Can air conditioning cozy up to American consumers?(Fortune Classics, 1938)

Editors note: Every Sunday,Fortunepublishesa favorite story from our archive. As the official start ofsummer grows near, many of us have already turned to our air conditioners for support, whetherthat means lugging window units out from the closets and attics they have been hiding in all winteror flipping the switch on our central air conditioning systems. While 61% of American householdshad central air as of 2009 according to the U.S. Energy Information Administration (not includingthe many households with window units), the consumer market for air conditioning was not alwaysconsidered a sure thing. The following story (original headline: Weathermakers: Carrier Corp.) fromFortunes April 1938 issue traces the bumpy rise of the air conditioning business and industrypioneer Carrier Corp.s efforts to bring man-made weather to the masses.

To the Carrier Corp. belongs the largest air conditioning business in the world. Back in May 1931,when FORTUNE first wrote about Carrier, it was a company sixteen years young, and though itssales had just slumped from a 1929 high of $8,000,000 down to $6,600,000 in 1930 and its netincome from $672,500 down to a depression-struck deficit of $86,000, it was hopeful. Those hopeshave since been realized. Carrier has grown.

Carriers sales (air conditioning and commercial refrigeration) sank to $6,000,000 in 1932, but thenbegan a steady rise reaching $9,400,000 in 1935, $10,500,000 in 1936, and an all-time high in 1937of $17,500,000 of which $15,000,000 was in air conditioning. It made 15,000 installations last yearout of a lifetime total of something more than 150,000. It trebled its manufacturing capacity bymoving spectacularly from Newark, New Jersey, to a big new home in Syracuse, New York. It hasput a business-wise salesman in control of an organization that used to be run by engineers. Andwith a new distribution system and a new manufacturing technique, it has branched out from thebusiness of big tailor-made building installations into what is more nearly a true consumer marketthe manufacture and sale of self-contained units for homes and offices and small stores.

Carriers recent growth reflects the growth of the air conditi0ning industry. In 1931 the industry dida total business of only $1o,000,000 and much of what was not handled by Carrier was done byCarriers biggest competitor, the York Ice Machinery Corp. For 1937 the industrys gross has beenestimated at $9o,000,000 and industrial Goliaths like General Electric GE, General Motors (Delco-Frigidaire) gm, and Westinghouse Electric have invaded the field and are stepping on the heels ofthe two leaders. Air conditioning, which seven years ago was just about restricted to certain types ofindustrial plants and to movie theatres, is becoming a competitive necessity in summer wherevercustomers come to eat, drink, or buy. It has broken into office buildings, hotels, homes. It is almosttaken for granted on Pullman cars. Ships, government buildings, hospitals have come to use it. Airconditioning has become a straphangers phrase.

In spite of all this, FORTUNES return to the air-conditioning industry is tinged with disappointment.For the industry has not made the progress that the public looked for. The public, led on by theexaggerated pipe dreams of Sunday supplement writers, looked for a huge and immediate massmarket; it looked to air conditioning to stand with the automobile industry in leading the country outof depression; it looked, in the not too far future, toward a revolutionized indoor life on this planet inthe manner of an H. G. Wells fantasy. Intrigued by summer-cool movie houses and Pullman cars, soldon the notion of being as comparatively comfortable between four walls in summer as in winter, thepublic held its breath. And not much happened. There has been no more of a meeting of mindsbetween the air-conditioning industry and the public than there was in 1931. The market spread outrather than up. With every inclosed space as its touted potential market, the industry reached intoalmost every type of inclosed space, and got no further. Out of 22,000,000 wired homes in the U.S.and that is where real volume sales were expected to blossom less than 0.25% can yet boast so muchas an air-conditioned room.

Would you buy an air conditioner?

In the interest of tapping the nations buying desires, FORTUNE included in its Quarterly Survey thismonth the question: If you could satisfactorily air condition your whole house for $1,200 or any oneroom for $200, would you do it? The answer was an emphatic No. Two-thirds of the public would notinstall air conditioning in a house even if it could be done for $1,200, which is a good deal cheaperthan the present average price, and would not buy a one-room conditioning unit at $200, which isjust half the current price of the smallest portable cooler. And this percentage was virtually the samefor all income groups. Which indicates at least two things: first, that the industry is way off baseprice-wise, if it hopes ever to develop a mass market; and, second, that the industry hasconspicuously failed to convince the public of the desirability of air conditioning.

For this failure there are a great many explanations. Most of them can be summed up by the wordconfusion. Probably no industry in the nation is the prey of so many economic, engineering, andmerchandising forces within and without its own bailiwick. As a result there is confusion in thepublic mind as to what air conditioning is. Most people think of it as a fancy name for making roomscooler in summer, although actually it involves the control, not only of air temperature, summer andwinter, but of air humidity, air quality or cleanliness, and air circulation as well. There is confusionin the industry itself as to what air conditioning is. The $90,000,000 that the Air ConditioningManufacturers Association attributes to the industry for 1937 is pooh-poohed by ACMAs mostimportant member, Carrier, which claims that no more than $60,000,000 of it is orthodoxconditioning and dismisses the remainder as plumbing, steam fitting, and gadgetry. Whereas manyfan and furnace manufacturers, anxious to list their own activities as a form of air conditioning, callthe figure far too small.

