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APPLIANCES Manufacturers are in a whirlpool of rising material costs

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While demand for appliances has been slow and business has been impacted by high-priced material, the chief executive of the world's largest consumer appliance maker said an improvement is coming.

Jeff Fettig, chairman and chief executive officer of Whirlpool Corp., Benton Harbor, Mich., said the cost of the material his company uses to make consumer goods like washing machines and refrigerators is expected to increase between $450 million and $500 million from last year. And that number could rise even more, he said during a presentation in June at the J.P. Morgan Basics and Industrials conference in New York.

"One big change we've seen since we gave guidance in February was the continued escalation of material cost," he said. "In February, our guidance talked about $450 (million) to $500 million, but when you look at base metals and the dramatic increases we've had and the continued increases in steel, this may wind up to be even bigger than what we saw in terms of material cost inflation."

But while commodity prices are high and the slow housing market is decreasing the number of appliances Whirlpool is building, a turnaround appears to be near, Fettig said during Reuters' Consumer and Retail Summit in June. "The good news, from the demand standpoint, is I think we've seen the worst," he said. "We had a very significant decline in the U.S. demand market in the fourth quarter and again in the first quarter, but we've seen that start to moderate. We think in the second half of the year there will be small growth."

Because of commodity material cost inflation and, in the case of the United States, a down industry market, Whirlpool's management of costs is essential and critical, he said at the J.P. Morgan event. "We continue to make good progress in driving total cost productivity in every part of our business worldwide," Fettig said.

Part of that push toward productivity has resulted in combining operations. In June, Whirlpool announced that it would begin outsourcing the manufacture of its dehumidifiers and air purifiers, which currently are produced at its LaVergne, Tenn., plant, eliminating 330 jobs. Additionally, Whirlpool said it is eliminating approximately 400 jobs by relocating work done at its Cleveland, Tenn., single-cavity freestanding range manufacturing plant to facilities in Tulsa, Okla., and Celaya, Mexico. It also is consolidating the industry, buying up such brands as KitchenAid, Jenn-Air, Amana, Magic Chef, Roper, Brastemp, Bauknecht and, most recently, Maytag.

"Commodity and material prices remain a major problem," Fettig said. "But we're able to offset that through productivity, through efficiencies we've driven through the Maytag acquisition and our ability to bring innovation into the marketplace. All those things combined, and with an improving demand trend we feel positive about the balance of the year."

Innovation includes making products that are energy efficient, he said. "We think it's almost mandatory," Fettig said. "The whole package brings people into the marketplace to buy. There are wins for the consumer and the environment."




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