issue: December 2007 APPLIANCE Magazine
2007 Year in Review
Moving and Shaking: 2007 Industry Year in Review
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by Diane Ritchey, News Editor
It was a year marked by uncertain markets, the continuing shift of manufacturing to lower-cost production centers, and the mounting importance of environmental factors in the design, manufacturing, and marketing of appliances.
The global appliance industry relies heavily on the United States, which remains its most important single market.
The year 2007 actually began with optimism in the U.S. housing market, with builder confidence up two points in January, according to the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index. That optimism didn’t last, as the housing market showed considerable decline throughout the year.
“Builders believe they are taking the right steps to reduce inventories and position themselves for the market recovery that lies ahead,” said NAHB chief economist David Seiders in October. “Indeed, NAHB’s housing forecast indicates that home sales should stabilize within the next six months and show significant improvement during the second half of next year.”
The U.S. appliance industry does not live or die by the builder market, but, to make matters worse, remodeling was down as well. The NAHB Remodeling Market Index, already in decline at the start of the year, dropped still lower in 2007.
Shipments of HVAC products didn’t fare well in 2007, either. Combined U.S. factory shipments of central air-conditioners and air-source heat pumps for the first eight months of 2007 totaled 4.8 million, down 12% from the same period in 2006. Residential gas furnace shipments for the year through August were down 15% from 2006, to 1,733,377 units.
Not all U.S. industry segments were having a bad year in 2007. The Hearth, Patio & Barbecue Association, which celebrated the highest year-to-year growth rate in unit shipments ever for the barbecue industry in 2006, managed to eke out another small increase in 2007.
The consumer electronics (CE) sector in the United States showed solid growth throughout 2007 and is looking forward to a big holiday sales season. The Consumer Electronics Association predicted 7% revenue growth this year over last year’s holiday season, to $48.1 billion in fourth-quarter sales. The 14th Annual CE Holiday Purchase Patterns study said that $22.1 billion will be spent on CE gifts this holiday season, representing 46% of total fourth-quarter revenue for consumer electronics. Total fourth-quarter sales will reach $48.1 billion—a 7% increase from 2006.
Despite uncertain economic conditions and high gas prices in the United States, most gasoline-powered handheld appliances will experience positive shipments during 2007, according to the Outdoor Power Equipment Institute (OPEI).
With the exception of chain saws, handheld blower shipments will grow by 1.9% during 2007, OPEI said. The 1.1% slide in handheld blower shipments predicted for 2008 will be the first decline since 1997. Backpack blower shipments during 2007 will increase 4.8%, and expand another 5.2% in 2008.
The latest Bloomberg Eurozone Retail Purchasing Managers’ Index (PMI), an indicator based on a midmonth survey of economic conditions in the euro-area retail sector, in late September signaled a marginal rise in retail sales and a rate of growth below the modest pace seen in August. Although the recent growth represents an improvement on the declines seen in the three months to July, sales in Europe during the third quarter overall have been the weakest since the first quarter of 2006, the PMI revealed.
Rising sales in France and Germany were almost entirely offset by a further decline in Italy, the PMI showed. France saw the strongest increase in sales, with month-on-month growth hitting a five-month high, linked in part to improved weather. Germany recorded a more modest increase in sales than France. The rate of increase slipped compared with August (the index fell from 53.0 to 51.3), but the data signaled a continued recovery from the falling sales pattern seen in the three months to July. In contrast, Italy recorded a decline in sales for the seventh consecutive month. Retailers reported that consumer confidence remained subdued.
However, retail sector employment in the Eurozone increased for the seventh consecutive month in September. A moderate growth of retail staffing in Germany was offset by declines in France and Italy.
When announcing third-quarter results in October, Electrolux president and CEO Hans Stråberg called the results for Europe a great disappointment—mostly because of production cost overruns from large-scale European new product launches. It didn’t help that
“During the third quarter, we also noted a weakening of demand in some of our most important markets in Europe, mainly Germany, and this has also affected our development,” Stråberg said.
China and India both continued to show strong economic growth and be driving forces of the global economy. For example, 22 Japanese companies, including giants like Suzuki, Honda, Sony, Matsushita, and Mitsubishi, among others, committed in 2007 to investments worth $10 billion in India. The investments are expected to happen in the Delhi-Mumbai industrial corridor.
