Changing global trade patterns, a maturing market, environmental concerns and innovation were all key forces that have shaped the appliance sector in the past 25 years.
A game-changer for the industry was the North American Free Trade Agreement. The United States and Canada began implementing a trade agreement in 1989, and Mexico joined NAFTA in 1994.
With trade barriers knocked down, Mexico became a more desirable place for producing appliances because of its low-wage environment. Electrolux AB, for example, one of the top three appliance majors, located large factories in Mexico as part of a multi-year drive to produce white goods in lower-cost regions.
The growth of appliance manufacturing in Mexico spurred numerous plastics processors to locate production in the area in the early 1990s to more easily supply the appliance manufacturers and other local customers, as well as to take advantage of low costs to supply original equipment manufacturers assembling in the United States. Processors flocked to the border area, including El Paso, Texas.
Appliance manufacturers and their suppliers also looked elsewhere for high growth and low-cost manufacturing opportunities because North America's appliance market was rapidly reaching maturation.
North American appliance production peaked in the mid-2000s. U.S. shipments rose from $16 billion in value in 1992 to $23.3 billion in 2007, according to data from the U.S. Census Bureau. Then the U.S. housing and banking crises hit and put a crimp in demand and shipments. It took a few years for U.S. appliance markets to grow again. U.S. shipments reached about $20 billion in 2013 and by 2014 were running at about $21 billion.
Appliance shipments roughly track new housing construction and retrofits for existing homes. In the U.S. and Canada, appliance markets are mature since product penetration among consumers is very high. For example, in the United States and Canada, about 90 percent of households have free-standing ranges and about 100 percent have refrigerators. Therefore appliance shipments in North America rely heavily on the replacement market.
Appliance OEMs help fuel the replacement market with appliances with better energy profiles and new features. Some clothes washers are up to 150 percent more energy efficient than in the early 2000s and use 40 percent less water. OEMs have introduced numerous major appliances that meet Energy Star ratings designed by the U.S. Department of Energy and the U.S. Environmental Protection Agency. Features such as front-loading washers and advanced, user-friendly controls also help fuel sales.
Most global appliance growth is occurring in developing countries where market penetration is low. As citizens of developing countries improve their standards of living, they are buying kitchen ranges, laundry appliances, microwave ovens and air conditioners. Much of the demand is met by domestic producers, but imports also are important sources.
Locating production in developing countries does have drawbacks, however. Supply lines and response times are long. Parent companies lose some control over quality. And transplants might not get protections afforded to the domestic producers.
GE Appliances is one OEM that decided U.S.-based production makes more sense. In the past few years it has been repatriating production from China and Mexico. GE said in 2011 it would invest $1 billion in its appliance business to modernize and upgrade to make new products. The decision followed a strategy three years earlier in which it tried to divest the appliance business but recessionary pressures dissuaded potential suitors from meeting GE's sale price. In 2012, GE also said it would make a lot more of its plastic components in-house at its large Louisville, Ky., complex.