Carrier, Trane, Lennox & HVAC OEMs Landscape

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And do you know why Carrier, around 2000 to 2007, tried to step into the direct distribution model until they set up the joint venture with CE? Do you know why they changed that and how they think about it today?

Yes, I think it's about leverage. If you look at Carrier in particular, the biggest issue they face is that Watsco now controls so much of their distribution, which can be somewhat nerve-wracking. Typically, you don't want all your eggs in one basket. While Watsco is a great partner, they are also extremely shrewd from a business perspective and have been acquiring independent Carrier distributors as well. They've transitioned from having a small component of partnership on the ICP side, owning a couple of distributors like Baker Distributing and Gemaire Distributing, who are big ICP customers. They also own all of CE, thus the entire CE business and that partnership with Carrier. Now, they also own two or three independent Carrier distributors, like TEC in Chicago and Peirce-Phelps in Pennsylvania. What's happening now is Watsco is becoming heavily leveraged over Carrier. For example, during the last couple of years with the pandemic, the distribution model has been very strained and challenged due to labor and parts shortages. Watsco has effectively stepped in and demanded priority, saying, "You have to take care of me before you take care of anyone else." It's hard to deny that as a requirement when they own so much of your distribution. So, I think if they move towards a direct channel, which has been indicated by several big OEMs like Daikin, it's so that they can de-leverage from their current partnerships in distribution.

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But would you say there is a huge quality difference in the residential space compared to Carrier?

There used to be a bigger quality difference. With Carrier's high-end products still being made in Collierville, Tennessee, they emphasize that they are American-made, just like Trane and Lennox. Their high-efficiency, high-feature products are made in the US. So, there isn't as much disparity as there used to be. For example, Goodman was known for poor quality equipment 20 years ago. However, Daikin has significantly improved their manufacturing process, and a Goodman product today is just as good and reliable as Trane products at that entry-level. So, I don't think you see as much disparity in the different brands as you used to.

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