Remodelers Exchange: Positioning for the expiration of energy retrofit tax credits

Professional Remodeler's Tom Swartz talks to remodelers Howard Chermak and Tom Panek about how the credits have helped their businesses and how they are positioning their companies for a post-credit market.

December 07, 2010

Unless Congress takes some surprising action, the tax credits on windows, insulation and more will expire December 31. Professional Remodeler’s Tom Swartz talked to remodelers Howard Chermak and Tom Panek about how the credits have helped their businesses and how they are positioning their companies for a post-credit market. Highlights of that conversation appear here. To listen to the full discussion, click here.

Tom Swartz: How have the credits impacted your business? Can you put a number on that?
Tom Panek: It’s helped a lot. It’s going to be hard to put an exact number on it. We use that in our advertising, make the public aware that there are tax credits. Unfortunately, I don’t think it’s big enough to make much of an impact in the industry, because … it doesn’t give you that much of a kickback.
Our average window job is $5,200, so people do get to max out the $1,500 credit if they make a window purchase, but it doesn’t allow them other credits for (improvements) such as insulation or other things that could be available.
howard chermak: There are a few different things. The federal tax credit … and there are some local things in Washington that are credits that are done by either the electric companies or the gas companies. They will give small rebates for dishwashers, refrigerators. They also have a loan program for insulation, duct work sealing, heat pumps. There are quite a few things that are outside of the federal tax credits in our area. I would say that it just helps us sell. There’s a nice little kicker in there.

Swartz: Has it gotten people to remodel who maybe wouldn’t have before?
Chermak: I think it probably has. That is a tough one. It’s a nice sales technique to use, because it’s unexpected. People don’t know about it and it’s a pleasant surprise to have a small rebate on things. It’s a nice reduction in costs for sure.

Swartz: It sounds like that might be a closing method. All of the sudden they’re going to get off the fence to get it by the end of the year.
Chermak: And I really think it helps. We do hear that in phone calls with people saying, “Well, I’d really like to talk to you soon because I’d like to fit in under the energy tax credit and I think it’s going to end.” If they’re going to make a decision, this helps them do it now, that’s for sure.
panek: Right now, this time of year, everyone that is buying from us is asking the question, “Can these be installed by December 31?” so you know they’re thinking about the credit. It’s hard to measure how many would buy or not buy because of that.

Swartz: What type of project do you see that these were used on?
Chermak: Most of the time we run into this when people are experiencing a window failure or we put an addition on the home and we are upgrading the windows that are being put in, but also the windows that are all around the house. Oftentimes, it will include, because of the energy tax credit instead of just one or two windows, people will look at replacing them all.

Swartz: What’s the best thing about the credits that you can see?
Panek: It’s good for the homeowner. They do get a rebate back. It encourages them to do some purchases.

Swartz: Were there any [problems] with the program the way it was set up?
Panek: The only thing I could say about it is I didn’t think it was big enough. I didn’t think the dollar amount was sufficient to encourage a homeowner to do all of the necessary things to bring an older home up to date.
Chermak: I really kind of agree that it needs to be more encompassing. I wish it was more far-reaching. It doesn’t seem to be enough in all senses of what could be improved for the energy efficiency of the home.

Swartz: What impact do you expect the expiration of this to have on your business?
Chermak: I think that some people will not purchase and will not upgrade because the incentive is what moves them. As we’ve said earlier, it’s hard to put a number on that, but we are getting calls right now about the end of it, and “When do I have to do this?” and “When will it expire?” They want information on what we think will happen and what are the current rules in order to get the rebate. I feel as though there will be some effect on the business, but in my own full-line (company) it would be less than 5 percent. I don’t think it’s that big.

Swartz: Tom, you’re a bigger player in that particular part of it. What impact are you expecting?
Panek: I think it’s going to have a slight impact. It’s going to be hard to measure. One of the things it might do is just delay someone from doing the project in the hopes that the (government) will come in with new credits. It might have an effect that way. I’m not really sure, but I kind of agree with what Howard said – 5, maybe 10 percent of the business might be affected.

Swartz: Tom, you bring up a very good point. The point is when we don’t know something, we make up what we don’t know. In make-up land, as we call it here, the people would make-up that it might come back, so they’ll just delay and see what happens, and they would wait and put the whole project on hold. That is a concern. So right now, today, it’s going to expire and we’re looking at a Congress, that we don’t know what this group’s going to do and when. Have you put any programs or anything in place to counter what might happen?
Panek: We’re going to get more into social networking for our lead sources. We’re a little bit behind on that. We’re also diversifying a little bit by doing bathroom remodeling and also starting with blown insulation.
Our factory is offering a $1,500 rebate off of the product line if you buy a premium line. After December 31 that will be on there. We’ve drawn up our advertising to include that. It will be either a direct rebate from the factory itself or it will be taken off the contract at the time of closing.

Swartz: Howard, with the tax credits poised to expire do you see any new programs or marketing promotions that you have done or are planning on doing?
Chermak: I think oftentimes if a contractor follows that with a rebate or an offer that says, “Energy tax credits have expired, but our credits haven’t,” and give $500 or $750 and call it a rebate. In other words, advertising centered on the end of an existing one, but Chermak Construction will continue to offer one, some sort of rebate that will help in advertising.
It is quite a concern that it will go away, because in the Seattle area, the business has been more difficult to get and we have gone from a high of $9 million as a company down into the $5.5 million range, so each time we take a hit, it’s another piece that makes it more difficult to structure the company so it can be successful.
It could expire and not come back. I don’t think it will improve dramatically. I think it will remain the same if it will do anything and that would be the best for us, that’s for certain.

Swartz: Do you expect new credits next year? What would be the impact if they did do it?
Chermak: I think it would be very good. As it starts to close out, toward December 31, I think there’s a sense of urgency. I think we’ll have a big push here at the end of the year.
If it is continued for another year or two or three, there will be a little bit of relaxing in that sense; however, it’s still a very nice sales technique to use. I’m very hopeful they’ll continue it. I would give them a 60 to 70 percent chance of continuing.

Swartz: Tom, what do you expect for new tax credits next year?
Panek: I’m not really sure what they’re going to do it. I was with a lobbying group in Washington, D.C., in April, related to the opt-out provision in the lead act. We spoke with a lot of Congressmen and senators there and a lot of them weren’t even aware that the bill was there and it was kind of disappointing. I did meet a few that were genuinely interested in our industry, but for the whole, we weren’t getting anywhere.
The green policies are being pushed so much, but it seems like they’re not being pushed enough in the home improvement industry for the products that we sell.

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