Executive Q&A: With Maytag Buy, Whirlpool Is Awash in Sales
Dave Swift hasn't just been selling dishwashers. One of his first jobs after being appointed president of Whirlpool North America last January was to manage the $2.6 billion acquisition of rival Maytag, which made Whirpool the largest appliance manufacturer in the world, with annual sales of about $19 billion. The company's third-quarter earnings edged up 3 percent, to $117 million, but the stock fell on investor concerns about rising material prices and costs related to the Maytag purchase. Swift sat down recently with Deputy Business Editor Rick Newman to discuss the Maytag acquisition, Korean and Chinese competitors, and the latest in home appliances.
How is the Maytag acquisition going?
Whirlpool has five major consumer brands now. And all must have differentiation. The Whirlpool consumer is the "active balancer." Somebody who wants an easy user interface. These are busy people. KitchenAid is for the home enthusiast. Amana is the practical person. The proud gourmet is JennAir. And the demanding loyalist, that's Maytag.
We also have Hoover, one of Maytag's businesses. We're selling Hoover. There are a lot of tough issues there. Globalization is one of them. Hoover is fixable; there's value. But we don't have the time or the desire to go after that.
Tell me how you're absorbing the Maytag assets.
The deal closed on March 31. On May 10, we announced the shutdown of three Maytag factories [in Newton, Iowa; Herrin, Ill.; and Searcy, Ark.]. All that work is moving to two plants in Ohio.
Why those three plants?
The Maytag closings have been focused on laundry, where we can leverage our quality and innovation. Maytag was not in a good cost position. They hadn't worried so much about costs. There was not enough innovation. They were really starving the brands. Maytag was always a mass premium brand, not on the scale of Whirlpool or with the same technology. It was underscaled in the U.S.
What will change at the Ohio plants?
The Ohio plants are very efficient. They used to operate 24 hours a day, five days a week. Now they'll go to 24-7 at two plants.
And what's the net change in jobs?
There will be about 4,500 jobs lost, and about 1,500 jobs added in Ohio. So a net job loss of about 3,000.
What about the other old Maytag plants?
There are four other Maytag plants. At Amana in Iowa, we'll add more jobs. That's a good business. Whirlpool used to buy refrigerators from Amana. And it has turned out to be an even better business than we thought.
What do you think about Haier, the big Chinese appliance maker? And LG of Korea? Are they going to become tough competitors in the United States?
What makes a company successful in appliances in the U.S. is understanding customers, what their needs are–something you don't learn overnight. You also must get on the floor at the big-box retailers. For Haier, I think it will be difficult to get space in U.S. distribution networks. Their question is where to focus their resources.
Haier is not nearly as significant as LG or Samsung. They've entered the "brown goods" market via Best Buy. I think LG is here for good. Ten years ago, it was difficult to make an entry. But globalization is real in the appliance industry. Whirlpool in Europe is the No. 3 or 4 brand. LG is there, too. And European companies like Bosch and Siemens are here, too, and they're very successful.
LG has introduced some interesting products, like a refrigerator with a TV in it and an Internet refrigerator with a computer. Do consumers really want that?
The TV fridge doesn't count as innovation. Innovation is something that satisfies a customer need. I don't think LG did much research to tell if people wanted a $7,000 fridge with a TV in it. There's no doubt LG has created a PR juggernaut. But I doubt they've brought that much to the marketplace. I don't think they've yet upped the ante on innovation. But they will. LG is a very good competitor. They're going to make us better.
So you're not going to build a refrigerator TV?
After LG's TV fridge came out, we did customer research, and we think that in the typical kitchen with a side-by-side fridge, there is probably no table right in front of the fridge. Most people have an island or put the fridge in a nook. We found people couldn't really see a TV on their fridge. But it is probably a neat idea.
So we went to our innovation folks and asked them, what if, instead of putting a TV in a refrigerator, you put it in a microwave? After about six months of work, they came up with a prototype. It was a microwave with a TV in the door. So we tested that. Research showed it's a good idea–but people want to see what's going on with their food in the microwave. So we added a closed-circuit camera that shows your food on a split screen.
You're kidding.
No. We showed it at the Kitchen & Bath Show. It got a lot of buzz. Now we're trying to figure out if we can bring it to market. We'll bring it to the Consumer Electronics Show in January. That will be the first time we've been there since 2000.
With so much new technology, what does your research show about how much consumers can absorb? Doesn't there come a point where they want stuff that is more simple, not more complicated?
The real space for innovation is in remote diagnostics. Kind of like OnStar. We can sell it as an insurance policy. If something goes wrong with a washer, we would have some way to understand it.
