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January 1, 2005

5 Min Read
Market Snapshot: Appliances


The GE Profile Harmony Clothes Care System, the first washer that delivers load information electronically to the dryer and optimizes wash cycles for specific stains, is one example of an OEM trend toward higher-end appliances. Suggested retail price for the pair is around $2000.

While 2004 brought modest increases to appliance OEMs in the U.S., molders continued to see flat or decreasing demands from customers in this market as a result of supply-base migrations to China and Mexico.

There is good news this year, however, and it is twofold. Several foreign OEMs have opened plants in the United States that plan to source molded products domestically, and some U.S. appliance manufacturers are expanding Mexican facilities and inviting U.S. suppliers to join them there.According to the Assn. of Home Appliance Manufacturers (www.aham.org), total shipments of major appliances to the U.S. market increased 4% over 2003. Exports were up by 6%, with imports showing the biggest gains at 9.4% (see table below). While domestic molders still participate in this market to a certain extent with larger parts such as washer tubs and refrigerator drawers, the molding migration that has affected small appliances has also hit this segment.

Majors Changing

There is a silver lining to the imports winning more market share, however. Companies such as LG Electronics (Korea), Haier (China), and Bosch (Germany) are now siting factories in Mexico and the United States, with opportunities for domestic molders to participate in production. Bosch Household Appliances, for example, a leader in high-end major appliances, recently expanded its manufacturing facility in New Bern, NC and is reportedly extending its supply base to U.S. molders.

Electrolux, one of the world’s largest appliance manufacturers, is opening an industrial park in Mexico and is reportedly inviting 80 U.S. and European suppliers to site their facilities within it. Maytag, after announcing several workforce reductions, has also announced an investment of more than $55 million to expand its facilities in Reynosa, Mexico. Unconfirmed reports say that Kamco Plastics, a longtime supplier to Maytag, has begun running its own molding operations within a Maytag plant.

Meanwhile, Whirlpool is set to invest about $300 million in its Mexican facilities, indicating a strong vote for North American production. In a recent interview with Business Week, Whirlpool CEO Jeff Fetting explained that offshoring is not as rampant at Whirlpool as at other OEMs because it can still make appliances economically here.

“We do have significant facilities in Mexico, in Brazil, in Central Europe, in India, and in China that serve domestic markets, and now, increasingly, are serving other markets around the world, but we don’t completely subscribe to the belief out there that all manufacturing is going to move to low-cost countries. Let me give you an example: The largest washing machine factory in the world is in Clyde, OH. It’s ours. We produce probably 5 million washing machines a year, seven days a week, 24 hours a day. And there’s no place in the world where we can make washing machines better.”

Ups and Downs

Business Week’s Corporate Scoreboard listed mostly positive signs for appliance OEMs in 2004. Profits for household durables rose 22%, while Black & Decker posted a staggering 61% uptick in profits. Whirlpool rang in with a 7% increase. Embattled Maytag, however, had a profit picture 95% weaker in 2004 than 2003.


Of all major appliance makers in the United States, Maytag is the last one to have jumped on the global bandwagon. This alone, however, doesn’t account for its poor performance. Part of the problem, according to industry analysts, lies in merging the operations of Amana, acquired in 2001. Last year, Maytag announced its One Company initiative, which consolidated Maytag Appliances, Hoover Floor Care, and Maytag corporate headquarters and resulted in a 20% workforce reduction. For 2005, the company announced a wage freeze and further voluntary job reductions in an effort to meet a targeted earnings goal of $1.50 to $1.60/share.

With most of the players in this market doing well, however, and some of the foreign participants starting Nafta production facilities, the picture for molding opportunities may be changing.

Innovation

Another factor that supports this possibility lies in the need for appliance manufacturers to innovate at both the high and low ends of the product spectrum. At lower price points, the majors are looking to their suppliers to come up with new, cost-effective solutions to producing plastic components. Grappling with a consumer base that resists price increases in major appliances has left these companies with slim margins. Suppliers who can offer the same quality at less cost have an advantage.

For example, one molder took a look at oven range handles and developed a new approach to gas assist using thermoset BMC materials. Not only did this win business and save the customer money, but it also earmarked the molder as an innovator.

High-end products are on the increase, in part because they help to boost OEMs’ eroding margins at the low end. Here, innovation may begin at the manufacturer’s design department, with appliances that communicate electronically to one another, such as the GE Profile Harmony washer and dryer. Suppliers can also participate here by offering plastic components that add aesthetic appeal (such as metallic colors) and easier assembly.

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