There is confusion for the student as to whether air conditioning should be treated as a capital-goodsindustry or a consumer industry. Actually it is both and frequently it seems to be the resultofmiscegenation between the two. For the industrys product may be a central station conditioningsystem for a whole building: which is something like a modern heating system; which includesmassive machinery in the basement (or elsewhere), expensive duct work interlaced through thewalls, and a separate outlet for every conditioned room; which must be so tailored a job that theaccouterments and labor of installation alone may eat up as much as 80% of the cost; which maycost over $1,000,000 for a large plant or store, or as little as $1,500 for a small house; which wasuntil recently the only type of air conditioning known and still accounts for perhaps 60% of thebusiness. Or the product may be a newer unitary system with the bulk of the machinery in one spotbut with separate little boxes, containing filters, fans, and the like in each room a type of installationfound in suites of offices, one-floor stores, etc., and now making up about 30% of the industrys dollarvolume. Or the product may be a self-contained unit, the industrys newest device generally built totake care of just one room, looking like an oversized kitchen cabinet or a big filing case or a radioconsole, needing only to be hooked up to an electric plug, a window, and a water pipe, usuallylimited in its function to summer cooling, and making up today about 10% of the industrys sales.

The merchandising of air conditioning is confused by the two distinct uses to which it is put: comfortconditioning for human beings, and industrial conditioning for materials or goods, such as, say,chewing gum, which cannot be manufactured if the air is so warm and moist that the slabs of gumcannot be cut into sticks, or so cold and dry that the sticks, turned brittle, will shatter. That comfortconditioning may be intended for commercial purposes or as a pure luxury adds further to theconfusion. As does the still unanswered question of whether air conditioning is good for health and ifso, how much is how good.

There is confusion about marketing and distribution. A big tailor-made installation needs expertfitting and must be handled by engineers. Even a portable room cooler requires more skill to installthan does a radio. How big a job, then, can be entrusted to a local contractor rather than demanding

specially skilled men from the home office? And is it likely that capable contractors, who might takecare of a house or store installation, would be interested in pushing the little portables? And is it notcertain that a dealer trained in the art of pressure salesmanship would be unable to direct, advise, ormanage a building installation?

There is confusion too about air conditionings immediate future, and this affects the industrysproduction policies. Should plants be geared to a rapid increase in big industrial and commercialcomfort installations? Or to the outfitting of homes, with the emphasis on heating instead of cooling(for nine out of every 10 home installations to date have been winter conditioners i.e., warm-airheating systems with a filter and humidifier thrown in)? Or are quantity sales of packaged store androom coolers suddenly going to open up and should manufacturers therefore hop the mass-production band wagon and prepare to turn out air conditioners in the manner and on the scale ofelectric refrigerators?

An unconditioned public

With such questions in the air, it is little wonder that the public remains uneducated about airconditioning. And the industry has done little to clear up or finesse the confusion. It has not, forinstance, tried to sell air conditioners to the American male as gadgets. And as the industry mighthave learned from toy trains, from automobile dashboards, from radios, from a thousand and onemechanical and electrical devices, there is no better way to channel the spending habits of theAmerican male than through gadget appeal. Moreover, as a gadget, the home air conditioner ispotentially fascinating, with the humidity and temperature combinations varying every day and withautomatic or hand-adjusted controls resolving complicated formulas into effective regulation ofindoor air.

Unquestionably another factor blocking a big market for air conditioning is the popular assumptionthat lower prices are just around the corner. The bulk of the industry, anxious to sell its presentproducts, of course denies this. Even mass production, argue the manufacturers, cannot bring pricesdown far. Because (1) labor costs account for only about 30% of the factory price, which in turnmakes up only 20 to 50% of the final sales price; and because (2) the parts of each unit fans, coils,compressors, etc. were separately perfected long before they were put together for air conditioningand are already mass produced for other products, such as electric refrigerators.

In derogation of these arguments, let it be noted that the industry clings to high prices chieflybecause it clings to the refrigeration principle for summer cooling and refrigeration is expensive.The smallest room cooler made must have refrigerating powers five or six times as great as anordinary kitchen refrigerator, and the expensive part of the apparatus is the combination of coils andcompressors necessary for refrigeration. So perhaps the industry is putting itself away on ice. Thereare, as will later appear, possibilities other than refrigeration for summer air conditioning; and itmay be that their development will provide the impetus that this sprawling and uncertain industryneeds if it is really to grow up.

To spotlight the industrys past and its probable future, one turns naturally back to Carrier. Carrierwas the industrys pioneer. Willis H. Carrier, the companys chairman, whose publicized name andfame are probably its greatest single asset, has been known as the father of air conditioning eversince his Rational Psychrometric Formulae (see appendix below) took the industry out of its hit-o--miss infancy back in 1911 and put its work on a scientific basis. And the Carrier company has beenthe industrys biggest factor ever since 1915, when eight engineers, headed by Willis Carrier, setthemselves up as journeymen contractors and shipped themselves out from their little shop inNewark to install man-made weather in those few industrial plants that found it a help or a necessityin the manufacture of their wares.

Today, sharing the industrys growing pains and hemmed in by eager competitors, Carrier remainsthe pioneer. To GE, Frigidaire, Westinghouse, Nash-Kelvinator, and Chrysler (Airtemp) airconditioning is still a sideline; B. F. Sturtevant, Carriers oldest competitor, sticks primarily to itsfans; York, Carriers big rival, does more commercial refrigeration work than air conditioning;American Radiator sells air conditioning with one hand and steam heating with the other. Carrieralone, despite its small and new interest in straight refrigeration, has in effect bet on airconditioning on the nose.

