Manufacturers Facing Tougher Markets, Tougher Performance Criteria

January 1, 2008
Meetings & Events

Palm Beach Gardens, Fla.—Numerous challenges facing the industry were front and center at the Window & Door Manufacturers Association’s annual conference, concluding here today. Members heard predictions for lower window and door sales this year, proposals for more stringent criteria for the Energy Star program and warnings that class action suits against manufacturers are on the rise.

Following a year of “catastrophic decline,” the residential market is likely to slip further in 2008, reported Scott Shober of Ducker Worldwide, which conducts annual market research on behalf of WDMA and the American Architectural Manufacturers Association. The news in the nonresidential market has been better, he noted. It hit a new peak in 2007, up 25 percent from 2006, but it too is likely to slip somewhat in 2008.

Discussing the residential market, he noted that single-family starts were down nearly 30 percent in 2007. Pointing to a large inventory of unsold homes out on the market, Shober expects another 22 percent drop this year, adding “We have a long way to go here.”

Adding to the sober outlook for residential window and door sales is the fact that remodeling activity is also down. Shober estimated that residential improvement expenditures were down 1.7 percent in 2007, and predicted a 3.5 percent decline for 2008.

Stressing the fact that Ducker is still in the midst of research for its annual market study, and that the numbers offered are only preliminary, Shober suggested that the decline in residential markets translated to about a 16 percent drop in demand for residential windows and doors last year. Right now, Ducker is predicting another 12 percent drop for 2008.

Coming off a peak of about 70 million units in 2005, residential window sales may dip below 50 million units in 2008, according to Shober. Similar percentage declines can be seen in residential doors and skylights. “We’re looking at volumes we haven’t seen in over a decade,” he said.

One other trend Shober noted on the residential side is that wood products seem to be holding up better than vinyl and other types of products. Noting that the high end of the housing market is seeing less of a downturn than those hit by the mortgage crisis, he suggested that wood products may actually gain market share versus other materials. Another winner in the market is fiberglass entry doors, he noted, which continue to take share from steel doors.

Looking at the nonresidential segment, Shober suggested 2007 was a “watershed year” as far as growth. Ducker doesn’t foresee the market dropping drastically despite the anticipated declines, pointing to some segments that will continue to grow.

His nonresidential forecast was echoed somewhat by Cliff Brewis of McGraw Hill Construction, who offered a closer look at numerous segments of the construction market. While the outlook may not be bright, he suggested it might not be that bleak either. Looking back at the past three construction cycles, he pointed out that in real terms, there’s still more construction spending than at the heights of the previous two cycles.

Like Shober, Brewis raised the possibility of the U.S. economy being in recession right now, adding that, “these are certainly challenging times” -- whether there’s a recession or not. What may be important to watch now, he said, is employment. Unlike what happened in previous economic cycles, it didn’t come back strongly after the last recession, because companies have become very disciplined about expanding. “As we exit this challenging period, the key to how long it lasts may be whether or not employment comes back.”

Brewis is not predicting huge declines overall in nonresidential construction, pointing to a number of segments, such as educational building and health care, that should continue to perform fairly well. He also noted a recent trend in the retail segment of smaller swings than in previous construction cycles.

Manufacturers may have to lower not only their sales goals, but also their performance numbers, if they hope to keep an Energy Star label on their products in 2009. Richard Karney, Energy Star program manager for the Department of Energy, updated WDMA members on the new criteria it is considering at this point, but he noted also that DOE is waiting to see what happens at the February International Code Council hearings before issuing its final plans. An important goal for Energy Star is to be “better than code,” he explained, and right now, it is still uncertain how stringent revisions to the 2009 International Codes will be for windows, doors and skylights.

