Market Snapshot: Appliances 16441

The appliance market suffered with the economic downturn and the collapse of the housing industry, particularly in new construction. But thanks to the “Cash for Appliances” program, the industry is seeing a bit of an uptick in sales lately.

The economic slump has impacted sales of appliances globally, and projections are lukewarm for the future. Global demand for major household appliances is forecast to rise 2.8% annually through 2013, approaching 500 million units, according to a market study from The Freedonia Group, a Cleveland, OH-based market research firm. However, much of that won’t be from the U.S. market, but rather by market expansion in developing countries. In developed regions, sales will depend primarily on steady replacement demand, new home building, and the development of new features that prompt upgrading.

The recent “Cash for Appliances” program provided a boost for appliance makers and encouraged consumers to replace their older, less energy-efficient appliances with newer Energy Star appliances. While this U.S. government-sponsored program pushed sales up considerably in the first two quarters of 2010, appliance makers are aware that when the government incentive goes away, sales will fall to pre-incentive levels.

Accordingly, March was a strong month for the U.S. appliance industry, with factory unit shipments up in most of the appliance categories tracked by the Assn. of Home Appliance Manufacturers (AHAM). Shipments in the AHAM 6 category of appliances (washers, dryers, refrigerators, freezers, ranges, and ovens) were up 9.3% in March 2010 with 4.015 million units shipped, compared to 3.675 million units shipped in March 2009. Year-to-date shipments were up 5.5% from the 8.573 million appliances shipped in the same time period in 2009 (see table).

According to Freedonia, there are approximately 50 major players in the global appliance industry, with the top seven—Whirlpool, Electrolux, Haier, BSH Bosch & Siemens Hausgeraete, Panasonic, LG Electronics, and General Electric—holding the lion’s share of the market. That group accounted for 57% of global market share in value terms in 2008, the year the report was released. These top players manufacture multiple lines of appliances, giving them a competitive edge across the board.

Manufacturing in Mexico
It’s well known that the appliance industry has had considerable consolidation over the past decade, with Whirlpool coming out as one of the giants in this market segment, having acquired two other big players, Amana and Maytag, along with some other smaller ones. With those consolidations came some plant closures to eliminate duplicate manufacturing, which meant suppliers had to alter their business models for this market.

A natural change in those models includes manufacturing in low-cost locales. China not only is the world’s largest market for appliances, also known as “white goods,” but also is the world’s largest supplier of appliances, nearly tripling production from 1998-2008, says Freedonia’s report. That country is the leading producer in the refrigerator, washing machine, and microwave oven segments, exporting such products to the United States, Western Europe, and Asia.

While U.S. appliance manufacturing has decreased somewhat, Mexico has been the primary beneficiary as a low-cost manufacturing country for major appliances for the North American market. LG Electronics announced in the January/February issue of MexicoNow magazine that it has relocated its operations to a 376,000-ft2 building in Prologis Park Cedros Tepotzotian, Mexico. This was after vacating a 495,000-ft2 space at O’Donnell Logistics Center II in Cuautalan Izcalli, State of Mexico, Mexico.

In the March/April issue of MexicoNow, it was announced that Whirlpool Corp. (Benton Harbor, MI) expanded production of new refrigerators at its plant in Ramos Arizpe. Whirlpool made a $70 million investment in the expansion and added 350 jobs. This expansion will put that plant at capacity, producing a projected 1.2 million refrigerators per year.

Whirlpool’s Q1 2010 earnings of $164 million, up from $68 million for the same quarter a year ago, were helped by the $300 million U.S. government rebate program to stimulate consumer spending. First quarter operating profit totaled $241 million, compared to $166 million in 2009, and adjusted operating profit totaled $287 million, compared to $126 million in the prior year.

Sales in North America were $2.3 billion, up 7% from 2009. In Europe, Q1 sales were $739 million. Latin American sales for Q1 hit a record of $1.1 billion, up 65%. Asian sales were also strong at $192 million, an increase of 60% from the prior year.

“We are pleased with the strong operational performance in all of our regions,” says Jeff M. Fettig, chairman and CEO of Whirlpool Corp. “We’re encouraged with the 18% increase in our global unit volumes during the quarter.”

In North America, Whirlpool launched a new laundry pair under its Vantage brand, a new side-by-side refrigerator, and a new tall-tub dishwasher that holds up to 12 place settings. The company, under its KitchenAid brand, introduced a new French-door refrigerator.