Moreover Carrier, along with York, has set out to spread-eagle the whole amorphous and slippery

air-conditioning field a venture that none other of its competitors has yet dared or cared toundertake. Carrier has traced the industrys trend toward mass production by shifting its emphasistoward straight manufacture, as more and more local contractors and independent engineers havelearned to handle air-conditioning installation. At the same time, Carrier is trying to hang on to itsshare of the big tailor-made market, where precise installation still demands that the manufacturerfollow the job through. It is somehow fitting that the industrys pioneer should have most at stake onthe industrys future and should be gambling, almost alone, on every angle of that future. Yet asCarrier plots its uncertain course toward a broad and shifting horizon, perhaps (although allCarriers officials deny it) it looks back longingly on the good old days when there was nothing butindustrial conditioning to do and when there was almost nobody to do it but Carrier.

The roots of an air conditioning pioneer

Carrier Corp. is the precocious stepchild of Buffalo Forge Co., heating and ventilating manufacturersince 1878. It was to Buffalo Forge that a farm-boy mathematician, fresh from Cornell, went lookingfor a job, just at the turn of the century. He hopped a Buffalo streetcar and asked the young mansitting next to him how far it was to Mortimer Street. The young man replied that he was going toMortimer Street, to Buffalo Forge where he worked. Was his companion headed there too? He wasand they started talking. The job seeker was Willis H. Carrier inventor, scientific plugger, idea manfor engineers whose common sense application of physics to the problems of practical airconditioning was to become largely responsible for his companys success and prestige. The otheryoung man was J. Irvine Lyle, who has been associated with Willis Carrier ever since, and who ispresident of Carrier Corp. today.

With Lyles help, Carrier got his job doing engineering research. In 1902 a lithographing shop askedBuffalo Forge if it could devise some sort of atmospheric control so that the paper would not shrinkor swell with every change in humidity and as a result of Carriers ingenuity, Judge magazine andothers were soon being printed better and faster. In the same year, a glue manufacturer ordereddrier air so that the glue could be handled more easily, and Carrier did the job. Four years later,Buffalo Forge installed its first scientifically controlled air-conditioning job, in a silk mill at Wayland,New York, and Carrier had become its chief engineer. (It was in this year that Stuart W. Cramerthought up the term air conditioning for the humidity control he, like Carrier, was applying to textile

manufacture.) Inasmuch as the textile industry was destined to become, almost immediately, one ofair conditionings chief financial props and to remain so until well into the 1920s, when more than200 industries were using air conditioning big-time industrial conditioning had started to move.

Recognizing this fact, Buffalo Forge formed a subsidiary called the Carrier Air Conditioning Co. ofAmerica and thus headed the Carrier name toward prestige and publicity value. (Though entirelyinactive now, this company still exists and there is always the fanciful possibility that Buffalo Forgemight try to revive it and compete with Carrier Corp. under a strikingly similar name.)

In 1911 Willis Carrier presented his famous Rational Psychrometric Formulae and his almost equallysignificant paper Air-Conditioning Apparatus to the American Society of Mechanical Engineers. In1911, too, came the first big tobacco job, for American Tobacco Co. (The installation is still workingtoday.) Then came the first rayon job (practically all rayon mills are now conditioned), for theAmerican Viscose plant at Marcus Hook, Pennsylvania. And conditioning orders for the manufactureof shell fuses, which were to increase tremendously with the War; for the susceptibility of powder todifferent humidities makes humidity control during manufacture indispensable to the exact timing ofmost explosives.

It was in 1915 that Carrier and Lyle, after some futile fretting at Buffalo Forges rather timidmanagement policies, decided to go into the conditioning business for themselves. Taking six ofBuffalos engineers with them they set up the Carrier Engineering Corp. in Newark with Carrier aspresident and Lyle as general manager. They could not afford a factory; they bought their parts andtheir machinery wherever they could get them made to order. In their first year they not onlygrossed half a million dollars, but netted $50,000. They plowed back almost all the earnings andcontinued to do so. Thus they achieved on an original investment of $35,000 total assets of exactly ahundred times that figure and an earned surplus of close to $900,000 by 1927, when they first wentto the public for money.

In 1916 came a $600,000 order from Atlas Powder for its plant in Perryville, Maryland. Other bigorders followed. By 1918, Carrier had rented a factory, still in Newark, and four years later it ownedits own plant and was manufacturing much of its own conditioning apparatus. Then, in quicksuccession, came three developments that were to mean plenty to Carrier though only one bears

Willis Carriers name. The first was the Carrier centrifugal compressor, which, when used with a newrefrigerant named Carrene, made big refrigerating jobs, especially for air conditioning, far safer,cheaper, and more efficient. The second one was Aerofin, a heating or cooling surface made ofcopper instead of the old bulky, heavy cast iron and it opened the way to more compact and efficientconditioning units. The third was the bypass device and it helped open the way to practical, large-scale conditioning for comfort.

The new light copper finned piping christened Aerofin was designed in 1922 by an engineer namedLawrence C. Soule who was working for the American Radiator Co. But American Radiator was notinterested. It was wedded to cast iron through its foundries, and its foundries were making money.So Soule took his Aerofin to Carrier, and sold both it and himself.

Carrier could make Aerofin, and could use some for its own conditioning apparatus. But generalmanager Lyle thought Aerofin should have a wide market in the heating field and he found that hecould not effectively sell that market. The outlet to that market was composed of about 12manufacturers of fans for heating systems, and all of them, long committed to cast iron, wereunwilling to gamble on Aerofin and take the risk of losing some of their cast-iron connections fornothing. For Aerofin, if it sold, would obviously be competing with cast iron.

