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Whirlpool, once a fan of US tariffs, now feels their pain
NEW YORK, July 26, 2018 (BSS/AFP) – In January, the Whirlpool company
welcomed new US tariffs on washing machines. But less than seven months
later, the big home-appliance maker has changed its tune, having fallen
victim to the spreading trade war launched by President Donald Trump.
When the White House announced its first protectionist trade measures
early this year, the CEO of the Michigan-based company, Marc Bitzer, greeted
them as a “positive catalyst for Whirlpool.”
Bitzer figured that the tariffs, for which he had vigorously campaigned,
would slow the dynamic growth of two of Whirlpool’s biggest rivals, giant
South Korean companies LG and Samsung, which he and others accused of unfair
competition.
What Bitzer did not anticipate was that the trade measures would spread in
March to other sectors, as the US president imposed additional tariffs of 10
percent on aluminum imports and 25 percent on steel. China was one of the
first countries targeted, followed in June by the European Union, Canada and
Mexico, which in turn took retaliatory measures.
As a result, prices for steel — the basic raw material Whirlpool uses in
its appliances — have shot up. They are now 60 percent higher in the United
States than in other countries, says the company, which manufactures washing
machines, dryers and dishwashers in the US for domestic sale.
“Global steel costs have risen substantially,” Bitzer said, “and in
particular in the US they have reached unexplainable levels.”
Bitzer, whose smiles of January faded long ago, said the “uncertainty”
surrounding tariffs “disrupts our supply chain.”
– Higher costs, weaker sales –
That uncertainty is cutting into Whirlpool’s profits — increasing its
costs by an estimated $350 million in 2018, a full $50 million more than the
estimate in January.
In this year’s second quarter, the costs of materials — steel and resin –
– rose in three of the four main regions where Whirlpool does business —
North America, Europe, Asia and the Middle East/Africa.
Not surprisingly, the group is bracing for weaker sales and profits this
year, following a net loss of $657 million in the second quarter.
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Whirlpool shares have lost 31 percent of their value on the New York Stock
Exchange (NYSE) since January, and the insurance premiums paid by its
creditors to protect against an eventual default have reached their highest
point since November 2016.
“Increased tariffs on steel, due to the Trump administration’s global
trade war, are hurting Whirlpool, as steel is the main raw material for the
company,” noted an analysis from Zacks Equity Research.
– ‘The right thing’ –
Steel represents more than half (52.8 percent) of the cost of
manufacturing a washing machine, while labor constitutes only 10.1 percent of
the cost, according to industry-market research firm IBISWorld.
To limit the damage to its bottom line, the company — like its main
competitors — has increased prices, passing on a portion of its higher costs
to consumers. In June, prices for washers and dryers were 20 percent higher
than the year-earlier level, the biggest jump in 12 years, according to US
Labor Department data.
“We are standing firm in our price increases” even as sales have slowed,
Bitzer said, adding that it was “the only right thing to do with such a cost
inflation environment.”
Whirlpool sales in the US slipped by 2.2 percent in the second quarter and
by 12 percent in Europe and the Middle East/Africa, the company’s two largest
markets.
Beyond the problem of surging costs, Whirlpool has been keeping a nervous
eye on its rivals, as LG and Samsung increase production in the US to escape
the new tariffs.
The two companies, which had built up large inventories in anticipation of
a trade conflict, have opened factories in US states that offer major
subsidies and tax breaks.
LG is investing $250 million in a factory in Clarksville, in the southern
state of Tennessee, which will eventually employ 600 workers, while Samsung
plans to invest $380 million in a former Caterpillar factory in South
Carolina.
In just 10 years, the two South Korean conglomerates have gained
considerable ground on Whirlpool: Samsung’s share of the US washing-machine
market has jumped from 1.8 percent in 2008 to 19.8 percent in 2017, according
to TraQline, while LG’s share rose from 12.6 percent to 16.2 percent.
Whirlpool’s share of its home market, meantime, has slipped steadily, from
22.6 percent in 2008 to 17.4 percent last year.
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