OEM Report: Appliance

Plugged in

By Lisa Rummler

February 2010 - Appliances have come a long way since laundry involved a hand-operated wringer and food was stored in an icebox. Today, people have the opportunity to watch their favorite shows in the kitchen--from a TV embedded in their range hood. They can also perfectly program cooking times by swiping bar codes on certain microwaves, as well as keep food fresh with a combination refrigerator-freezer with separate evaporators for intra-appliance climate control.

Despite these and other innovations, as with nearly every sector of the economy, appliances took a hit because of the recession.

Shipments of major home appliances in 2009 were down about 12 percent from 2008, and they were down the previous year, as well.

One company feeling the effects is Atlas Technologies Inc., Fenton, Mich., says Ron Demonet, regional sales manager.

"Things are relatively slow, as they are with all capital equipment companies like ours," he says. "Capital expenditures over the last couple of years have been relatively low in all industries."

Atlas Technologies designs and builds material handling and automation systems, and it does a great deal of work with the appliance industry. Over the years, appliance-related work has made up 20 percent to 60 percent of the company’s business, according to Demonet.

He also says Atlas Technologies isn’t dwelling on the past but looking to the future, and he’s cautiously optimistic for things to come.

"We do see some positive trends, and we’re hoping that this year, things start to pick up," says Demonet.

Things are already beginning to improve at GHT-Craft Steel Products LLC, Grand Rapids, Mich., a company with facilities in South Carolina, Texas, Mexico and China that manufactures/fabricates metal components, weldments and assemblies.

GHT-Craft Steel Products also has in-house capabilities for molding, plating and painting to serve customers in the appliance, automotive and furniture industries, among others.

Chris Kieffer, program manager, says production for most of the company’s appliance customers was off by 40 percent in 2009 compared with the previous year. Things began to improve as 2009 wound down, however.

"At the very end of the year, we started to see some major increases," says Kieffer. "This year, the demands have already increased to the point of ramping back up to full production. We can only hope this continues into the future."

Many appliance OEMs also see glimmers of hope on the horizon, including Southbend, Fuquay-Varina, N.C., a Middleby Corp. company.

Southbend manufactures commercial and industrial cooking equipment, and Scott Miller, vice president of engineering, says things have stabilized. They aren’t ideal, though.

"On the commercial side, obviously, along with everyone else, we felt the crunch in 2009," he says. "We’re seeing a bit of an uptick in orders, but [for a] recovery back to the numbers we were seeing in 2006 and 2007, I believe we’re thinking fourth quarter and into 2011. It’ll probably be more along the lines of being fairly flat or a little bit up this year."

Southbend is a full manufacturing facility, and when orders were at full capacity, the company would send out some of its sheet metal work. That changed last year.

"In 2009, we brought a majority of that back in," says Miller. "[Going forward], it really depends on how 2010 begins to shake up, based on capacity and orders. We’ll just have to react to how they come in, and if we see a difference, we’ll have to make a decision on whether it’s going to be additional head count and/or moving some stuff back out."

For Aga-Heartland, Cambridge, Ontario, a producer of household kitchen appliances, including ranges, refrigerators and dishwashers, deciding whether to bring more manufacturing work in-house or send it out is part of an ongoing approach to business.

"We don’t have a ‘more internal manufacturing strategy’ or a ‘more external [strategy],’" says Brad Michael, president of Aga-Heartland. "We have a strategy of obtaining the best product or service through the source that can meet our quality delivery and service expectation, whether internal or external."

By the numbers
According to an analysis of U.S. Department of Commerce, Bureau of the Census data by Chicago-based Trade Resources Ltd., imports of major appliances were at 2,811,217 in October 2009, down 5.2 percent from October 2008.

Additionally, major appliance imports from January 2009 to October 2009 numbered 30,072,141, down 12.1 percent from year-ago levels.

On the export side, there was some good news: Shipments were higher in October 2009 than October 2008--459,769 and 454,603, respectively. But exports in January 2009 to October 2009 were at 3,491,828, compared with 4,462,233 in January 2008 to October 2008.

Laura Spingola, president and founder of Trade Resources Ltd., a company that provides market research assistance, data reporting on trade flows, strategy planning and forecasting, says appliance imports and exports were off substantially as of December 2009.

"To give you an idea of the relationship between the two directions in trade, imports account for about 89.9 percent of international trade in major appliances, with respect to the U.S., and the remainder goes to exports," she says. "So it’s a small percentage that actually goes to exports. For [2009], if we continue at the current pace, the imports would probably number around 36 million units, and exports would number around 4 million units."