Among the changes Karney reviewed are substantially lower maximum U-values in the Northern zones—as low as .30 versus the current .35—and substantially lower solar heat gain coefficients in the Southern zones—as low as .25 versus the current maximum 0.40. Other possibilities include SHGC requirements in Northern climates that would encourage greater capture of winter solar gain. DOE is also considering expanding the use of alternative performance criteria, specifically SHGC/U-value trade-off options now only in place in the Southernmost climate zones.

Other major changes outlined include a change from four to five climate zones. In addition to aligning better with International Energy Conservation Code climate maps, Karney said the new Energy Star map would also divide the current Northern zone into two separate zones. Also under under consideration are separate criteria for (opaque) entry doors, requirements for certified insulating glass units and inclusion of air leakage resistance minimums.

Karney emphasized that DOE sees the Energy Star program as a driver of technology, and, as a result, it is not only looking not issue new criteria to go in effect in 2009, but also more stringent criteria for 2012 and 2015. Window and door manufacturers, he expected, will be able to meet 2009 criteria using existing technology; but more advanced technologies such as electrochromic glazing might be needed to hit the 2015 numbers.

Right now, DOE plans to issue its revised Energy Star criteria for windows, doors and skylights by the first week of March, following the February ICC hearings. DOE has scheduled a stakeholder meeting for March 26 in Washington to allow feedback, with the final criteria expected to be determined in May, Karney said. After the final numbers are determined, window and door manufacturers will be given at least nine months before the new Energy Star criteria take effect, he also assured the audience.

The audience offered Karney a number of comments on the changes. Pointing to the Northern climate zones, and the possible U-factor and SHGC requirements that could be part of the new criteria, one attendee said, “If you pick certain numbers in those ranges, there will be a lot of manufacturers with problems.” Also discussing the Northern zone, another questioned a lower U-factor in light of the fact that utilities face the biggest challenges delivering power in summer—and that lower U-factors could exacerbate that problem.

These issues are still be weighed by DOE, Karney noted. Just about all the feedback and questions DOE has received to date, he added, have concerned its requirements in the Northern zones.

Another issue raised by manufacturers at the meeting was the fact that Energy Star may be equivalent to code in the new construction market, but Energy Star products certainly represent a significant upgrade in energy performance in the existing home market where millions of houses are still equipped with single-pane glass. More stringent criteria in this market could affect the basic affordability of Energy Star windows, it was noted. DOE has heard proposals for a two-tier Energy Star program, and is exploring the possibility of separate Energy Star new construction and replacement window programs to help address the situation, Karney reported. It is also looking at other ways—including working with utilities—to create homeowner incentives for replacing older windows.

Adding to the challenges facing window manufacturers is the fact they are now seen as targets for class action suits by plaintiffs’ attorneys, according to Dan Smith, a partner with Bowman and Brooke. Although building product manufacturers have long faced the prospect of construction defect litigation, these types of suits were usually considered as individual cases because of the thousands of components and many entities involved tended to make each unique. However, in a 2000 California court case, a product used in numerous homes was determined to be inherently defective and therefore was certified as a class action. This encouraged plaintiffs’ attorneys to find more “common problems” in construction, including windows.

Smith outlined some of the common elements in window cases to date, noting that they typically concern moisture intrusion and insulation claims. Some of the common elements and strategies in these cases, he continued, have developed because the attorneys that bring these type of suits talk and learn from each other. Smith suggested that window manufacturers should do the same. “In litigation arena, you as a group are not competitors,” he stated. “If a window manufacturer wins a class action case, it benefits the industry as a whole,” and, conversely, when a manufacturer loses, it can only encourage more suits.

In association business, Rick Kon of Masonite Corp. was elected as WDMA’s new chair at the Florida meeting. Outgoing chair Dave Beeken of Eagle Window & Door noted that the organization is facing its own challenges in the current market, which still has its sights on the goal of industry leadership even while facing financial constraints at a time of consolidation. “The board of directors has been very busy,” he reported, and continues to work hard to find ways to “add value without adding cost.” He promised members they would see some new plans to address current conditions and WDMA’s long term strategic goals within the next few weeks.