So Carrier picked out three of the biggest fan companies B. F. Sturtevant, American Blower, and itsown stepfather, Buffalo Forge and offered each of them a 25% interest in the new Aerofin Corp. inreturn for the exclusive right to manufacture the piping for the new company. All three accepted andAerofin immediately began to find its market. How much Carrier makes out of Aerofin is keptscrupulously secret, but it is a safe bet that Aerofin Corp.s 1937 gross was at least $3,000,000.Moreover, it is rumored that Aerofin saved Carrier from depression bankruptcy, and that Carriersdouble take from Aerofin 100% of manufacturing profit and 33% of the sales profit (ever sinceAmerican Blower merged with American Radiator and sold out its quarter interest) is a big slice ofCarriers net today.

Consumer air conditionings Hollywood roots

Twenty years ago, air conditioning for human comfort was except for fans and furnaces all butunknown. Inventor Walter Fleisher who is said to have as many air-conditioning patents to his nameas anyone in the industry had cooled the New York Folies Bergres for Jesse Lasky in 1911. There hadbeen other rough and sporadic attempts to make theatres comfortable in summer. But Carriers firstcomfort job came in 1921, for Sid Graumans Metropolitan Theatre in Los Angeles. Then a couple ofChicago movie houses ordered air conditioning, and found that it paid. It paid because it turned aninvestment with a nine-month profit into an investment with a 12-month profit. Moving-picturehouses, especially in cities, were at that time so stuffy in summer that they made a habit of closinguntil fall, just to save operating expenses. The first big commercial comfort market was there, allright, waiting to be exploited.

It was the bypass, the centrifugal compressor, and Carrene that made it possible. Carrene took theplace of dangerous refrigerants. The centrifugal compressor took the place of the old bulky, lessefficient reciprocating compressor. And the bypass enabled precise control of an auditorium full ofair through the cooling and drying of only a fraction of that air, and then mixing it with theunconditioned air. The two most important bypass patents, held by Carriers Logan Lewis and byWalter Fleisher, were pooled in the newly formed Auditorium Conditioning Corp. (which now holds,licenses out, and defends against infringements [for] most of the important air conditioning patents)and comfort conditioning for commercial purposes was under way.

Competition heats up as the market cools down

Most of the new comfort business, like the old industrial business, went to Carrier. Among its firstbig comfort installations were those for New Yorks Rivoli Theatre and for J. L. Hudsons departmentstore in Detroit, both in 1925. Starting from a $112,700 profit on $2,350,000 worth of business in1925, it more than tripled its gross and sextupled its net in four years. With competition still prettypiddling, Carrier had to sell the product but not the brand.

Canny York, however, read the signs on the wall and the black figures on the Carrier account sheets.With years of commercial refrigeration work as a background, it began in 1928 to turn its attentionmore and more to air conditioning. It had handled occasional jobs before then, including aninstallation for Carnegie Steel as far back as 1903 but not enough to bother Carrier. Now, the botherwas brewing. And on top of competition came depression.

Depression almost ruined Carrier. It did not matter that the conditioning of the dining salon on theM.S. Victoria in 1931 opened up a small but profitable new field. It did not matter that the firstconditioning of a complete passenger train, for the B. & O., with York equipment, in 1931 opened upa larger new field for that field did not prove so profitable. It did not matter that the invention ofFreon (see FORTUNES story on the chemical industry, December, 1937) made the use ofrefrigerating compressors practical for much smaller conditioning units. It did not even matter thatCarriers long-term debt amounted to only $500,000 in 1931 and decreased steadily from then on.Nor did it matter except perhaps in the wrong direction that Carrier, late in 1930, expanded thescope of its activities through a merger with the Brunswick-Kroeschell Co., which made smallcommercial refrigerators, and with the York Heating & Ventilating Corp. (no kin to Carriers bigrival), which made unit heaters.

The important fact was that the big industrial and commercial orders fell off just as aggressivecompetition hit Carrier for the first time. The small unit market had not yet been cracked open.Carrier operating losses, beginning with $514,000 in 1931 and topped by a red figure of $674,000 in1933, mounted to a total of almost $2,400,000 by the end of 1935. Total assets shrank from$10,000,000 to $5,800,000. The preferred stockholders went dividendless from 1932 on. York wastaking business away from Carrier. Frigidaire, GE, Westinghouse, and others were invading the

conditioning field. Between depression losses and unwonted competition, it looked as though Carrierwas just about on the rocks.

Then, hand in hand, came recovery and a new general manager named Lemuel R. Boulware, whoholds the reins of Carrier Corp. today.

Carrier gets new leadership and new town

Boulware, like Willis Carrier, was a farm boy from the pennyroyal part of Kentucky, as opposed tothe more aristocratic bluegrass section where president Lyle grew up and from which he picked,through the years, many of Carriers engineers. At Wisconsin, where Boulware went to college, aprofessor named Gilman gave him a blueprint on how to get to the top of a manufacturing business.Boulware never forgot it. Start in the finance department, said Gilman; so Boulware spent five yearsin accounting and finance. Then production; and Boulwares next five years were devoted topurchasing and production in a midwestern plant. Finally, marketing, went the advice; so Boulwarespent 10 years as sales manager of the Easy Washing Machine Corp. But when his big chance tobutton all three together, for Carrier, came along, Boulware hesitated. Carrier Corp. was a very sickcow, with scarcely cash enough to meet its payroll and Lyle, who offered him the job, admitted it.

Boulware, who combines in rare harmony the traits of joviality and shrewdness, finally accepted thegeneral managership, but only on condition that he be given an absolutely free hand. Almostimmediately he proved that he meant what he said when, by weeding out unnecessary personnel andby other economy measures, he cut overhead $277,000 in his first year. The engineers, though,came to regard Boulware slightly askance because one of his first impressions of the company wasthat too many of them held management jobs.

Click for an enlarged version. An x-ray viewof an air-conditioned office building would not look simple as this, but the diagram gives a good ideaof the way a big year-round installation works. In winter, the boiler sends steam up through the red

pipe to coils in the conditioning apparatus; in summer, the refrigerating unit sends cold water upthrough the blue pipe. Air drawn from the building mixed with outside air is filtered, washed, heatedand humidified (in winter), cool and dehumidified (in summer), and then led into each office.

The plumbing and heating contractors, who acted as Carrier dealers on small jobs and who wereformerly extended rather loose credit arrangements, Boulware put on a sight-draft basis. Thatbrought in cash faster when it was badly needed. And he forced on Carriers own engineer salesmen,who sometimes used to shade their prices to land contracts and commissions, a uniform price levelfor the bigger tailor-made installations. Previously, according to Boulware, the more some of themsold, the more money Carrier lost.

With an anxious eye on GE, Frigidaire, and the other big newcomers, and on the home-and-officevolume market, Boulware ordered a few small packaged room conditioners immediately added to theCarrier line. The haste with which they were devised is indicated by the fact that the first batchdeveloped a distressing tendency to leak on ladies rugs so that the narrow margin of profit waslargely eaten up by returns and servicing costs. The engineers clucked at Boulwares impatience andremedied the defect in the next model.

But Boulwares most spectacular achievement was his transfer of the company from its Newarkheadquarters to Syracuse last fall. With expansion in his mind, he looked at his five plants and sawthey were scattered and small. Then his eye fell on the factory in which ill-fated Franklin Motors,Inc. used to build air-cooled engines into lizard-nosed automobiles. The city of Syracuse had taken itover for taxes. It lay empty as a big barn.

So Boulware, who had lived in Syracuse for 10 years and had many friends there, began talking.Soon a movement to bring Carrier to Syracuse had taken on the combined aspects of a Liberty Loandrive and a civic campaign. A businessmens group, out to present the company with a nest egg,assigned quotas to every merchant in town and collected $250,000 as a gift to Carrier. By the timethe city itself put the Franklin plant, valued at $4,000,000, up for sale at a public auction to satisfyits $500,000 claim for unpaid taxes, anyone who had upped the Carrier token bid of $1,000 wouldprobably have been tarred and feathered.

Carrier took the $250,000 and the plant and moved to Syracuse last fall with 240 freight cars ofmachinery and with 2,000 new citizens. The city was ransacked to find homes for 600-odd familiesand Boulware himself went so far as to get coal for them at summer prices. Moreover, the 300-oddfactory hands who were brought along were guaranteed 50 weeks of work in the first year inSyracuse at the average weekly wage each was then earning, the lowest being $23 a week. (Carrierto date has never had any serious labor trouble and has granted about 85% of the demands made byits plant union.)

Despite Syracuses wise generosity in literally buying for itself a new industry and new purchasingpower (the company spends $100,000 a week in Syracuse), this ambitious move was a strain on theCarrier finances. The actual moving, renovation of the plant, and installation of new machinery cost$1,400,000, of which only $875,000 was capitalized and the remaining $530,000 charged againstcurrent earnings. Slowed-up operations during the move with no cut in office or research staffs piledup an unabsorbed overhead of $481,000. The $1,000,000 profit estimated for the first six months of1937 was cut, thereby, to a mere $200,000, (all 1937 figures are Carriers own preliminaryestimates) for the year. The companys cash position sank to a slim $550,000, from over $1,200,000at the end of 1936. Boulware was forced by December to go to the banks for $500,000 on top of$750,000 still outstanding on a previous $1,000,000 loan. Moreover, the ratio between currentassets and current liabilities went down to two to one almost dangerously low for a manufacturing

enterprise.

On the brighter side, so far as the immediate future is concerned, is the fact that Carrier has nolong-term debt and no preferred stock to worry about Boulware having liquidated what was left ofthe former and induced the preferred stockholders to trade for common at one for five in 1936.(There are now 391,000 shares of common outstanding.) Of the five old Carrier plants, the two inNewark have already been sold for $275,000, and sale of the other three is not unlikely. Boulwareforesees no trouble ahead if additional funds should be needed; for the fact that Carrier is thenearest thing to a straight air-conditioning investment and thus has speculative appeal should makenew financing fairly easy.

The migration to Syracuse was partly a gamble on the hope of future expansion. Perhaps it willprove to have been a wise one. Certainly last years 67% jump in volume of business over 1936s$10,500,000 gross (as compared to the industrys 63% increase) was to Carrier an encouraging sign.The $17,500,000 figure was, furthermore, 200% bigger than 1932s depression gross of $6,000,000.And it turned over Carriers $7,750,000 assets almost two and a half times by contrast to Yorks$17,500,000 gross (for air conditioning plus refrigeration) on $18,300,000 assets. Moreover,manufacturing operations in February were only 20% below last years all-time high for the samemonth. All of which points toward a probable easing up of Carriers tight financial position in thenear future if the trend continues.

In guessing whether the trend will continue, the biggest question mark is the air conditioningmarket itself. And here the burden is on Carrier to play its hand right. Actually engaged in twobusinesses, straight manufacture and installation contracting, with its air-conditioning gross (over$15,000,000 last year) split about 50-50 between them, Carrier must decide which leg to lean onharder, or whether to keep on depending equally on both. For several years there has been a relativeshift away from installation, which once supported most of Carriers weight, and Carrier has beenmaking more and more units and machinery for others to install in contrast to York, which stillinstalls about 90% of the air conditioning equipment it turns out.

Assembly lines are conspicuously absent where Carriers skilledmachinists tinker almost lovingly with each piece of apparatus for a big installation. A circulatingfan, resembling an upturned water wheel, is reamed by hand.

This policy fits with Carriers hope to find a bigger market for its self-contained conditioners. But italso accentuates Carriers distribution problem. On one hand are contractors who can install but cantsell, and on the other, volume-trained dealers who can sell but cant install. Carrier is now attackingthe problem on both flanks. It is trying to interest in small-unit volume sales many plumbing andheating contractors, well aware that local contractors associations and through them the close-knitbuilding trades can be either costly enemies or useful friends. It also operates a training school in itsplant for young engineers, who are sent into the field to help and instruct able merchandisers in theinstallation of air-conditioning equipment.

Carriers present attempt to blanket the whole conditioning field from top to bottom (by reaching forvolume sales of package units) has other pros and cons. On the pro side there is the fact that Carrierprestige is bound to bring Carrier, almost automatically, a chunk of the new home, shop, and officemarket for a while at least. There is the fact that the big commercial and industrial installations,unless done on a cost-plus basis, can entail considerable risk, a 3 or 4% error in the delicatebusiness of estimating cost beforehand turning big profit into big loss and Carrier admits that it hasbuilt many monuments.

There is also the fact of formidable competition in the large-installation field, especially from York,

and the corollary fact that the expense of designing, estimating, and bidding on a big job, and thenlosing it, can add considerably to overhead.

Finally, there is the risk that if Carrier sits on the sidelines while Goliaths like GE, Frigidaire, andWestinghouse invade and develop the home and shop markets, these companies may gradually reachup for the big industrial and commercial installations and shove Carrier completely out of thepicture. And there is the chance to balance the extreme ups and downs of a capital-goods industrybrought home to Carrier by the depression with the steadier flow of income from a consumer-goodsindustry that may yet reach tremendous proportions.

The challenges of selling air conditioning to the masses

On the other side, however, Carriers recent venture into the portable-unit field has its dangers andits difficulties. If Carriers prestige now stands high, that prestige might well be sullied by volumeproduction of more standardized units, which Carrier could not undertake to install. For faultyresults, even though due to inept or slipshod installation, would nevertheless reflect on the Carriername.

Self-contained unit sales did not contribute much toward Carriers climb out of the red. To such salesless than 10% of the 1937 gross is attributed, and the percentage reflected in earnings isundoubtedly much smaller. It is also noteworthy that Carrier, except during the depression, used tomake proportionately more money out of less business before it went into the small-equipmentmarket though other factors of course enter into this equation.

Yet another hazard to Carriers invasion of the portable field is the imposing presence of GE,Frigidaire, et al.,in the air-conditioning market. When, if ever, it comes to real volume sales of low-priced units, Carrier may find it hard to compete with these companies on equal terms. With theirsales organizations greased and ready to go, they have the jump on Carrier from the start. With theirgreater resources, they can afford, for a time, to sell conditioning just about at cost. In courtingrivals of their stature, Carrier would seem, at the least, to be taking considerable stock in the tale ofDavid and Goliath.

But the highest obstacle in Carriers path concerns the public, and it applies not only to Carrier butto the bulk of the industry. For, as previously stated, air conditioning is still far too expensive to finda wide popular market. So long as it costs at least $1,500 to install year-round air conditioning in a$10,000 to $15,000 house as opposed to around $700 for plain heating, the man who builds such ahouse is going to get along without the air conditioning. So long as it costs $400 or more to buy aportable cooler for one room, most people are going to trade in their old cars for new ones instead.No amount of salesmanship can sell the public something it wants only occasionally at a price itdefinitely does not want to pay.

Even more significant is the industrys claim that mass production would not bring the price of itspresent products down very far. And inasmuch as just about the whole industry is today tied up insome degree to the manufacture of refrigerating machinery and that machinery makes up most ofthe cost of manufacturing the small conditioning units, it is perhaps not too unreasonable to askwhether refrigeration is necessary and if so, how necessary for comfort conditioning.

New advances in man-made indoor weather

Air conditioning was born of, and grew up on, engineering skill. Man-made indoor weather, carriedto a point of painstaking precision, is strictly a twentieth-century accomplishment and the engineers

did it. Since the first crude installations, barely more than thirty years ago, scientific improvementsin the art have steadily continued. Yet when the industry asserts that the cost of comfortconditioning cannot be cut much below its present high level, it is in effect saying that the day ofimportant scientific advances in the art is dead. And it is implying further that refrigeratingapparatus will always be an essential part of most summer air conditioners.

The engineers, however, continue to work out and perfect new devices. One that has tremendouspossibilities is the use of a moisture absorbing (Or adsorbing.Technically, adsorption means thesoaking up at moisture by any substance that holds that moisture as does a sponge. Absorptionmeans the soaking up at moisture by a substance that, in taking on water, undergoes a chemical orphysical change. Far the lay reader, absorption should convey the notion of either.) substance todehumidify air. One such substance is silica gel not a jelly, but a sandlike substance made up ofsmall porous crystals. Only within the last year has Carrier been marketing central-station systemsthat make use of silica gel, often in place of refrigeration. The principle involved is a completereversal of the old refrigeration process by which muggy air is chilled far below the desiredtemperature merely to squeeze out moisture (for the colder air is, the less moisture it can hold) andis then reheated back to a comfortable point. For the silica gel absorbs moisture out of the air in theform of water. The turning of vapor into water releases heat (just as the turning of water into vaporuses up heat) and as a result the air becomes hotter. It must then be cooled back to the desiredtemperature. But this cooling can usually be accomplished without refrigeration through the use ofwell water or city water, since really low temperatures are never required. Wherever moderatelycool water is cheap and plentiful, central-station conditioning can be achieved as much as 25%cheaper than by the old refrigeration and reheating method.