She also says that because the dollar is low relative to other currencies, some favorable conditions exist for companies to export. Few are doing so, however.

"Basically, for many reasons, a number of the larger suppliers have set up in the U.S. from other countries, but there have just been long-term trends where the industry has tended to become more import-oriented," says Spingola.

Appliances are closely tied to several other industries, particularly residential construction. And when conditions aren’t optimal for this sector, the effects tend to trickle down to appliances.

According to the National Association of Home Builders, Washington, D.C., builder confidence in the market for newly built, single-family homes dropped to 16 in December 2009, down from 17 the previous month. This was higher than the year-ago level, however, which was 9. Ratings higher than 50 indicate more positive or good responses.

But NAHB reported in November that the Remodeling Market Index experienced modest improvement in the third quarter of 2009.

"The current market conditions index rose slightly to 39.8 from 38.1 in the second quarter, [and] the index of future indicators jumped to 38.7 from 34.2 in the previous quarter," according to a press release. "Although this marked the third straight quarter of improvement, both indices remain well below the break-even point of 50."

Jane Heiling, co-owner and vice president of Construction Appliance Supply Co., a St. Louis-based kitchen dealer that sells more than 50 brands of appliances, says the company experienced tremendous growth from 2004 to 2009, with 2008 being the best year on record.

"Then the crash came," says Heiling.

Construction Appliance Supply specializes in sales to builders, remodelers and designers, and Heiling says the first group seems to have taken the hardest hit with the recession.

"There’s no new home construction, as we know, or very little new home construction," she says. "[Also], Chrysler had a huge plant about five miles from my main showroom--that plant is totally shut down now. We’ve got a huge number of layoffs, and that’s not just in St. Louis. That’s everywhere. But when people don’t have jobs, they’re not buying anything unless they absolutely have to."

Along those lines, Spingola says high unemployment levels and a nationwide credit crunch, among other things, are also affecting the appliance industry.

"Another factor that is making, and I think will be making, an impact is that there seems to be some kind of consensus that American consumers are definitely becoming more frugal, and it’s not a short-term reaction--this is like a larger-scale behavioral change," she says. "It means consumers are going to be far more critical in their purchases, and it will connote some implications for businesses--they’re going to need to be more creative and more competitive."

Looking ahead
Despite last year’s lackluster business climate and the recession’s potential long-term effect on consumer behavior, things appear to be looking up for the appliance industry, according to Spingola.

"The difficult point is to put any exact timetable on this, but we definitely feel that it should be improving, let’s say, over the next year," she says.

Additionally, Spingola says there’s great potential for long-term growth in the appliance industry because of technological developments beginning to take shape today.

"For the next year to three years, we’re probably going to be in the same areas as we are now," she says. "But beyond that, I think there’s going to be a real takeoff in products that we just haven’t been familiar with before."

Some of these innovations involve the smart grid, says Joseph M. McGuire, president of the Association of Home Appliance Manufacturers, Washington, D.C.

"The concept is that utilities could communicate directly to smart appliances that have technology in them that can receive a signal," he says. "The appliances, on their own, could delay certain functions to a different time of day. The whole system is based on time-of-use electricity pricing, which to a large part is used in the commercial/industrial sector but not in residential."

McGuire stresses the importance of consumers maintaining control over their environment with the smart grid--he says consumers should always have the ability to make the choices on how their appliances are going to operate.

He also says widespread implementation of the smart grid would help consumers save utility costs and reduce the need for peak-power plants, thereby increasing overall energy efficiency.

"Smart appliances are going to become an important part of the energy framework," says McGuire. "The potential contribution to national energy conservation is enormous. There are opportunities there for manufacturers in developing technologies to build and design these smart appliances, and that certainly filters back to people who are involved in [producing] components and other materials."

Other opportunities for future growth in the appliance industry include the upgrading of appliance efficiency standards. McGuire says these will likely take effect in the next four years and that they could provide a great deal of work for appliance manufacturers and suppliers.

"The law essentially requires that if there’s going to be a new appliance standard that will require redesign, manufacturers have to have three years to prepare for that," he says. "So during that three-year period, the product manufacturers and [suppliers] will have the opportunity to prepare for these new product launches.

"And smart appliances--we’re going to see those products being produced even before that," he continues. "I think, certainly, there’s going to be products produced in 2010 for a number of the utility demonstration programs and smart grid. And I think after that, you’re going to see a greater number of production of these types of appliances." FFJ


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