issue: January 2009 APPLIANCE Magazine
Forecast: North America
Expanded Web Coverage: Major Appliance Challenges/Slow Growth in Comfort Conditioning
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by Diane Ritchey, News Editor
It was mostly bad news from the major appliance industry in 2008, as the housing market deeply affected appliance shipments and sales.
According to the November shipment report from the Association of Home Appliance Manufacturers (AHAM), the latest report available at press time, major appliance shipments were down significantly in 2008. Taken in total, AHAM's Major Appliances grouping were down 8.7% in 2008 as of the end of November. Trends and anecdotal evidence available in early December did not lend promise to any year-end uptick. It is likely that Majors will end the year down about 8.7%—or more.
The key AHAM 6 sector, comprised of washers, dryers, dishwashers, refrigerators, freezers, cooking appliances, were down 9.2% year-on-year in November. Expect about a 9% or worse drop in total shipments in the AHAM 6 categories for the year 2008.
Unfortunately, 2007 was no picnic either, ending with Majors down 6.4% from 2006; the AHAM 6 were down 5.6%. In 2006, Major's were up just 1.1% and the AHAM 6 were down 0.7%.
Bad News Makes Bad News
But was bad news spreading bad news? Perhaps, said Michael Traub, president and CEO of BSH Home Appliances Corp. Traub told APPLIANCE, “BSH believes currently that the appliance market is highly affected by the consumers’ perceptions of the general economy. While availability of credit and the rate of unemployment have major effects in the market, the existence of negative consumer sentiment has a profound effect as well. However, the positive side of this situation is that consumer sentiment is subject to a faster turnaround. BSH believes that measure of consumer sentiment will be the chief ‘leading indicator’ of appliance marker activity in the near term.”
He added that while the current economic conditions have affected overall appliance sales they have reinforced an emphasis for many consumers on the value of “quality” as a driver in the purchasing decision. “This is true at retail where BSH has continued to see market share growth in key categories,” he said. “It is equally true in the new construction market, where an emphasis on quality has become one of the central differentiators used to attract a reduced number of eligible purchasers of residences and where BSH continues to enjoy growth.”
But it's difficult to ignore all the bad news—particularly from the world's 2 biggest appliance makers. In December, Electrolux said it will lay off more than 3000 employees in 4Q 2008 and in 2009 and plans even more layoffs in the future. The news came after the appliance OEM failed to reach its outlook for full-year 2008.
"Demand for appliances in Europe and North America declined considerably in the two last weeks of November," said an Electrolux statement. "The weak market has had a negative impact on Electrolux sales volumes and product mix during the fourth quarter. In December, demand for appliances in Europe and North America continues to show a sharp decline. As sales in December are seasonally low, there is a risk that operating income for the month will be slightly negative."
In addition to the layoffs, Electrolux said it will continue to move production capacity to low-cost countries in accordance with the company's restructuring program launched in 2004. The program, which will be completed in 2009 and 2010, will mean even more layoffs, the company said.
Whirlpool Corp., the world’s biggest home appliance maker, released disappointing 3Q 2008 earnings and announced 5000 layoffs before the end of 2009.
“We are in the midst of a rapidly changing and very challenging economic environment,” said Whirlpool chairman/CEO Jeff Fettig. “We have seen a sharp drop in demand in North America and Europe during the third quarter, and we do not expect demand conditions to improve in the near term.”
Fettig said 3Q results were hit by declining demand and cost inflation, which were only partially offset by improved price/mix and productivity. Factors such as a the global credit crisis in an already weakening global economy, declining home values, rising unemployment, and very low consumer confidence levels, Fettig said, will likely keep appliance demand low through at least mid-2009. The company expects full-year industry-wide major appliance shipments to fall 10% in the U.S., down from previous guidance of 6% to 7%.
As overall U.S. demand slumps, many international markets are growing. Todman said Whirlpool was seeing strength in Brazil, India, China, and some Eastern European markets. To keep fueling that global growth, Todman said Whirlpool had started selling its upscale KitchenAid products in new areas such as Europe and Brazil, and was likely to introduce that higher-end brand in India.
Todman also said that Whirlpool’s business had some stability because of growth now taking place in the Maytag and Amana brands acquired in 2006. Whirlpool has been designing new products to differentiate those brands since the purchase.
In July 2008, GE announced it would spin off or sell its appliance business by mid-2009, causing much speculation as to who would buy it. Korea's LG and China's Haier have both said in recent months that they're not interested in buying GE at this time.
Atul Vir, president and CEO of Equator Appliances, told APPLIANCE that the economic situation is like “a vortex; we just don’t know where the bottom is. In our specific case, it’s a mixed bag, because we specialize in making compact products for apartments, condos, and smaller spaces. As fewer people have been able to purchase a home, they are moving into apartments and condos, so we are actually seeing increased business and a greater demand for our compact products.”
Vir added that his company is holding steady and waiting for a recovery. “The economy will come back,” he said. “We just have to hang tight, make sure our customers pay on time, cut costs, and be ready.”
In fact, he said, as shipping and freight increases occur in China, the company is considering beginning production of its appliances back in the U.S.
Slow Growth in Comfort
As in major appliances, the problems with the U.S. housing industry took a toll on HVAC shipments in 2008. Once housing improves, so will HVAC shipments. But for now, the outlook is bleak.
As of October, combined U.S. factory shipments of central air-conditioners and air-source heat pumps were down 6% for the year so far, according to the Air-Conditioning, Heating, and Refrigeration Institute (AHRI). But heat pump shipments, after an October jump, were actually on the positive—up 0.7% for the year so far. Furnace shipments showed no bright spots, with gas furnaces down 17.7% for the year so far; oil furnaces down 28.1%. Residential gas water heaters were down 5.8% for the year so far; residential electric water heaters were down 2.2%.
But commercial water heaters are doing well in 2008, with electric up 6.3% and gas up 4.7%.
Read our greatly expanded online coverage: North America Appliance Industry Forecasts for 2009: