Contractors fret over credit, people, government

Feb. 8, 2010
CLEVELAND — Contractors are cautiously optimistic about 2010, although worries about tight credit markets, lack of qualified people and the effects of government are what keep them up at night.

CLEVELAND — Contractors are cautiously optimistic about 2010, although worries about tight credit markets, lack of qualified people and the effects of government are what keep them up at night.

Prominent business-to-business advertising agency Sonnhalter, whose best known client is probably Ridge Tool Co., conducted telephone interviews with 22 plumbing and HVAC contractors in the fall of 2009. The purpose of the interviews was to see how they were handling the downturn in the economy and to get their insights as to where they felt 2010 is headed.

Of the 22 respondents, only two had a sales increase for the year. One attributed this to his location and the new commercial projects working in his area, and the other to a local competitor going out of business. Overall, contractors were down anywhere from 7% to 25%, with most falling into the 7% to 15% range.

In the design/build portion of their businesses, commercial construction was down substantially versus residential. In the repair/service portion of their businesses, residential was, for the most part, holding its own, with commercial lagging behind. Some contractors said that many of the commercial projects that were put on hold earlier in the year were being released in the third and fourth quarters of 2009.

In the residential replacement market, all agreed that the stimulus package helped in new sales, although HVAC benefited more than plumbing. The majority of HVAC contractors said that their unit sales in dollars were up because consumers were able to purchase more energy efficient units using tax credits that were part of the stimulus package.

Many contractors said they had work but lacked a line of credit because of banking issues. From the commercial side, contractors stated they knew several developers that had projects ready to go, but were awaiting financing.

While a lot of people may be unemployed, several of the contractors had a difficult time finding qualified people. Some of the larger contractors approached this by internally “growing their own,” honing in skill sets and good attitudes, with a formal program.

All contractors are concerned about the mounting deficit and its long-term impact on the economy. Other issues such as healthcare, cap-and-trade legislation and the lack of financial programs to assist small business owners are concerns.

In addition to cutting staff and watching expenses, contractors have been looking at new markets and evaluating where they are spending their promotional dollars. One of their main concerns is keeping existing crews busy. Most have either started an incentive program or re-emphasized current incentive programs to sell the company’s brand. Increased competition is hurting their margins.

As for promotions, some have tried guerilla-marketing tactics such as door hangers and yard signs, while others used seasonal TV buys. Those that used social media were more active on Facebook and LinkedIn. Very few used Twitter, as they don’t understand how to use it in developing new business. Only about 50% of them are taking full advantage of any co-op dollars that are available.

Most contractors are cautiously optimistic that 2010 will be a better year. Current government programs and how they will impact business are of concern. They all agree that they will have to work smarter and be more aggressive, but believe the opportunities will come either from new business or from competitors going out of business. According to the survey participants, residential repair/replacement markets should see a continued growth since the stimulus is still in effect for 2010. Industrial/commercial markets, other than new construction, will see a slight uptick, which has already been seen in the last quarter of 2009 in most markets.

Additional information is available at Sonnhalter or from John Sonnhalter, [email protected], 440/234-1812 ext. 121.

About the Author

Robert P. Mader

Bob Mader is the Editorial Director for Penton's mechanical systems brands, including CONTRACTOR magazine, Contracting Business and HPAC Engineering, all of which are part of Penton’s Energy and Buildings Group. He has been  with CONTRACTOR since 1984 and with Penton since 2001. His passions are helping contractors improve their businesses, saving energy and the issue of safeguarding our drinking water. He is a graduate of the University of Notre Dame with an A.B. in American Studies with a Communications Concentration.

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