In Japan, the Japan Electrical Manufacturers’ Association reported shipments of home appliances (excluding air-conditioners) grew for the fifth consecutive month in August. Shipments grew 3.6% from a year earlier to 113.4 billion yen (approx. $989 million). The increase came as sales of refrigerators rose 8.8% on the back of record-breaking summer heat waves during the latest reporting month. Sales of washing machines dropped 3% in volume, but grew 4% in value due to strong demand for premium products.
As detailed in the recent article “Portrait of the Chinese Appliance Industry” (APPLIANCE magazine, October 2007), China consumption factors such as a trend toward appliance upgrades and increasing urbanization fostered further appliance industry growth. The China Household Electrical Appliances Association (CHEAA) says the overall growth rate remains above 10% and the Chinese government is implementing policies designed to keep consumption strong for the next several years—despite China’s slowing real estate market.
Mergers and Manufacturing
Whirlpool Corp. purchased Maytag in 2006, but the acquisition was still making news in early 2007 when Whirlpool sold off Maytag’s floor care business, Hoover, to Techtronic Industries. The sale included a number of former Maytag Corp. facilities in the United States.
But perhaps the biggest industry merger story of 2007 was the one that almost didn’t take place. In October, Salton and Applica ironed out the details to create one of the largest publicly traded manufacturers of its kind. But getting to that point wasn’t so easy.
The deal began in early February, and, under the terms, Applica Inc. would become a wholly owned subsidiary of Salton. In return, the two Harbinger Capital Partners investment funds that own Applica would receive 92% of Salton’s common stock. The deal would bring Applica’s Black & Decker and Spacemaker brands under the same umbrella as Salton’s George Foreman, Faberware, and Toastmaster brands.
In August, Salton announced that it received written notice of termination of the merger agreement from APN Holding Company, Inc. Salton said then that the termination “confirms Salton’s belief that APN Holdco has, for some time, not acted in good faith and Salton intends to vigorously pursue its claims and remedies against APN Holdco, its affiliates and representatives.”
But by late October the deal was back on. It still requires shareholder approval, but is expected to close by the end of January 2008.
There were a number of other significant mergers and acquisitions in 2007 that changed the face of the industry—and which may have significant impacts on product introductions and market share in future years. For example:
- Commercial foodservice equipment OEM The Middleby Corp. made plans to acquire Jade Products Co. from Whirlpool and the assets of Wells Bloomfield and Carter Hoffmann from Carrier Commercial.
- Italian OEM Candy Group moved into the Turkish appliance market when it acquired 99% of Doruk Ltd.-STI, maker of the Susler brand.
- Commercial appliance maker Cleveland Range LLC acquired the assets of JC Pardo & Sons Inc., a manufacturer of high-volume food production systems.
- Haier India announced it would buy the appliance business of Anchor Daewoo.
- A.O. Smith, U.S.–based maker of motors and water heaters, and Spanish appliance OEM Fagor Electrodomésticos (Arrasate) planned to form a joint venture to produce residential wall-hung gas combination boilers in China.
- Helen of Troy Ltd. acquired Belson Products, the professional
salon division of Applica Consumer Products Inc.
- Groupe SEB announced it will acquire 30% of Supor, a Chinese manufacturer of cookware and small electric housewares.
- Arçelik bought Chinese washing machine manufacturer Changzhou Casa Shinco Electrical Appliances as part of its strategy to expand in China.
- Mabe made a bid for Costa Rica’s appliance company Atlas
- New Zealand’s Fisher and Paykel and Turkey’s Arçelik Corp. announced a strategic partnership where Arçelik would distribute the former company’s products in Eastern Europe, former Soviet republics in the Commonwealth of Independent States, and the Middle East.
- Acer Inc., the world’s fourth-largest computer vendor by unit sales, made plans to acquire U.S. computer maker Gateway Inc. for $710 million.
- PC maker Lenovo said it is discussing a proposed acquisition of Packard Bell.
As the appliance industry continued consolidating on many fronts, the face of manufacturing also continued to change. Generally, manufacturing continues to move to countries with lower manufacturing costs—from Western Europe to Eastern Europe, and from the United States to Mexico, and even within China.
Moving South of the Border
In late October, Lennox International Inc. announced plans to close its refrigeration operations in Danville, IL, U.S. and consolidate its Danville manufacturing, support, and warehouse functions in its operations in Tifton and Stone Mountain, GA, U.S. A few months earlier, Lennox said it would close its hearth products operations in Lynwood, CA, and consolidate its U.S. factory-built fireplace manufacturing operations in its facility in Union City, TN.
