Production snafus associated with Frigidaire’s massive changeover to a new energy-efficient refrigeration platform have cost the company some $60 million in charges on operating income during the first half of the year, according to Swedish corporate parent Electrolux AB.
In its second-quarter report, Stockholm-based Electrolux cited “significant problems” with the manufacturer’s new production lines at its Anderson, S.C., and Greenville, Mich., majap plants. The troubles are related to “highly automated parts” of the production process, the company noted, and industry observers say that at least some of the snags involve the insulation within the refrigerators’ contoured doors.
The new 20-model line includes both side-by-side and top-mount designs, and boasts a 40-percent improvement in energy efficiency. The platform is the result of a $200 million investment in research, development and new equipment, which Electrolux described as one of its largest new product outlays in recent years.
Both factories were completely retooled and an extensive amount of new equipment was installed in the course of the changeover, which entailed a “high degree of complexity,” the manufacturer said.
The $60 million charge against operating income was related to delivery failures, higher costs (including extra personnel) and other non-recurring expenditures. Electrolux said that while Frigidaire is largely over the hump, the situation will still require an additional $20 million to $25 million in one-time costs during the third quarter.
Frigidaire’s production woes have had a domino effect within the white goods industry (see TWICE, July 23, p. 1). Its production shortfalls have impacted retailers — who’ve been scrambling to supplant their unfilled orders with inventory from other manufacturers — as well as Amana, which sources top mounts from the company. But as other vendors try to fill the refrigerator void for their bigger customers, product is being diverted from smaller dealers who are feeling the inventory squeeze.
Frigidaire executives declined to comment on the situation, although Electrolux president/CEO Michael Treschow said in a statement that “The new products have been received very well by the market and will significantly strengthen our offering within refrigeration. They will also give us the opportunity to target the higher price segments in the market, an area for which we lacked appropriate products in the past.”
The charge, combined with the soft U.S. majap market and frigid room air conditioner sales, was largely responsible for a 20 percent drop in Electrolux’s first-half profits. The U.S. accounts for 45 percent of the corporation’s total revenues.
Treschow suggested that the weakness in white goods stems more from the retail sector than consumer demand, as stores continue to work down their excess inventory.