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HVAC Contractors Need to Adapt to Repair Market

Repair or replace is a question homeowners often need to answer, and it greatly impacts an HVAC contractor's business. During COVID, the residential HVAC industry saw a replacement market boom. But in 2023 and now the beginning of 2024, there has been a shift to a repair market that HVAC contractors need to be aware of as they run their businesses.

According to numbers from the Air-Conditioning, Heating and Refrigeration Institute (AHRI), shipments of unitary air conditioners and heat pumps were down 16.7% in 2023, compared to 2022. Gas furnaces were down 23%.

"The replacement market is performing worse when you strip out new construction," said industry leader Matt Michel. "Housing starts were down around 5%, according to the St. Louis Federal Reserve, so the replacement market for unitary air conditioners and heat pumps was down in the low 20s."

Distributors are seeing similar numbers, according to the Heating, Air-conditioning, & Refrigeration Distributors International (HARDI).

"We definitely are seeing a shift here. And that shift has actually been visible for some time," said Tim Fisher, HARDI director of market intelligence.

HARDI receives data from FieldEdge on the invoice and quote trends exhibited by their users. Invoices reflect work that has been completed, whereas quotes reflect potential future work and are most often provided for new system installations. HARDI has found that, over time, the ratio of new invoices to new quotes is a useful indicator of whether a market is trending more toward repair than replace and vice versa.

The numbers show the annual growth rate bottomed out in the spring of 2022 but remained negative through most of the year, indicating that replacement trends were broadly higher in 2022 than in 2021. That figure increased through 2023, peaking in May but generally remaining positive for most of the year. While the three-month growth rate has slowed in recent months — an encouraging sign — they don't expect much of a negative drift in 2024, meaning that repair versus replace trends will broadly remain similar to where they were in 2023.

So why is this change happening? It can't be attributed to any single factor but rather a combination of items. Certainly, higher costs of both HVAC systems and housing in general play a role.

"Adapting to the economy is something contractors need to do. We can't just assume people are going to reach into their pocket and replace," said ACCA CEO Bart James. "Contractors need to help customers get through the current need. People are slowing down on theirspending. People are worried about what is coming and how they are preparing for it. Wages and other things are not keeping up with how fast prices are going up."

James said reading the numbers shows there is a shift in the home improvement market.

"Just look at the Walmart and Home Depot quarterly projections. Walmart did well with more visits but had smaller purchases, while Home Depot did not hit their numbers. That tells you that people are handling investments into housing differently. That will catch up with HVAC, too. "Contractors need to prepare by making investments in their team to meet the needs of the customer. And that need is not always a replacement option but also can be a repair option," James continued.

The sluggish home resale market is another reason for the shift towards a repair market. "Home improvement spending, in aggregate, tends to follow existing home sales totals nationally," Fisher said. "People invest more in their homes prior to selling to boost its value, and new homeowners spend more in their first year of moving than homeowners who stay put. This has major implications for HVAC replacement demand, which, historically, peaks when existing home sales are at their highest and falls off when existing home sales decline.

"Both the 3-month and 12-month growth rates bottomed out earlier in 2023, and while still negative, have slowed significantly," he continued. "We believe that home sale totals are at or nearing their trough, and over the duration of 2024 should steadily improve and finish at or ahead of 2023 totals."

The final reason is the cyclical nature of HVAC. It reflects the shipment cliff from 15 years ago, when the industry contracted 40% after peak shipments in 2005. Contractors cannot replace what was never installed.

How do HVAC contractors deal with this shift? Michel believes they should embrace the repair market.

"The money is better in replacements," he said. "It always has been and always will be. However, margins are better in service. For the next couple of years, anyway, contractors should focus on building up their service business and making money on it."

Since service involves more labor, and labor carries more overhead than equipment and material, keeping a close watch on overhead expenses is a must.

"Contractors need to build the service base, watch your marketing expenses drop, and down the road, the replacement margins and close rates to a satisfied service base will rise," Michel said. "Once we get past the shipment cliff, the replacement market will begin a decade-long run with every year being better than the year before it. We know this because it's what happened in the past, and when it comes to replacements, the past truly is a prologue."

Contractors in most parts of the country are already feeling the pinch of a slower market, and their experiences in 2024 are unlikely to be much different from their experiences in 2023 though rebounds from themilder temperatures we saw during peak months last year would go a long way in improving demand in 2024.

