Michael D. Locker, president of New
York-based consultant Locker Associates Inc., said he believes
appliance manufacturers will continue to move assets
"Soon the major trend will be moving
production overseas, which is a major issue," Locker said,
noting one example of the trend there are no U.S.-made air
conditioners anymore. "If we lose our customer base we won't
have anything left."
Maintaining production domestically is the
real challenge, he said. "It all has to do with productivity.
They need to lower their costs to be competitive with lower
labor cost overseas. So through productivity, lower man-hours,
they can offset higher labor costs. They can do it through
technology, leaner manufacturing, lower inventory, a whole
series of things. But the simple way is just move it; throw up
your hands toward the route of least resistance. Problems with
manufacturing abroad are perceived to be less problematic than
honing domestic production."
While the high cost of commodities, like
carbon steel, is a major factor, it isn't what's holding
appliance makers back from manufacturing their products,
service center executives said, offering their analysis of the
"Steel is just one component," according to
Gary Hamity, president of Chicago-based service center Mapes
& Sprowl Steel Ltd., which specializes in
porcelain-enameled steel. "Appliances are steel intensive, but
if demand is there they'll get their steel. Range tops made of
glass are of strong interest, but not because of steel prices.
Steel is still cheaper than aluminum, stainless and glass."
Lawrence "Bo" Burr, president and chief
executive officer of Twinsburg, Ohio,-based Atlas Steel
Products Co., agreed. "Demand is demand," he said. "There's
just not the accompanying demand without the houses being
What's more, carbon steel is less expensive
than a few years ago, when appliance manufacturers were at full
tilt. "In 2004, business went nuts for carbon," Burr said. "It
was a perfect storm of demand such as we hadn't seen in
Spot market prices for carbon cold-rolled
sheet, the material commonly used in appliances, was around
$610 a ton at the end of June, way up from $280 in late 2001
but much less than the September 2004 peak of $800 a ton.
What is happening, however, is that producers
are consolidating and moving production offshore. "(It's) what
happened sometime back in small appliances and is happening now
in things like barbecue grills," Burr said. "But so far
American manufacturing is just dealing with volume
Despite the appliance chill, Burr remains
optimistic on the market's outlook. "When you talk housing
starts you can almost end the conversation," he said. "Housing
is very far down, which is dragging appliances with them. We're
not enjoying quite the volume we'd hoped for at this point of
However, there could be a positive trend on
the horizon if the Federal Reserve Board lowers interest rates,
possibly heating up housing market sales and builds, Burr said.
"Earlier this year there was hope that the Fed would move rates
a bit downward," he said. "A lot of speculation says that won't
happen now, but we're still optimistic."
Hamity said he believes the appliance
industry's softness is a reflection of overall market demand
for appliances relative to housing, which is consistent
historically. "But we concentrate on selling into the high-end
market and mostly in the high-end range market," he said.
"That's not as volatile as the more middle- to lower-end
pricing products. It's a little softer but it's not
However, Hamity said that the high-end
appliance makers are attempting to expand into the more
price-competitive market. "So growth in the high-end is
slower," he said. "They're getting their price points down, but
then they're more into the general housing market. But there's
a lot of renovation going on, and that's still a very popular
area to use high-end ranges."
Burr held a similar view. "There's certainly
a low-end buy and a high-end buy in appliances," he said,
adding that the high-end buy hasn't been affected as
Once manufacturers switch from traditional
300-series stainless to a lower-nickel-containing grade or even
another product, they might not switch back even if stainless
prices drop. "Substitution is a big issue in appliances," Burr
said. "Everybody is looking at 201 and alternatives to 304.
Since there is considerable work and expense related to
re-engineering specs, it isn't an instantaneous switch, so
they've not totally switched to 201. But it may be a battle to
go back. You've pointed people in a direction because of cost
and they may never return."
While it doesn't touch the still-hot
stainless market, Mapes & Sprowl's porcelain-enameled steel
is used in many of the higher-end products, which are
characterized by bright colors, though not the harvest gold and
avocado green of yesteryear. "There's more interest in colors
and design of kitchens," Hamity said. "Stainless has been a
great product. I won't say it's run its course, but designers
are always looking for something new. Old is new. It may not be
the entire kitchen, but they will complement some stainless
appliances with a cobalt-blue range. It adds a little
As for stainless, its use is still strong,
analysts said, but substitution is looming because of its high
price. The cost of nickel, a main ingredient in stainless, has
pushed stainless' price to new heights.
"Stainless is definitely trying to be
replaced with stainless lookalikes," Hamity said. "But it's too
early to tell how that's going to be accepted in the