Theres an advertisement for Goodman Manufacturing if I ever saw one.

Register on Garden Web today and write all that, nice agenda

Your views are skewed besides, variable speed aside(always the right choice), I have about 350 heating hours a year. A 95% furnace will die and need replacing before I recoup the added expense through energy savings of having one installed.

I always laugh when I hear this "the other brands are expensive because of their advertising" story. Hey, McDonalds advertises alot too, but they still sell hamburgers for 99 cents. Installers always want to sell one particular brand because that's the way the distributor networks operate.

Let's do something these installer posts never do - let's look at the numbers from the annual reports issued by the companies themselves, as required by law. The latest annual report available from the website of Goodman Global is from 2006. They listed sales of $1794.8 million and advertising costs of $8.8 million, or 0.15% of sales. This percentage was pretty consistent for 2006, 2005 and 2004.

Now let's look at another manufacturer, Trane, for example. Their website has a link to their 2007 annual report. Sales were $7450 million and advertising costs were $94 million, or 1.26%. This percentage was also the average for 2007, 2006 and 2005. So we can say two things - Trane is a bigger company than Goodman, and Trane's advertising expenses are indeed a larger percentage than Goodman's.

Now let's do a little math, something else these installer's posts never seem to do. My neighbor just had a new HVAC system (gas furnace and AC) installed for $7050. For a Trane system, the advertising portion of that cost would be 1.26% of $7050, or $88.83. For a Goodman system, the advertising portion of that same cost would be 0.15% of $7050, or $10.58. So the difference due only to the advertising budgets of the two companies comes to $78.25.

Now, you're undoubtedly thinking, the Goodman system would cost less. Well, yes, it probably would. But if the Goodman system is more than $78.25 cheaper than the Trane system (which it certainly would be), then the additional difference CANNOT be due to advertising. This is what is so laughable about these claims.

So what else could explain these price differences. The respective annual reports also tell us, for example, research and development costs. For Goodman Global, the R&D costs were 0.49%, 0.56% and 0.61% of sales in 2006, 2005 and 2004, respectively. For Trane, it was 1.56%, 1.49% and 1.45% in 2007, 2006 and 2005, respectively. Again, one notices two things - Trane spends proportionately more on R&D, and Trane increased their R&D spending over the last 3 years reported, while Goodman Global decreased theirs. This is consistent with Goodman's strategy. They say, in their own annual report, that their dealers prefer product lines that don't change because then they don't have to spend money on retraining. One can logically conclude from this actual financial data, then, that a Trane system is more likely to have the most modern technology, while a Goodman system is more likely to stick with older technology.

Even adding in the R&D difference is still not enough to explain the cost differences between Goodman and Trane (again, Trane is just an example of a higher end manufacturer - Lennox would have worked just as well). So there has to be something else, or several something elses. Goodman Global's annual report explicitly spells out their strategy of pursuing a low-cost design. Those are their words. Note that they don't say they're going to drive costs down by minimizing their advertising - they specifically say they are going after a low-cost design.

Logically, they must pay the same for raw materials (things like sheet metal) as everyone else, so it can't be that. Low labor costs, maybe? But the annual report states that their manufacturing facilities are in the US (good for them, by the way), not exactly the place to go for cheap labor. What does that leave? Could they have some super efficient manufacturing process? Do they have workers who can do the work of 10 ordinary workers? It seems unlikely. The reasonable conclusion is that they're using cheaper parts.

Now, I don't have a problem with that. It's a perfectly reasonable business strategy. It's like the difference between Walmart and Saks Fifth Avenue - two companies that are in the same business, but pursue it with different strategies. So enough of the "cost of advertising" excuse. We can see quite clearly that it doesn't stand up to the hard financial facts. Be honest. If you want to promote Goodman, that's fine. Tell us their stuff costs less - that's good enough for plenty of people. Or tell us they're made in the USA - another reason to buy. Just be honest.

Tom,

Well researched and written.

Just the facts-

Does that mean Trane cannot control their costs in other areas not mentioned like sales, logistics, marketing, engineering, management, corporate ... ??? Perhaps there is a bloated cost over run in their structure that makes them inefficient vs. Goodman?

I think all this that you point out in a couple of areas merely brings to light more areas that Trane may be more inefficient in comparison to Goodman?

They ALL buy the SAME motor's, limit switches, ignition control's, circuit board's, gas burner's, controls, draft inducer's, pressure controls, hot surface igniter's and gas valves from the SAME companies that build them like GE, Honeywell, White Rodgers, Robertshaw, etc. THE ONLY DIFFERENCE GETS DOWN TO the quality of build of the heat exchanger, cabinet, & housings. Then the testing of the assembled unit and integrity of the received unit.

After all of this it becomes a matter of other added cost in areas of overhead.

Tom's assumption above is that the Goodman would also cost $7050.00 for the same job which you and I know NOT to be the case. AND as a % of the total for advertising or R&D would be less than stated albeit the cost reduction under the TRANE price would significantly offset the paltry differences shown.

Well said! Goodman do make reliable equipment at affordable prices and with sound warranties.Just remember to get a board certified professional to install them.I speak from experience also.