To make money in heating, think high efficiency

Chicago In case you haven't noticed, the housing market has gone down the tubes for 2009, and commercial work is screeching to a halt. When we talked with Tony Guzzi, president and CEO of mechanical giant EMCOR Group, a couple months ago, he made some common sense observations. Now is a bad time to depend on any customers who have anything to do with the auto industry or to think about building condos

Chicago — In case you haven't noticed, the housing market has gone down the tubes for 2009, and commercial work is screeching to a halt. When we talked with Tony Guzzi, president and CEO of mechanical giant EMCOR Group, a couple months ago, he made some common sense observations. Now is a bad time to depend on any customers who have anything to do with the auto industry or to think about building condos in Florida. America is over-stored, Guzzi said, which was confirmed by the news of Linens & Things, Mervyn's and Sharper Image liquidating and the Chapter 11 filings of retailers such as Circuit City. A lot of elementary schools may have been built for children who would have lived in housing that is not going to get built now, Guzzi opined.

It is hard to argue with any of that and it is all potential ad news for the heating and hydronics market.

Fortunately for the heating market, the weather got bad early in the heating season, noted Ken Niemi of Burnham Hydronics, and cold weather is always good for the replacement market. If the housing market is bad and the weather is warm, that's a double-whammy on the boiler market, he said. Another impediment is the lack of credit for home improvements. Niemi said he was relieved that fuel prices declined, since high fuel costs will further stress consumers' wallets.

“It is no surprise that traditional residential hydronic products probably won't see growth in the market in 2009,” said Bill Root, vice president, sales and marketing, Laars Heating Systems Co. “An extremely cold winter could give a little jump start to the replacement market, but wholesalers are trying to keep inventory costs down, and homeowners are spending significant money only when it is absolutely necessary.”

There is, however, a silver lining, and that is the green and energy efficiency market.

Contractors such as Dave Yates, F.W. Behler, York, Pa., CONTRACTOR is plumbing columnist, or Chuck Appleby, Appleby Plumbing, Old Saybrook, Conn., who are selling high efficiency, are doing well.

We are actually turning work away, said Yates. We're swamped.

“What it comes down to,” explained Rich Corcoran, general manager of Viessmann Mfg. Co.'s U.S. operations, “is that if you're producing plain vanilla stuff, you've had a number of tough years in a row. If you look at the industry figures … if you look at 2006 and 2007 numbers, you'll see a decline in year-to-year floor-standing boiler sales. What's not visible is growth in the modulating-condensing side of business, and that side is overtaking the traditional technology. That's not an easily visible issue because modulating-condensing sales volumes are not published nor am I free or are others free to provide them.”

Laars' Root agreed. The high efficiency mod-con portion of the market appears to be doing well, Root said, and, although fuel prices are low at the moment, most people believe that they won't stay this way for long, and consider a high efficiency boiler as the best strategy. Plus mod-con boilers are more expensive and yield higher profits, said Root.

“If someone doesn't have radiant heat or floor warming, or snow melting, it's because they don't know how much they want it yet,” said Rich McNally, eastern regional sales manager for Watts Radiant. “That is clearly my fault, there's no one else to blame. When you want something, anything, you can usually find a way. It's up to us as sales professionals to lead them to the idea that they want it, to enable their purchase. I have done well for years with a catalog full of great products to sell that nobody needs! My stuff sells when we tap into the want gene.”

Dan Schmeirer, CEO of Viega North America, said he is planning for the worst and hoping for much better. Schmeirer, in fact, is fairly optimistic. He thinks the economy could start turning around in the second half of 2009. Although he's a self-described conservative Republican, Schmeirer believes President Barack Obama, Speaker of the House Nancy Pelosi and Senate Majority Leader Harry Reid have enough sense of urgency and the willingness to spend a trillion dollars that they will jump-start the economy.

“Here's my take on it,” Schmeirer said. “We have one political party with all the power and I think with this much power consolidated and this sense of urgency, sooner rather than later there's going to be a sea of money put here, there and everywhere in a jobs creation program.”

There are key industries that represent a lot of jobs that will get money, and Schmeirer believes that residential and commercial construction will be one of them. Projects that are on hold will get financing and there may even be direct federal intervention in the construction market to get certain projects built.

The key for the Democrats, Schmeirer said, is to change the psychology of the country from depressive to optimistic. He's heard that there's $7 trillion to $8 trillion out there that lenders and investors are clutching tightly to their bosoms out of fear. Once that fear is overcome, the economy will improve.