How GE's purchase may affect consumers

How GE's purchase may affect consumers

Credit: GE

The French door refrigeration factory at GE's Appliance Park in 2012.

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by Keith Barry

WHAS11.com

Posted on August 16, 2014 at 7:50 PM

Updated Saturday, Aug 16 at 7:50 PM

(USA Today) -- While financial analysts debate how investors will respond to Electrolux's plan to acquire GE Appliances — first disclosed Thursday, it's also important to explore the potential impact to consumers, employees and retailers.

 

It's no small thing if the second- and third-largest appliance companies in the U.S. become a single entity.

 

Home appliances have been part of GE's portfolio since 1907 and are some of the most recognizable items to wear the familiar GE "meatball" badge.

 

Electrolux was founded in Stockholm and gained a large presence in the U.S. market after its purchase of Frigidaire in 1986. Electrolux also makes many Kenmore-branded products for Sears.

 

There's no telling what could happen to either company after an acquisition takes place, but many industry watchers are taking note of how operations changed after Whirlpool acquired rival Maytag back in 2006. Specifically, Maytag's then-redundant headquarters and many of its factories were shuttered, leaving thousands of employees out of work.

 

Electrolux could do the same with GE, simply closing its factories and holding on to the brand and distribution channels. But there are some differences between the two acquisitions.

 

Unlike Maytag, which struggled financially before being acquired by Whirlpool, GE isn't selling its appliance division as part of a fire sale. According to GE CEO Jeffrey Immelt's vision, appliance manufacturing will not be part of the company's future. Instead, the conglomerate is focusing on its industrial businesses, like aircraft engines and gas turbines. GE already divested its consumer financing arm, and shedding appliances just makes sense.

 

In fact, this isn't the first time GE put its appliance division up for sale. Back in 2008, it was expected to sell in the range of $6 billion, but the spinoff was put on hold during the economic downturn.

 

In the meantime, GE invested about $1 billion in its appliance operations, including new platforms and a unique new microfactory.

 

With housing on the rebound and GE's stock price stalled, however, a sale suddenly became more attractive. Analysts are currently predicting that the appliance division will sell for around $2 billion.

 

If Electrolux decides to keep GE relatively independent, there are plenty of overlaps that could still be reduced. For example, both manufacturers are dominant players in cooking, and both have brand-new oven factories — GE's in LaFayette, Ga., and Electrolux's in Memphis. Both brands recently unveiled new dishwasher platforms — GE's is built in its storied Appliance Park facility in Louisville, and Electrolux's is imported from Solaro, Italy. It's also almost certain that duplicate administrative jobs would be eliminated.

Where they don't overlap, both companies complement each other. For instance, GE far outpaces Electrolux's sales in top-load laundry, and GE's high-end Monogram lineup recently underwent a major redesign. A GE acquisition could round out the Electrolux product portfolio. It might also help Electrolux gain access to retailers where GE has lots of products floored, such as Home Depot, and to the all-important builder and contractor market, which GE dominates.

 

An acquisition could also open up international markets. If it's part of the deal, GE's joint venture with Mexican appliance maker Mabe might give Electrolux increased access to that market. As it stands, GE Appliance hardly competes in Europe and Asia, and its appliance business is at the whims of the North American consumer. A Swedish parent company with international operations could expand the GE nameplate to other markets. Although GE also has a largely unionized manufacturing base, sources close to both GE and Electrolux confirmed that the two companies have similar manufacturing costs.

 

Perhaps GE Appliance's most valuable asset is the brand itself, which has been a part of American kitchens since the days of the iconic Monitor Top refrigerators. It's lasted through two world wars, and even featured a future president — Ronald Reagan — as a pitchman.

 

However, sources close to the deal don't know whether the GE brand will be included as part of the sale. If it is, there will be some historical precedent. In 1988, GE sold the rights to build GE-branded televisions, radios, and phones to Thomson Consumer Electronics. Currently, Jasco builds electronic accessories under the GE brand.

 

Whatever happens, it will take time. Because both companies are so large, it's likely that the Department of Justice will want to make sure the acquisition isn't anti-competitive — especially considering how much of the cooking market both companies dominate. Once it's complete, however, one of the best-known brands in modern American history will be in Swedish hands.

 

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