13 SEER means. Airflow becomes critical. Pressure drop across the coils, static pressures, and the proper refrigerant charge all become critical. All this makes it harder for the poorly trained contractor to do a good job. It's an opportunity for us to earn new customers by going out and taking care of homeowners who get burned by the incompetent contractors. And that will do nothing but increase our business.

"Contractors need to remember one thing about 13 SEER: it means opportunity."
—Dewey Jenkins, Morris-Jenkins Air conditioning and Heating

Plan on doing more training to emphasize charging, air distribution, and giving customers what they've purchased. Focus on all the things that the poor contractors aren't thinking about and aren't doing.

The 13 SEER mandate represents an opportunity for every good contractor in the nation. Opportunity always comes in the form of change. Consider yourself fortunate to be living in this time of change.

Give us your feedback on this article at letters@contractingbusiness.com

This article is based on the panel discussion, 13 SEER 101: How the Changes Will Affect the Value Chain, which took place at HVAC Comfortech 2005, held in Nashville, TN, Sept. 14-17, 2005.

For more information about HVAC Comfortech 2006, which will be held September 13-16 in Baltimore, MD, call 216/931-9550.

Learn from the leaders: In 2005, HVAC Comfortech presented more than 30 speakers providing educational seminars. All the sessions were recorded, and are available for purchase. For pricing and ordering information, visit the show website: www.hvaccomfortech.com.