A $296 million rebate plan to boost sales of energy-efficient home appliances may give companies such as Whirlpool (WHR) and Electrolux (ELUXY) a glimmer of hope, but it won't be enough to lift them out of their worst down cycle ever.
Beginning late this fall, the federal program will authorize rebates of roughly $50 to $200 for purchases of high-efficiency appliances that bear the Energy Star seal. The money is part of the broader economic stimulus bill passed earlier this year. Program details—such as which appliances are covered, the exact size of the rebates, and how they get processed—will vary according to each state's proposals, and the Energy Dept. has set a deadline of Oct. 15 for states to file formal applications to participate. Washington expects to award the bulk of the money by the end of November.
"IT'S BRUTAL"Unlike the popular $2.9 billion cash-for-clunkers car program, which ended on Aug. 24, there's little evidence hard-hit consumers are clamoring to buy new dishwashers and fridges. (At least they won't have to trade in their old appliances.) The federal outlay piggybacks on rebate programs for energy-saving appliances that have existed for years in more than 25 states and largely failed to spur demand. Retailers such as Home Depot (HD) and Lowe's (LOW) have offered deep discounts on big-ticket appliances lately, but with little impact. Shipments of washers, dryers, refrigerators, and ovens dropped 10% in 2008 and are down 15% through July, according to the Association of Home Appliance Manufacturers. "It's brutal," says Sam Darkatsh, an analyst at brokerage firm Raymond James (RJF).
The leading appliance makers have been coping with tough times for a while. Although the housing boom lifted sales, high commodity prices and Chinese competition took a toll on margins. And now Whirlpool, of Benton Harbor, Mich., which controls nearly 50% of the U.S. market, has seen worldwide sales drop 20% through the first half of 2009, to $7.7 billion. In response, it will lay off 5,000 workers this year. Stockholm-based Electrolux, meanwhile, has axed 3,000 workers since December and shifted production to lower-cost countries. General Electric (GE), which has been trying to sell off its appliance unit, mulled closing an entire Indiana plant earlier this year until deciding to keep it open with one-quarter fewer people.
Not surprisingly, appliance makers (and their investors) cheered the upcoming government handout. "Whatever gets the consumer back in the marketplace is good for us," says J.B. Hoyt, director of government relations at Whirlpool, where shares are up 40% since the program was disclosed on July 14. Still, Hoyt allows that "our business has a long way to go in terms of recovery." Electrolux Chief Executive Hans Straberg, meanwhile, told investors in July he doesn't expect the market to improve "in the near future." Electrolux says it is readying "aggressive" marketing programs that will amplify the rebates' appeal, but is waiting for state plans before providing specifics. Over the next month, appliance makers will lobby state energy commissions to provide the highest possible rebates. "Twenty-five dollars does not get consumers' attention on a $500 purchase," Hoyt says.
One challenge in assessing the potential impact of the incentive program is that consumers tend to purchase fridges and washing machines when an existing appliance breaks down or during a home renovation. An extra $200 isn't likely to spur thoughts of a costly renovation in a shaky economy, and most people coping with a broken machine would likely feel forced to replace it in any case. "I'm not sure if it will be as powerful as Cash for Clunkers," notes Laura Champine, a senior analyst with Cowen & Co. (COWN) "But any driver [of sales] is welcome right now."