(snip)A $300 million cash-for-clunkers-type federal program to boost sales of energy-efficient home appliances provides a glimmer of hope for beleaguered makers of washing machines and dishwashers, but it's probably not enough to lift companies such as Whirlpool (NYSE:WHR - News) and Electrolux out of the worst down cycle in the sector's history.
Beginning late this fall, the program authorizes rebates of $50 to $200 for purchases of high-efficiency household appliances. The money is part of the broader economic stimulus bill passed earlier this year. Program details will vary by state, and the Energy Dept. has set a deadline of Oct. 15 for states to file formal applications. The Energy Dept. expects the bulk of the $300 million to be awarded by the end of November. (Unlike the clunkers auto program, consumers won't have to trade in their old appliances.)"*(snip)
(snip)Unlike the popular, $3 billion cash-for-clunkers vehicle program, which ends on Aug. 24, there's no guarantee that hard-hit consumers are prepared to plump for new washers, stoves, and fridges. The federal outlay will piggyback on rebate programs for energy-saving appliances that have existed for years in more than 25 states, but which have largely failed to spur demand. Home improvement retailers like Home Depot (NYSE:HD - News) and Lowe's (NYSE:LOW - News) have also offered deep discounts on big-ticket appliances lately, with little impact.
"The cash-for-clunkers (program) had a discernible value proposition for the consumer, because he knows how much his (clunker) is worth," says Darkatsh, the Raymond James analyst. "With appliances, there is no trade-in. You can walk into Home Depot and get a great deal on a home appliance any time you want one. Why would it drum up sales now?" Laura Champine, an analyst with Cowen & Co. (NasdaqGS:COWN - News), agrees. "I'm not sure if it will be as powerful as cash for clunkers because there is something compelling about that $4,500 discount," she says. "Also, a new car is more fun than a new dishwasher. So I'm not sure if it will be as much of a driver, but any driver is welcome right now."
Stock Market Overreaction
Analysts also believe that the stock market's reaction to the program is overblown. Whirlpool's shares rose 6% on Aug. 20 when news of the program circulated, and climbed another 5% the following session. "That's silly," says Darkatsh. He estimates that in a best-case scenario the rebates will equate to about $240 million in incremental sales for Whirlpool. But that's unlikely, as it assumes that every American buying under the voucher program would not have done so otherwise. "The vast majority would have bought them anyway," as purchases of appliances such as fridges and washing machines are far less discretionary than, say, cars or big-screen televisions, Darkatsh says."(snip)
IMHO, besides costing US taxpayers yet more money, this Appliance program is likely to accomplish the following ...
- kill discretionary sales of appliances over the next 3 months while would-be buyers wait for the program to actually go into effect ( even though they could arguably buy the same appliance right now at the same net price due to deep discounting by appliance manufacturers and retailers )
- kill the deep discounts currently being offered, as retailers hold inventories in preparation for future sales under the program ( at higher profit margins )
- placate unionized manufacturing workers at GE and Whirlpool
- increase de-facto profit margins for upscale appliance manufacturers and retailers
- kill sales of very low cost appliances which do not meet energy-star criteria ( by leaving pricing for these low cost appliances unchanged while temporarily 'lowering' the relative net cost of more expensive energy-star compliant appliances)
Ultimately, the question must be asked regarding the end result after this program comes and goes. Arguably, pricing for upscale appliances will remain at former levels - meaning higher future net prices for buyers in the absence of rebates. Arguably, a number of very low cost appliance makers will have pulled out of the US market due to even poorer sales during the rebate program period, meaning future appliance buyers will be forced to choose from more efficient but more expensive models. And of course US taxpayers will continue to make treasury bond payments via higher income taxes for years to come in order to subsidize new appliances for their non income taxpaying neighbors ( in the same manner as the cash for clunkers program subsidized new cars for the same non income taxpaying neighbors).
At least the tax fiasco over the cash for clunkers program will result in this rebate being paid to the appliance buyer rather than the appliance retailer !
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