HARDI advises contractors should consider the following six tactics in '24:

• 
  
• •Offer financing options: Any homeowner considering a new system is likely going to feel some sticker shock if it's been a few years since they
• last bought a system. Financing a new system helps to alleviate that shock, making the big sticker prices much more palatable monthly payments.
• •Protect margins: Work to ensure that your pricing for jobs is consistent with market trends, and attempt to pass through as much of the higher system costs as possible. Likewise, now is a critical time to manage operating expenses closely. Together, good cost  management and smart pricing can help protect business margins in 2024.
• •Educate homeowners: Many homeowners may not fully understand the long-term benefits of replacing their HVAC system versus frequent repairs. Offer educational materials, such as blog posts, videos, or pamphlets, explaining the advantages of a new system 
• in terms of energy efficiency, lower maintenance costs, and improved IAQ. Also, be sure to make clear to your customers which incentives they may qualify for through IRA or other state-level rebate/incentive programs. 
• •Focus on value proposition: Emphasize the value proposition of a new HVAC system, highlighting its reliability, longevity, and performance. Help homeowners understand that investing in a replacement now can save  them money and hassle in the long run.
• •Offer maintenance packages: Create maintenance packages that bundle regular servicing with discounts on repairs or replacements. This can encourage homeowners to invest in preventive maintenance and build a long-term relationship with your company. 
• •Diversify services: Explore diversifying your services beyond just HVAC installations and repairs. For example, you could offer IAQ assessments, smart thermostat installations, or energy audits to provide additional value to homeowners and generate new revenue streams.

https://www.achrnews.com/articles/154324-hvac-contractors-need-to-ad apt-to-repair-market

Read the text and answer the following question.

Cultural behaviour in business

Much of today's business is conducted across international borders, and while the majority of the global business community might _______ the use of English as a common language, the nuances and expectations of business communication might differ greatly from culture to culture. A lack of understanding of the cultural norms and practices of our business acquaintances can result in unfair judgments, misunderstandings and breakdowns in communication. Here are three basic areas of differences in business etiquette around the world that could help stand you in good stead when you next find yourself working with someone from a different culture.

Addressing someone

When discussing this topic in a training course, a German trainee and a British trainee got into a hot debate about _______ it was appropriate for someone with a doctorate to use the corresponding title on their business card. The British trainee maintained that anyone who wasn't a medical doctor expecting to be addressed as 'Dr' was disgustingly pompous and full of themselves. The German trainee, however, argued that the hard work and years of education put into earning that PhD should give them full rights to expect to be addressed as 'Dr'.

This stark difference in opinion over something that could be conceived as minor and thus easily _______ goes to show that we often attach meaning to even the most mundane practices. When things that we are used to are done differently, it could spark the strongest reactions in us. While many Continental Europeans and Latin Americans prefer to be addressed with a title, for example Mr or Ms and their surname when meeting someone in a business context for the first time, Americans, and increasingly the British, now tend to prefer using their first names. The best thing to do is to listen and observe how your conversation partner addresses you and, if you are still unsure, do not be afraid to ask them how they would like to be addressed.

Smiling

A famous Russian proverb states that 'a smile without reason is a sign of idiocy' and a so-called 'smile of respect' is seen as insincere and often regarded with suspicion in Russia. Yet in countries like the United States, Australia and Britain, smiling is often interpreted as a sign of openness, friendship and respect, and is frequently used to break the ice.

In a piece of research done on smiles across cultures, the researchers found that smiling individuals were considered more intelligent than non-smiling people in countries such as Germany, Switzerland, China and Malaysia. However, in countries like Russia, Japan, South Korea and Iran, pictures of smiling faces were rated as less intelligent than the non-smiling ones. Meanwhile, in countries like India, Argentina and the Maldives, smiling was associated with dishonesty.

Eye contact

An American or British person might be looking their client in the eye to show that they are paying full attention to what is being said, but if that client is from Japan or Korea, they might find the direct eye contact awkward or even disrespectful. In parts of South America and Africa, _______ eye contact could also be seen as challenging authority. In the Middle East, eye contact across genders is considered inappropriate, although eye contact within a gender could signify honesty and truthfulness.

Having an increased awareness of the possible differences in expectations and _______ can help us avoid cases of miscommunication, but it is vital that we also remember that cultural stereotypes can be detrimental to building good business relationships. Although national cultures could play a part in shaping the way we behave and think, we are also largely influenced by the region we come from, the communities we associate with, our age and gender, our corporate culture and our individual experiences of the world. The knowledge of the potential differences should therefore be something we keep at the back of our minds, rather than something that we use to pigeonhole the individuals of an entire nation.

(Available at: https://learnenglish.britishcouncil.org/skills/reading/c1-reading/cultural-behaviour-business, Accessed September, 2023)