Silica gel itself is not adaptable to little portable units. But the adaptation to such units of othertypes of absorbing solids or liquids is highly likely in the near future. And if so, the price of theseunits may be cut considerably, for all the claims of the refrigerating manufacturers. Moreover themoisture-absorbing process has another big advantage. This advantage has to do with the attitude ofthe utility companies.

For, contrary to what might be expected, the electric utilities are not always too friendly towardcomfort air conditioning. Wherever it is used at all extensively, as in Washington with its manyconditioned government buildings, it tends to create a peak load well in excess of the old winterpeak. This peak lasts for only three months, and most of the current used falls into the low raterange. The return is accordingly small, and may be more than wiped out by the necessity ofincreasing productive capacity to meet the load. Conditioning systems that store up refrigerationduring the night for daytime use, thus leveling out the day-to-day summer load; have not yet helpedthe situation to any great extent, though they do show promise.

But while refrigerative conditioning takes best to electricity, conditioning by moisture absorptiontakes best to gas, or even steam. This is so because much of the expense of running an absorptionunit is devoted to reactivating the absorbing substance which means heating it to dry it again after ithas been filled with water. And the gas utilities are anxious to balance their winter heating load witha big summer conditioning load. Thus both the reluctance of the electric utilities and the eagernessof the gas utilities tend toward cheaper and wider use of the absorption process.

The pattern is made by finned tubes of Aerofin, a lightweightcopper surface for heating and cooling.

Making summer comfortable at cost

Just as this process may come to replace refrigeration, at least in many localities, so the perfecteduse of air movement for comfort cooling may eventually become the key to volume sales of smallconditioning units. It was, remember, industrial conditioning that gave the industry its start. And inindustrial conditioning, temperature and humidity and their precise control were and are just aboutall-important. By a natural carry-over, temperature and humidity have been assumed to be just aboutall-important in the newer field of comfort conditioning as well. No one supposes that their controlneed be nearly so accurate in this field. Yet the industry has lent its comfort work the appearance ofscientific accuracy, within plausible limits, by the charting of summer and winter comfort zones. Andthese zones, worked out by the strictly noncommercial American Society of Heating and VentilatingEngineers, are plotted almost entirely in terms of temperature and humidity.

The point is that the possibilities of air movement for summer comfort, along with or even in place oftemperature and humidity control, have been pretty well neglected by the bulk of the industry. Andsince comfort conditioning depends for its appeal only on how comfortable you can make people feel,those possibilities may be considerable. For one very good reason.

The reason is that more effective use of air movement could make comfort conditioningimmeasurably cheaper. For control and refinement of the breeze principle so that steady airmovement would create relief from mugginess without reaching the proportions of a draft might wellmake refrigeration unnecessary for year-round comfort conditioning. No refrigeration is required toheat or humidify winter air. Hot dry air in summer can be cooled without refrigeration. So if hot wetair can be made comfortable without refrigeration, conditioning costs for small units can probablybe halved. And there is competent engineering opinion that holds this possibility highly plausible.

In parts of the South, for instance, the installation in the attic of a giant fan that sucks the air upthrough the house to an outlet in the roof at night has proved a hot-weather godsend and at afraction of the installation and operation cost of a genuine air conditioning unit. Moreover, there ison the market today at least one portable room conditioner, made by the little U.S. Air ConditioningCorp., which filters the air, humidifies in winter, cools the air (without refrigeration) on hot dry days,

and stirs it slightly on muggy days and which sells for as little as $195. By contrast to therefrigerating portables, which cost twice as much to buy and operate and are of real use for onlythree months out of the year, the $195 investment, even though least effective when most needed,might strike the public as better value for the money. And certainly if the one defect can beremedied to produce muggy-day comfort by greater air circulation and if the refrigerating units, astheir manufacturers now assert, cannot be made considerably cheaper the latter are likely to be leftfar behind in the race for a volume market.

Improved control of air movement might also lead to cheaper year-round conditioning of wholehouses, or small stores. If doors and walls and stairways could be utilized in place of expensive ductsto carry conditioned air through a building, the cost of central installations might be halved. Year-round air conditioning, now pretty well limited to houses under construction, might be made equallyfeasible for houses now standing. And experiments along this line are already being tried.

It is of course possible that pressure salesmanship by Carrier and York and GE and Frigidaire andWestinghouse and Chrysler and Nash-Kelvinator can induce the public to buy, in quantity, homeunits for $1,500 and up and room coolers for $400. But it is also possible that all these companies, intheir race with each other, are a step ahead of themselves.

For comfort conditioning, to gain a mass market, may demand an entirely different engineeringtechnique than that which has proved and is still proving so successful in the big commercial andindustrial field. The time, and the product, may not yet be ripe for a shift of the industrys emphasisaway from engineering, toward high-pressure salesmanship. And Carrier, in particular, may beflirting with mass production too soon.

Indeed none is more aware of this fact than Carrier itself. The laymans criticism of the air-conditioning industry, as outlined in the beginning of this article, is that it has lagged far behind thepace that he had expected. As applied against Carrier, a corporation in business to make a profit, thelay criticism may not be entirely fair. If he has closely followed the various problems that this articlehas outlined, the reader may be more inclined to commend Carrier than to condemn it. For not onlydid Carrier weather the depression, but it tripled its gross sales in the last five years. And if it hasnot succeeded in invading the office and the home on a grand scale, it nevertheless has succeeded ineducating the public to commercial air conditioning in restaurants and shops and theatres.