New features, new reasons to buy new
Most appliance makers incorporate new features into their platforms every few years to encourage consumers to trade up. For example, Sears is giving its Kenmore appliance brand an overhaul this year that includes the launch of 450 new and/or improved products across its line for 2010. Among the new features are higher-quality handles and knobs, such as Kenmore’s signature bow tie handles to add an “elegant look and an ergonomic grip,” or blue LED-ringed knobs on laundry products.

Top-load, high-efficiency LCD laundry appliances will launch in July (with smooth touch display) and September (color LCD display). Many of the upgraded appliances will sport a “streamlined modern design” and flush, easy-wipe surfaces. New gas and electric cooking appliances will launch this October, which will also be the month for the launch of new top-load conventional laundry appliances.

Whirlpool is focusing on appliances that meet criteria for the Energy Star label, and already offers more qualified appliances than any other manufacturer, said the company. Plans call for Whirlpool to produce 1 million smart-grid-compatible clothes dryers by the end of 2011, and by 2015, the company will make all of its electronically controlled appliances capable (globally) of receiving and responding to signals from smart grids.

However, in an online survey conducted by Whirlpool, the majority of consumers (68%) want to live “green,” but only if convenient to their lifestyle. Price is also a factor. This group said they will search until they find the product they are looking for at the right price. Sales are a factor as well, with 25% of Midwesterners indicating they will buy what is on sale.
AHAM announced it will launch a third-party program to verify manufacturer energy ratings for refrigerators and freezers through random testing conducted by an independent laboratory. The organization has been working closely with the U.S. Dept. of Energy (DOE) to put in place a credible program that is consistent with DOE test procedures, which are the basis for measuring appliance energy use for both DOE appliance standards and Energy Star.

Material advances for appliances
Since the appliance market is always looking for ways to upgrade its products with new features or styles to encourage consumer purchases, materials often come into play. One of the new trends is the use of bold colors accented by metallic effects. Polymer compounder PolyOne offers this metallic look through its new Geon FX Metal Vinyl compound as an alternative to metal, chrome-plated plastic, or painted plastic.

An appliance manufacturer brought in samples of a painted plastic laundry console to show PolyOne’s engineering team, who recommended a switch to the new metallic compound to eliminate the painting step. The customer’s engineering and marketing teams for the new laundry units agreed the technology would provide a cost savings and a desirable look for the marketplace, and gave the approval to develop the washer and dryer consoles using Geon FX Metal Vinyl compound.

Mike Balasko, senior marketing manager for PolyOne Geon Compounds, says the consoles on washers and dryers  typically are designed with a plastic front piece and plastic endcaps on each side, with a metal backing. “Going with Geon FX Metal Vinyl gave [our customer] the option to design the console as one complete plastic unit, consolidating four parts into one,” says Balasko.

The appliance maker had originally molded the console in a standard color and painted it to give the metallic look, Balasko explains. “With PolyOne’s precolored metallic-look material, we were able to eliminate the painting process—which is the costly part of the secondary operation—and eliminate the environmental impact of VOCs. That was a good selling feature for them,” says Balasko.

PolyOne’s color lab worked closely with the appliance maker to provide a color that matched the stringent requirements of the OEM. Additionally, PolyOne’s design group helped the customer strategically position weldlines by optimizing the gating system and part geometry, using computer design and simulation analysis. The material supplier then recommended changes to the tooling that would move the weldlines to an area not readily viewed by the user.

“We’re seeing companies, primarily in the major appliance market, wanting to replace metal with plastic or replace painted or chrome-plated plastic with a good alternative because it offers a cost saving,” comments Balasko. “Precolored metallic materials will reduce the cost of producing these components.”

The use of Geon FX Metal Vinyl compound instead of secondary painting enabled the appliance maker to save $500,000 annually in manufacturing costs, while eliminating the estimated 2% scrap created by secondary painting operations. This represented a further $10,000 savings per year, and helped the manufacturer avoid the environmental impact of VOC emissions, as well as the costs associated with shipping the parts from the molder to the painting facility—an additional savings of $50,000/year.

A major appliance maker chose Geon FX Metal Vinyl compound for its laundry consoles to provide a high-quality look, and to save the cost and environmental impact of painting plastic. —Clare Goldsberry