Overcapacity or price war will cause air-conditioning companies to prepare for winter

If no accident occurs, air conditioning will exceed the expected growth for the third consecutive year in the 2011 frozen year. However, according to AVC's monitoring data and analysis of the air-conditioning market, it is necessary to avoid subjective expectations when the industry is generally watching the next freezing year, and to make a cool-headed thinking about the current status of the industry.

Multiple factors inhibit demand

Demand caused by a number of factors will reduce the pressure on the air-conditioning market next year.

Since 2009, the air-conditioning market has witnessed an extraordinary boom. First of all, the government has adopted active fiscal policies and loose monetary policies in response to the international financial crisis, which has created a substantial increase in demand, such as the demand for air-conditioning brought about by the booming real estate market, and rural towns. The demand brought about by accelerated construction, followed by active fiscal policies and loose monetary policies, will increase consumer confidence and people will dare to consume. Third, under the environment of loose policies, residents' income will increase and they will have the ability to consume.

However, since the first half of this year, in the face of increasing inflationary pressure, the government's aggressive fiscal policy and loose monetary policy have shifted. The policy shift will inevitably have a huge impact on the entire economic environment. For air conditioners, the most important thing is to crack down on the residents' consumer confidence and cause the shrinking of demand; secondly, monetary tightening brings financial pressure to the dealers of most small and medium-sized enterprises, causing difficulties in market operations.

In addition, two years after the implementation of the “energy-saving benefits” subsidy policy, it was withdrawn on June 1 this year. This also means that consumers can no longer enjoy the government’s subsidies of at least 150 yuan per set when they purchase energy-saving air conditioners. Withdrawal of the subsidy policy will inevitably have the following impacts: First, there is pressure to increase prices. Not increasing prices means that companies must bear at least 150 yuan in cost pressure. Second, we must re-do product planning. During the implementation of the policy of “saving energy and benefiting the people”, enterprises have placed the main direction of their products on energy-saving products that can receive subsidies. When the subsidy policy withdraws, the company will continue to focus its products on energy-saving Class 1 and Class 2 products, or switch to lower-cost Class 3 energy-efficiency products. Enterprises are faced with the choice. Third, consumers will "digest" policy withdrawals in advance. When consumers realize that the “energy saving subsidies” policy will withdraw from the price of commodities, they will change their confidence in buying from the original hesitancy to buying. The early release of this kind of consumption is in fact an advance payment for the next year.

In addition, there are some factors that directly contribute to the reduction of air-conditioning demand next year, the most important of which is the impact of the government's regulation of real estate market policies. The regulation of the real estate market plays a significant role in curbing inflation, but the demand for air conditioning is obviously constrained. The low turnover of the real estate market will cause residents to reduce the demand for air conditioning. Although the government introduced affordable housing, it will offset some of the negative impact of real estate regulation, but the speed of affordable housing will not be rapid. The reduction in demand caused by many factors will surely bring considerable pressure to the air-conditioning market next year. Therefore, in the second half of 2011, there will be a downturn in the air-conditioning market.

Product strategy is a new problem

It is a dilemma for the government to push the first-level energy efficiency products or turn the main products into “gateway products”.

In the new frozen year's marketing strategy, product strategy will be the key and difficult point. First of all, after years of baptism of market competition, all companies have realized that products are core competences and will highlight their own characteristics in products and form differentiated competitive advantages. Secondly, after the “energy-saving benefits” policy was withdrawn, the main push of energy-efficiency products or frequency conversion products was to shift the main products to “gateway products”, that is, three-level energy efficiency products. This was a dilemma.

The largest potential market for air-conditioning, the rural township market, is at the stage of product popularization. The key factor in whether or not consumers purchase this period is price. No matter whether it is an energy efficiency product or a frequency conversion product, there is a big gap between the price and the level 3 energy efficiency products. For the rural market, the three-level energy-efficiency products with price advantage are still the most popular. It is estimated that some manufacturers will shift their production focus to three-level energy efficiency products to promote the rapid development of the township market and continue to expand the market. But in this way, there will be conflicts with the main push frequency conversion and energy-saving products. The frequency conversion market has been rapidly developed this year. If the price of the three-level energy efficiency products introduced by the manufacturers is much lower than that of the frequency conversion products, the popularity of the frequency conversion products in the market will be subject to certain restrictions.

According to Ovid Consulting's market survey, such manufacturers in the United States have basically completed the transition to frequency conversion, and they will no longer consider fixed-frequency air conditioners that mainly promote three-level energy efficiency. However, there are also dealers who report that the market is still very interested in fixed-frequency air conditioners with relatively low prices. They do not want to increase the difficulty of promotion due to the lack of low-priced products. Manufacturers may need to consider the opinions of distributors, otherwise they may lose some of their market share. Therefore, in the formulation of the product strategy for the new frozen year, the above contradictions will be resolved. Are they walking on two legs or are they focused on pushing the frequency conversion? The problem has been placed in front of the manufacturers. How to crack will test the manufacturers to grasp the market's wisdom and ability.

Overcapacity may cause price war

The price increase of raw materials determines that the price of air conditioners will remain in the channel of rising prices for a long period of time.

In the history of air-conditioning industry development, there have been at least two price wars caused by overcapacity.

The first time around 2000. At that time, the industry had just entered a period of rapid development and attracted many investors to enter, causing the brand to have overcapacity, which eventually led to the prevalence of price wars. The result was the elimination of a large number of underperforming and poorly managed brands.

The second time around in 2005, mainstream brands started a new round of production layout in order to gain a competitive edge in scale. At present, the active brands in the domestic market have almost always carried out the layout of the production base during this period. This round of capacity expansion directly contributed to the deterioration of the industry's competitive environment, resulting in the forced out of a large number of well-known brands.

In March 2010, the United States took the lead in the beginning of another round of capacity expansion, establishing a new production base in Hebei Province and rapidly expanding production capacity, which laid the foundation for the development of the market this year. Gree also proposed to expand production capacity not long ago to solve the problem of the lack of timely delivery due to insufficient capacity. Gree proposed to increase production capacity to 28 million units per year.

For companies, expanding production capacity is a double-edged sword. On the one hand, expanding production capacity can indeed solve the short supply demand caused by the outbreak of demand in the peak season. Gree intends to expand its production capacity again. The direct reason is that the sudden outbreak of demand in April triggered Gree’s sales channels to grab the goods. However, on the other hand, expansion of production capacity will intensify the surplus of domestic production capacity, which will trigger a new round of price wars. At the same time, the expansion of production capacity requires not only the investment of a large amount of resources, but also the need to invest a certain amount of resources for maintenance. If new capacity cannot be used effectively, the input will not be worth the candle. It is hoped that manufacturers will maintain sufficient rationality in the new round of capacity expansion.

In addition, the cumulative effect of cost pressure also needs to be vigilant. Since the second half of last year, raw material costs have risen sharply, and most companies have had an intention to raise prices. However, due to the consideration of market competition, it has not been implemented.

In fact, from the 2010 annual report and the first quarter of this year's financial report, it can be seen that the profit margins of many air-conditioning companies have fallen year-on-year, while the cost pressure of air-conditioning products will be even greater in the second quarter. From the second half of last year, raw material costs have begun to have a serious impact on the gross profit margin of air-conditioning products. As the global economy has gradually come out of the doldrums, international commodity prices have stopped falling since 2009. From the second half of 2010 to the first half of 2011, commodity prices have hit record highs. Among them, the prices of copper, aluminum, steel, and plastics related to air-conditioning are all operating at historically high levels.

The price increase of raw materials determines that the price of air conditioners will remain in the channel of rising prices for a long period of time.