United States – Consumer Electronics

US Market for Home Appliances Grows Only Moderately

Published: 01 May 2019

Import tariffs on washing machines only have a moderate effect

Manufacturers of home appliances in the USA face enormous competition from imports: foreign equipment, mainly from China and Mexico, account for around 70% of the market in the United States.

Since February 7, 2018, import quotas apply for washing machines and certain components that are not produced domestically. Outside the quotas, protective tariffs are in force until February 7, 2021, which are decreasing gradually. The only exceptions are Canada and a number of developing countries and WTO-members (see Presidential Proclamation number 9694 of 23 January 2018 (http://www.govinfo.gov/content/pkg/FR-2018-01-25/pdf/2018-01604.pdf). The protective tariffs are levied in addition to regular import duties.

Many companies had already sent their products for the US market to their overseas warehouses in advance, so that only moderate price increases occurred during the rest of 2018. At Samsung and LG, against whom the measures were mainly directed, prices only rose by 4% to 8% in 2018.

 

United States: Safeguard measures for washing machines and selected parts

Product group concerned 07.02.2018 to 06.02.2019 07.02.2019 to 06.02.2020 07.02.2020 to 07.02.2021
First 1.2 million imported washing machines 20% 18% 16%
All other imported washing machines 50% 45% 40%
Selected components 50% 45% 40%
Tariff quotas (number of units exempted from protective tariffs) 50,000 70,000 90,000

Source: Presidential Proclamation Number 9694 of 23 January 2018

 

Korean manufacturers move parts of their production to the USA

US competitor Whirlpool, however, which was to be protected by the customs duties, augmented prices by a similar amount. The main reason for this was the rise in production costs resulting from the protective tariffs on steel and aluminum, which were imposed in 2018. The company’s share price fell by almost 40% in 2018 and recovered only partly since the start of 2019.

In order to avoid protective measures, Samsung and LG had moved parts of their production from Mexico to China and then on to Thailand and Vietnam during Barack Obama’s term. Then, both Korean manufacturers relocated parts of their washing machine production to the USA: Samsung opened its first US plant in Newberry County, South Carolina, in January 2018, and LG’s new factory in Clarksville, Tennessee, will follow in mid-2019.

Electrolux consolidates US sites

US subsidiary of Swedish Electrolux group will close its plants in St. Cloud, Minnesota, and Memphis, Tennessee, and by the end of 2020 consolidate the production of cooking appliances in its expanded factory in Springfield, Tennessee. One of Electrolux’s major customers, the troubled chain of department stores Sears, was rescued in January 2019 by its largest shareholder Eddie Lampert on the verge of bankruptcy. But observers suspect that the main reason for the consolidation measures at Electrolux is the rise of raw material prices: Although Electrolux buys steel and aluminum from US suppliers, they have generally become more expensive due to the introduction of the protective tariffs on the US market.

Electrolux’s planned takeover of GE’s home appliances division (GE Appliances) failed in 2015 due to opposition from US competition authorities. But a year later, it went instead to Chinese Haier Group, retaining its headquarters in Louisville, Kentucky.

German manufacturer BSH Hausgerate is also affected by protective measures. Its US subsidiary BSH Household Appliances operates local production facilities for ovens and dishwashers, dryers and washing machines. The last major investment by the company was the expansion of the dishwasher factory and the central distribution warehouse in New Bern, North Carolina, during 2017.

 

United States: Imports of selected home appliances (in US$ million)

Product group (SITC code) 2017 2018
Household type equipment, electrical or not (775), of which 20,648.5 22,830.4
.Washing machines with a capacity of max. 10 kg of dry linen (775.11) 296.8 260.5
.Clothes-drying machines with a capacity of max. 10 kg of dry linen (775.12) 306.4 396.6
.Household refrigerators, whether or not containing a deep-freeze compartment (775.21) 5,581.5 5,904.4
.Household deep-freezes (775.22) 318.9 407.6
.Household dishwashers (775.3) 421.8 437.9
.Vacuum cleaners with electric motor (775.51) 2,497.1 2,958.9
.Food grinders and mixers, juice extractors (775.72) 830.8 801.8
.Electric smoothing-irons (775.84) 202.6 211.4
.Microwave ovens, cookers, cooking plates, boiling rings, grillers and roasters (775.86) 2,780.1 3,266.0

Source: U.S. International Trade Commission

 

Less impetus from the construction sector

The real estate market and the growth of consumer’s incomes are important drivers of the demand for home appliances. The real disposable income of private households is expected to rise by only 2% to 2.5% in 2019 and 2020. According to consulting firm FMI, the construction of single-family homes will stagnate during 2019, while that of multi-family homes will even decline by 5%.

Nevertheless, US private households have a high demand for replacement appliances. Technological innovations such as energy-saving washing machines, no-frost freezers, and self-cleaning ovens are very popular. Many new ovens and cooking appliances offer easy-to-use touchscreens with control functions.

Home appliances are becoming smarter

Intelligent sensors and Internet of Things (IoT) technology are becoming increasingly important. They can allow kitchen equipment to be controlled in real time – without a physical presence. Washing machine manufacturers are also turning to high-margin, networked appliances that can be controlled via smartphones and apps.

For example, LG Electronics is working with Amazon since 2016 to integrate voice-controlled assistant Alexa into its Smart ThinQ App. The app allows home appliances to be digitally connected so that they can be controlled remotely via the Internet. LG also plans to add Amazon’s Dash buttons, which make it easy to find and reorder favorite products, to the SmartThinQ hub. Whirlpool is working with Amazon and Google to develop intelligent devices.

Companies in the US have about 300 manufacturing facilities for household appliances. In 2018, the US market had a turnover of around US$ 46 billion. Until 2025, sales will grow by an average of 3% to 3.5% per year, forecasts management consultancy Grand View Research. By segments, Grand View Research expects average growth rates for kitchen equipment (25% market share of total home appliances market), and air conditioning/heating systems (18% market share). Refrigerators (20% market share) are expected to grow by an average of 3.5% to 4% per year until 2025, and washing machines (13% market share) only by 2% to 2.5%.