(Opening Lines (OL): Your management team has been making a number of significant customer visits lately as part of your strategic planning. Any interesting findings?
Mr. Leiter: One thing that we’ve heard frequently—and it’s always a good thing to hear is ‘Keep us competitive.’ This refrain from our distribution partners signals that they simply want a level playing field where their service or other core competencies will help them win the day.
OL: So, how do you go about responding to this challenge?
Mr. Leiter: We strive to deliver the right products with pricing reflective of various market requirements.
OL: But haven’t there been dynamic changes in HVAC markets in recent years? How do you keep up?
Mr. Leiter: We’ve adapted. We’ve expanded our line to meet the growing needs of our distributors. We’ve invested in production infrastructure for greater efficiency. We brought on board the sales, marketing, and customer service personnel to ensure greater levels of customer care. In fact, given all that, it now seems an appropriate time for us to say to our distributors: ‘Keep us competitive.’
OL: What do you mean by that?
Mr. Leiter: I mean hold other suppliers to the same standards to which we’ve been held. Allow me to provide a multi-year observation.
In earlier decades of our corporate life, we would approach various distributors with our offering and constantly hear: ‘Yes, this is good stuff but you lack (fill in the blank) so I’d still need another supplier. And parsing out my orders between the two of you would make it harder for me to (fill in the blank). Come back when you have a complete line.’ And so, we went back to the drawing board, developing more products year by year.
Now, fast forward to today. In recent years we’ve seen some distributors pursuing off-shore product offerings that are meager in relation to our own (and deliberately so). These off-shore products are, of course, the high volume items most requested for residential and commercial projects. This forces the distributor to come to us, or one of our domestic competitors, for all the leftovers, the “Cs and Ds” versus the “As and Bs.”
OL: And the problem with that is what?
Mr. Leiter: Let me be frank. We developed all of those Cs and Ds with the expectation of the As and Bs. We were happy to do it, sometimes even understanding that we’d do so at little or no margins because we’d also sell the As and Bs. Also, keep in mind that the lower volume items are more costly to produce. If a disproportionate amount of our business goes that way, our overall costs increase.”
OL: So you’d prefer distributors to ‘buy American?’
Mr. Leiter: Well, of course I would but that’s not really my point. Let me be clear: I believe in FAIR trade. In fact, I will put our manufacturing capabilities and efficiencies next to anyone—foreign or domestic. I also believe deeply in the notion that the strength of our nation is dependent on our ability to MANUFACTURE.
OL: You mentioned cost increases a moment ago. I assume that relates to your recent price increase?
Mr. Leiter: Yes. But it is more directly tied to this notion of manufacturing. Let me explain.
From a macro perspective and in the truest sense of the word, wealth can only be achieved in three ways: Mining (you take something of value from the earth itself), Agriculture (you plant a seed and yield a crop), and Manufacturing (you create something that is greater in value than the sum of its parts).
Manufacturing also includes new home and building construction. If we, as a nation, can’t manufacture the goods we need, we can not have a balance of trade. This puts pressure on our currency and devalues the dollar while creating inflation. In turn, this creates lower revenues for the government which leads to budget deficits. And finally this leads to impoverished citizens.
In reality, what you see as price increases are simply manifestations of a devalued dollar.
OL: Given all that, what can your distributors do to keep you competitive?
Mr. Leiter: They can keep the playing field level by holding us and our competitors (foreign and domestic) to the same standards. Yes, the standard of price as well as the standards of product offerings, on-time delivery, responsive support, and so forth. We’ll keep them competitive. We’d just like the same opportunity.
OL: Final question: How have the subprime loan mess and the downturn of new construction affected Continental?
Mr. Leiter: Thankfully, business has been good. But let’s give credit where it’s due. We have a great group of distribution partners.
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