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'Clunkers' Sequel Rattles Appliance Producers

By Timothy Aeppel and Paul Glader
August 27, 2009

The cash-for-clunkers program was so successful in getting Americans to buy new cars that it ran out of money early. Now, a sequel, dollars-for-dishwashers, is coming to an appliance store near you.

But the $300 million program, funded through the federal government's economic stimulus plan, is certain to lack the same pop, said appliance makers and retailers. The program's intent is to spur sales of energy-efficient appliances, but its small size would provide just a minor boost for struggling appliance makers such as General Electric Co., Whirlpool Corp., and Sweden's Electrolux AB.

Unlike the clunkers plan, the program allows each state to pick qualifying models and tailor rebate amounts. Ohio might decide one washing machine qualifies for a $100 rebate, while California picks another for $125.

Manufacturers and retailers said they are reluctant to ramp up production or order new stocks until it is clear what models qualify. The Department of Energy, which designed the program, wants states to focus on just 10 categories of appliances carrying the federal Energy Star seal of approval for efficiency.

But other details are still uncertain. States could ask to include up to 46 other types of products, ranging from light bulbs to computers. While rebates are expected to range between $50 and $200, qualifying models and precise rebate amounts won't be provided until late this year or early next.

Electrolux Major Appliances North America is working with several states to shape their programs and is developing related advertising campaigns. "We're going to adjust our production as we see the changes in consumer demand emerge," said Marty O'Gorman, chief financial officer of the unit. "We're ready and geared up."

Guy Minnix, president of Metro Builders Supply Inc. in Tulsa, Okla., with nine outlets in four states, won't know which models to stock until state plans are clear.

"This should create a lot more consumer spending," he said, "but if they make it model-specific, you're kind of taking a guess as to which model to order." He worries about ordering too many products that end up not qualifying for a rebate.

Executives at Northland-Marvel, a division of Britain's Aga Rangemaster Group PLC, met this week to discuss how to accelerate plans to get efficiency ratings on its wine coolers and refrigerators. The Greenville, Mich., company currently doesn't have any that qualify.

However, Brad Stauffer, senior vice president of operations, said he is concerned that a surge of sales of higher-priced, energy-efficient models could be fleeting. "For many consumers," he said, "it always comes back to price points and features."

Some of the nation's biggest appliance makers are lobbying to make the plan rules uniform nationwide. They said the unknowns and the varying rules by state will make the program harder to explain to shoppers, in turn making it tougher to win sales.

The Car Allowance Rebate System, the official name for the clunkers program, was a roaring success with $3 billion allocated and nearly 700,000 vehicles sold. In Brazil, a stimulus program that offered a tax cut on household appliances, triggered a 20% boost in sales since April. Like automobiles, appliance-making requires significant activity, from procuring high-quality steel, production of compressors and other complex components, to transportation and warehouse stocking.

U.S. sales of major appliances have been sliding for three years, with shipments down 10% last year and 15% so far this year, according to the Association of Home Appliance Manufacturers.

The program "will provide consumers a unique opportunity to save money on energy-efficient appliances," said Dave McCalpin, chief marketing officer for GE Appliances. He said Fairfield, Conn.-based GE is working with state governments to adopt rebate programs that rely on Energy Star ratings.

Some states are considering standards that exceed Energy Star requirements, a move GE opposes. "We believe it is very important that rebate programs are consistent across the country," Mr. McCalpin said.

The stricter proposals underscore criticisms that the Energy Star program is not tough enough in raising energy efficiency. The Environmental Protection Agency is looking at revising the program's standards. If it does so after the states set their rules, the rebates could end up subsidizing some appliances that are not as energy efficient as they could be.

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