As enunciated by general manager Boulware, the Carrier policy is not to force the air-conditioningmarket but rather to bend to that market as, when, and where it develops. He and Carrier Corp. areacutely conscious that the Syracuse factory is haunted by the ghost of the Franklin car, and aware ofa ghostly warning that goes: dont try to sell the public a product, no matter how good it is, which thepublic is in no mood to buy. Yet, up in that spacious factory, the officers and workers seem imbuedwith a new spirit of big-time enterprise, of being somehow on the march toward industrialimportance. Up in that factory the easy air of unregimented fellowship gives way gradually to analmost martial excitement. And who can blame Carrier if it builds its castles in Spain all of them airconditioned?

Appendix:The physics of air conditioning

To the average man, a room has only one temperature the one he reads on his thermometer. But tothe physicist, a room has three temperatures. The one on the regular thermometer is the dry bulbtemperature and it measures the sensible or feelable heat of the room. But there are also a wet bulbtemperature and a dew point temperature and they both have to do with the moisture content of theroom.

Wrap a wet rag around the bulb of a thermometer and whirl the thermometer violently in a circle.The recorded temperature will go down, maybe one degree, maybe 10 or more. It will go down (1)because the air around the thermometer absorbs water from the rag in the form of vapor, (2)because it requires heat to turn water into vapor, and (3) because the heat necessary to do the trickwas taken from the sensible heat of the surrounding air. This sensible heat did not completelyvanish. It turned into what the physicist calls latent, or hidden, heat, and it is still lurking in thewater vapor in the air, ready to be turned back into sensible heat whenever the vapor is condensedback into water. Thus, the wet-bulb temperature for that is what you have taken is the dry-bulb orregular temperature lowered by evaporation or by turning the airs sensible heat into latent heat.

Now air, at any given dry-bulb temperature, can hold only so much moisture; and the lower thetemperature, the less moisture it can hold. The quantitative measure of moisture in the air is calledthe airs absolute humidity. And the relation (expressed in percentages) between the amount ofmoisture in the air and the amount which air of that temperature can hold is called the airs relativehumidity the kind of humidity people talk about. One-hundred percent relative humidity means thatthe air is as full of moisture as it can get; 50% means that the air can hold twice as much moisture asit now has. But because the airs capacity to hold moisture decreases as its temperature decreases,50% humidity at, say, 90degreeswill become 100% humidity if the same air is cooled to 68.9degrees. And this without any change at all in the absolute humidity that is, in the actual amount ofmoisture in the air.

If air chilled to 100% humidity is cooled still further, some of the moisture, unable to stay in the airas vapor, will condense out as drops of water. Hence the term dew point. For the dew-pointtemperature is the temperature to which air must be cooled in order to give it 100% humidity.

Now when air is relatively dry, its three temperatures are far apart. It has considerable capacity tosoak up moisture in the form of water vapor and so its wet bulb is many degrees below its dry bulb.But to get it to its dew point without adding moisture would mean cooling it much further, since itsdew point is way below its wet bulb. The interesting fact is that as moisture is taken into the air thedry-bulb temperature goes down (sensible heat turns into latent heat) and the dew point comes up(the more moisture there is in the air, the less you have to cool it to get it filled with moisture) untildry bulb and dew point meet. And they meet at the wet-bulb temperature, when the air has attained100% humidity. It is this fundamental act that has served as one of the chief calculation bases formost air conditioning.

It was Willis Carrier who started it all with his Rational Psychrometric Formulae, on which his air-conditioning fame is largely based. These formulae molded the physical facts outlined above into anexact method of calculating both the wet-bulb temperature and the dew point of air having any givendry-bulb temperature and any given humidity. And they thus opened the way to exact andsimultaneous control of dry-bulb temperature and humidity. By a sort of reverse English.

For, just as air can be cooled to its wet-bulb temperature (by adding moisture) or to its dew point (bystraight cooling without adding moisture), so either process can be worked backward. Thus, air of100% humidity can be heated, either by taking away moisture or by straight heating, up to apredictable dry-bulb-and-humidity combination. Given any starting point, any desired combination ofdry-bulb temperature and humidity can be produced. For instance.

Suppose you have air of 80 degrees dry-bulb temperature and 70% relative humidity, and you wantfor industrial or comfort purposes to cool it to 70 degrees and to bring it to 40% humidity. Merelycooling it wont work at all, because cooling makes the relative humidity go up, and by the time youget your air down to 70 degrees it will be over 95% humid. Cooling the air by adding moisture to it

obviously wont work either; actually, the air would have more moisture than it could hold before itgot down as far as 70 degrees. But if you cool the air, by either method, down to 100% humidity andthen keep on cooling it moisture will be squeezed out of the air, because the air can no longer holdthat much. Now, reference to a chart based on the Carrier formulae will show you that 70 degrees,40% humid air the combination you want has a dew point of around 44 degrees. So if you cool youroriginal air down to 44 degrees (squeezing out moisture meanwhile and yet leaving the relativehumidity 100%) and then heat it back to 70 degrees you will have, at the time the air reaches 70degrees, the exact 40% relative humidity you started out to get.

Willis Carrier did not have to invent, although he has helped to refine and improve, the machinery bywhich these physical principles are harnessed to practical use. As a matter of fact, other physicistsbefore him had arrived at practically the same formulae, although he perfected them. But it was hisparticular genius (he himself says he stumbled on the obvious) to recognize the value of applyingthese formulae to air conditioning.

Also from Fortune Classic:

To Heaven by Subway (Fortune,1938)

The Lifestyle of Rich, the Infamous (Fortune,1986)

Todays GOP: The Partys Over for Big Business (Fortune,1995)

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