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Plastics Industry Thrives Despite Automotive, Appliance Troubles

With its ability to cater to different sectors, the outlook for plastics is bright despite storm clouds over automotives and other industries.

June/July 10
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Medical Devices
Plastics industry members consider medical products, such as devices and disposables, as recession-proof, since people will always need medical care. While this may be wishful thinking, Ernst & Young's Pulse of the Industry: Medical Technology report for 2009 isn't so optimistic. The overhaul of the U.S. healthcare system brought uncertainty to the industry, and Congress is even considering a "device tax" to help pay the tab for this new legislation.

"The industry's financial performance.has largely held steady," the report noted. "The revenues of publicly traded medtech companies in the U.S. and Europe grew 11 percent to $289 billion." However, the report acknowledged what any company in this sector already knows: "The recession does appear to have taken a toll in the first half of 2009, when revenues remained essentially flat (a decline of less than 1 percent) compared to the same period in 2008."

But the industry generally supports the reform. "While we remain concerned about the effects of the medical technology tax, we applaud expanded insurance coverage for millions of American families and the significant progress in a number of important areas.No industry is better positioned to lead in job creation and trade than the medical technology and diagnostics industry," said Stephen J. Ubl, president and CEO of the Advanced Medical Technology Association (AdvaMed), in a March 21 statement released after the U.S. House of Representatives voted on the passage of healthcare reform legislation.

Appliances tend to follow residential construction trends, and since that sector has been in the doldrums for more than 18 months, so, too, has the appliance industry. However, most of the major appliance manufacturers haven't stopped creating new features and colors to tempt consumers. While sales aren't red-hot, global demand for major household appliances is forecast to rise 2.8 percent annually through 2013, approaching 500 million units, according to a market study from the Freedonia Group, a Cleveland-based market research firm. However, much of that won't be from the U.S. market, but market penetration in developing countries. In developed regions, sales will depend primarily on steady replacement demand, new home building, and the development of new features which prompt upgrading.

In the United States, the recent "Cash for Appliances" program provided a boost for manufacturers and encouraged consumers to replace their older, less energy-efficient appliances with new Energy Star appliances. While the government-sponsored program pumped up sales for the first two quarters of this year, appliance makers expect that when the incentive ceases, sales will likely fall to pre-program levels.

Factory unit shipments increased in March in most of the appliance categories tracked by the Association of Home Appliance Manufacturers. Shipments in the AHAM 6 category of appliances - which consists of washers, dryers, refrigerators, freezers, ranges, and ovens - were up 9.3 percent in March 2010 with more than four million units shipped, compared to 3.675 million units shipped in March 2009. Year-to-date shipments of appliances in the AHAM 6 category were up 5.5 percent from the nearly 8.6 million appliances shipped in the same time period in 2009.

According to the Freedonia Group, there are approximately 50 or so major players in the appliance industry, with the top seven - Whirlpool, Electrolux, Haier, BSH Bosch and Siemens, Panasonic, LG Electronics, and General Electric - holding the lion's share of the market. That group accounted for 57 percent of the global market share in value terms in 2008, the year the report was released. These top companies manufacture multiple appliance lines, giving them an overall competitive edge. Whirlpool dominates appliances with a 36 percent market share, and its Amana and Maytag subsidiaries take another 12 percent of the market. Whirlpool's first quarter 2010 sales in North America were $2.3 billion, up 7 percent from the same period in 2009, and supported by the $300 million government rebate program to stimulate consumer spending. "We are pleased with the strong operational performance in all of our regions," says Jeff M. Fettig, chairman and CEO of Whirlpool Corp. "We're encouraged with the 18 percent increase in our global unit volumes during the quarter."

In North America, Whirlpool launched a new Vantage brand laundry pair, a side-by-side refrigerator, and a tall-tub dishwasher that holds up to 12 place settings. Its KitchenAid brand introduced a new French door refrigerator.

It's good to supply plastic parts to the appliance industry, according to one molder. Jack Shedd, vice president of sales and marketing for custom molder and contract manufacturer Hoffer Plastics in South Elgin, Illinois, who spoke at the American Mold Builders Association annual convention this year. The appliance industry is one of Hoffer's major markets, and Shedd has worked for years with appliances.

The appliance industry tends to have high volumes, providing opportunities for plastics processors, Shedd says. A Whirlpool factory in Clyde, Ohio makes 22,000 top-load washers a day, and "they make these in the United States because they can't make it in Mexico and ship it back into the [United States] cost effectively," Shedd says. Whirlpool has 25 North American assembly locations and uses lots of plastics.

The appliance market typically has a three year "refresh" cycle in which it uses the same platforms with new features, Shedd says. This drives consumers to purchase new appliances even if their older ones are still in good condition.

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