But you're right; people want features that they don't have to use if they don't want to. A front-loader washing machine can do almost anything, but most people don't want all that. And some new things will make life simpler. Imagine a microwave that knows how long, and exactly how, to cook food, which comes with an RFID tag.
Can you guess what the No. 1 speed button on Whirlpool microwaves is?
Defrost?
Nope. It's popcorn. That's because the Whirlpool customer wants the easy user interface. On a KitchenAid microwave, the top speed button is melted butter. That's because the KitchenAid consumer is a home enthusiast who likes to bake. She wants the melted butter so she can bake.
What kind of car do you have, Dave?
I drive a 2001 BMW M5.
So you don't have the iDrive that comes in the newer BMWs? You know, the complicated computer system with the joystick and all the menus you have to page through?
I will never drive an iDrive. I'm going to save my 2001 for as long as I can.
What other big consumer trends do you see?
The aging boomers are an economic power. Every nine seconds a boomer retires. In 2005, one third of home sales were a second home. The boomers are much more design-conscious instead of function-conscious. For the first time, consumers are buying products not because they have to but because of new designs. Over one third of people who are buying front-loader washers, for instance, had washers that still worked. Mainly they are buying just for a new style.
So what are some of the most interesting new technologies you're working on?
A dryer that dries faster. A washer-dryer set that matches up on cycle time. Our newest washer-dryer was bigger and better but didn't have any intellectual property in it. We did customer research and sent it back to the developers. One problem we know is out there is inconsistent dryer performance, often caused by lint. So we made a dryer with two motors. The second one is a variable-speed motor that can measure air pressure and kick it up a notch to blow out the lint if it senses a problem.
What other features do consumers want?
Fast-fill water on a washing machine. Different kinds of nozzles on a fridge's water dispenser, so the water doesn't spill. A water line that goes through the freezer so the water comes out colder. We've worked on steam cooking that can grill a steak in a microwave in about three minutes.
A microwave steak? Yuck.
Actually, it's pretty good.
Which competitors do you think are doing the most to appeal to these evolving consumer tastes?
We benchmark them all. LG is the most interesting. Part of the challenge we have is speed to market. GE and Fridge (Frigidaire) are very important, but the one that probably keeps me up at night is LG.
Do you need to start doing more manufacturing in China to stay competitive?
We do go to China and other low-cost countries for materials, subassemblies, and components. We get motors from China, for example. But it helps our manufacturing in the U.S. if we have low-cost sourcing. Which will increase. We don't just get stuff from China but also from Southeast Asia, India, South America, and eastern Europe.
But I don't think we need to do final assembly overseas. That's where we use lean manufacturing and continuous improvement. At our plants in the U.S., we have the right investment in technology, logistics, and distribution.
So you can manufacture competitively in the United States for the foreseeable future, even with the high labor rates here?
Well, take laundry. Those are our lowest-labor-cost products in North America. And one third of our products are sold in Mexico. We even sell some stuff in Mexico that's made in the U.S. Labor is a lower percentage of laundry than other products. And freight costs to import from overseas ... for a car, as an example, it's a much lower percentage of the overall cost than it is for appliances.
So you're adding manufacturing jobs in Ohio. How would you say the job outlook is for manufacturing workers?
We're hiring. It's still a very robust environment in some areas. Biodiesel, for instance. Other manufacturing ventures. There is not an excess of labor. Ohio is not as robust as Iowa in terms of labor, for instance.
But there are still lots of assembly-line workers who are losing their jobs, like those at the Maytag plants you're closing, and lots of others who worry about losing jobs. What kind of advice would you give to a 50-year-old blue-collar worker in a situation like that?
My message to workers is, make a significant investment in the things important to ensure the plant's future. Best cost equals the best future. All of our union plants are engaging in lean-focused events. That means taking some jobs out. You're gonna lose some jobs. If you don't look in the mirror and say how can we compete globally, you won't have a future.
Is it reasonable to expect somebody who's 50 to go through job retraining?
It's hard to get people to be retrained till they're faced with not having a job. We're seeing people in their 40s and 50s now aggressively trying to extend themselves in other areas. My other message is, stay in school so you don't get in that situation in the first place.
You worked in China when you were with Kodak. How important is it for Whirlpool to move aggressively into China?
Over the next five to 10 years, there will still be lots of growth opportunity in India and China. In China, when I was with Kodak, we did four joint ventures [with local companies]. In appliances, Haier is the biggest, but there are 35 or 40 brands–and no real service. The question is, do you want to be on the leading edge or the bleeding edge? We want to let the environment settle down a bit before making a big move. China is important strategically, but we're not going to go in with our eyes closed.
What's going to happen to the Maytag repairman?
Maytag is all about dependability. As for the repairman, the icon is still there. We're trying to sort out what to do with that. Even younger consumers identify with him. We like the concept. The point is still good.