Earlier in 2007, Lennox announced plans to open a new manufacturing operation in Saltillo, Mexico, under the name LII United Products. “There is fierce competition for the growing business in the Sunbelt region,” said Todd Bluedorn, Lennox CEO. “The Saltillo location offers significant manufacturing and logistics cost advantages to help us expand our capacity and flexibility to meet long-term demand and carry out our Sunbelt growth strategies.
Other Mexico moves in 2007 include the following:
- Friedrich Air Conditioning Co. closed its room air-conditioner plant in San Antonio, TX, U.S., and moved production to its facility in Monterrey, Mexico.
- The Heating & Cooling Division of Rheem Manufacturing Co. purchased a 37-acre commercial development site in Nuevo Laredo, Mexico. Rheem’s Heating & Cooling and Water Heating divisions already have manufacturing operations in Nuevo Laredo.
After Techtronic Industries acquired floor care producer Hoover from Whirlpool, it announced in early 2007 that it would close much of Hoover’s operations in North Canton, OH, U.S. Much of the Ohio manufacturing will shut down by year-end, for about 750 job losses. A distribution center and manufacturing of vacuum bags will remain, but most appliance manufacturing will move south.
New U.S. Manufacturing
Even as some plants were being shuttered in the United States, new manufacturing capacity was coming on-line.
- Sub-Zero and Wolf built a new manufacturing facility in Richmond, KY.
- Haier America said in March that it is increasing its Camden, SC, plant and hiring 125 new workers to support the launch of a 25-cu-ft, three-drawer refrigerator/freezer that offers a flexible storage drawer.
- Aga Foodservice Group broke ground in Iowa in April on a new plant to manufacture Amana Commercial Products, the commercial microwave business that Aga purchased from Whirlpool Corp. in 2006.
Europe Moves East
Appliance makers that traditionally manufacture in Western Europe are continuing to look to their neighbors to the East for less-expensive manufacturing.
- Antonio Merloni planned a plant to manufacture Ardo washing machines in Ivano-Frankivsk, western Ukraine.
- Gorenje brought a new boiler plant on-line in Serbia in February.
- Nokia set up its 11th manufacturing facility for mobile devices in the county of Cluj in Romania.
- Samsung planned an LCD plant in Slovakia, with financial incentives provided by the Slovakian government.
- Electrolux began an investigation into the “future viability” of a cooker factory in Spennymoor, UK, which may lead to the closing of the plant.
China Moves West
Even China, the world’s biggest low-cost production hub, is seeing the phenomenon of shifting manufacturing within its own borders. As reported in “Portrait of the Chinese Appliance Industry” (APPLIANCE magazine, October 2007), manufacturing costs are surging in the eastern part of the country—and that encompasses major production hubs on the Yangtze River delta, the Bohai Sea, and the Zhujiang River delta. Now Chinese appliance OEMs such as Haier, Gree, and Midea are setting up new manufacturing in less-expensive middle and western Chinese regions such as Wuhan, Chongqing, Hefei, and Wuhu.
While China is a famously inexpensive place to manufacture appliances (and almost everything else), a number of other Asian nations saw new production capacity come on-line in 2007:
- Electrolux (Thailand) Co. planned to double production at its Rayong laundry appliance factory, with total production of washing machines and dryers expected to increase to 300,000 units in the fourth quarter of 2007.
- Osaka, Japan–based Panasonic (Matsushita Electric Industrial Company, Ltd.) business unit Panasonic Vietnam Company, Ltd., (PV) began operations at two manufacturing facilities and began operating an R&D subsidiary in Hanoi, Vietnam, in April, making high-tech consumer electronics, components, and optical drives.
- Fisher & Paykel moved its electronic manufacturing plant out of its home base in Auckland, New Zealand, to Thailand.
What Will 2008 Bring?
It’s difficult to imagine what 2008 has in store for the global appliance industry. Will U.S. home sales stabilize, or will the mortgage lending crisis continue to cripple sales? Will China’s industry feel the effects of the U.S. market slowdown, or ride a surge in consumerism spurred by the 2008 Olympics in
Beijing? Will European markets remain stable, or follow the U.S. into a slump?
APPLIANCE magazine will look into the year ahead in our January 2008 Industry Forecasts.