This 'french-door' refrigerator with bottom-drawer freezer from Maytag was introduced last year in response to customer preferences.
By Martin Wolk
updated 8/22/2005 3:39:12 PM ET 2005-08-22T19:39:12

It is safe to say the Maytag repairman is not quite as lonely as he once was.

Maytag Corp. appliances once were renowned for their reliability, but the company’s reputation has suffered a serious setback in recent years, contributing to the financial problems forcing it into the arms of its biggest rival.

On Monday, executives of Maytag, the nation's No. 3 appliance maker, signed a definitive agreement to be acquired by No. 1 Whirlpool Corp. in a cash-and-stock deal valued at $21 a share, or $2.7 billion. The deal still requires approval from shareholders and federal regulators, which is not a sure bet given the fact that the combination will become the world's biggest appliance maker.

Maytag’s well-publicized quality problems are not the only reason the venerable 112-year-old company is struggling financially, having lost $9 million last year after seeing profits weaken in 2003. But the company’s fading reputation has hardly helped it compete in an appliance market that is benefiting from a boom in sales and innovation but also facing tough competition from Asian and European imports.

In 1967 an advertising legend was born when Maytag created the Lonely Repairman, whose telephone never rang because the company’s appliances were so trouble-free. But while the smiling Maytag repairman can still be seen in his blue uniform and cap on the company’s Web site,  the reality today is far different.

According to Consumer Reports, Maytag ranks fifth or worse among major brands in reliability surveys covering dishwashers, washing machines, ranges and refrigerators. Maytag dryers are the only major appliance to win high marks in the magazine’s surveys.

Maytag’s biggest debacle came when it launched its Neptune front-loading washing machines in 1997, aimed at a rapidly emerging market of consumers who wanted a more environmentally friendly washday solution. Complaints soon began pouring in by the thousands, and last year Maytag settled a class-action lawsuit, covering more than 100,000 machines sold over seven years. So far the company has set aside $33.5 million to cover the cost of repairs, replacements and legal fees.

Last year Maytag also announced its second restructuring in little more than two years, eliminating an estimated 1,100 salaried jobs, and closed an Illinois refrigerator plant. Then in May directors cut Maytag’s dividend in half after disappointing earnings that sent its stock plunging to under $10 a share, a 14-year low.

It is little wonder that dealers have been wondering and worrying about the future of the venerable brand.

“There continues to be a lot of speculation about what is going to happen to Maytag,” said  Tom Drake, president of a trade group representing independent appliance dealers.

“What our dealers want to know is, is there going to be a reliable source of supply? Are there going to be new products, and support for spare parts? When you have a company that has financial difficulties, those kinds of issues become really critical if you are a customer of theirs. If you are a retailer, you have to decide whether to continue to support the brand.”

Drake, interviewed before the definitive agreement was signed, said his group, the North American Retail Dealers Association, support’s Whirlpool efforts to acquire Maytag.

“Maytag is a brand that many of our dealers carry, and they are loyal to it,” he said. “They see the opportunity for Maytag to be a healthier brand as part of a Whirlpool deal.”

Whirlpool said it has similar statements of support from dealers who account for 90 percent of retail sales, allaying some concerns about  the potential anti-competitive impact of concentrating 50 percent of the nation’s appliance sales in the hands of a single manufacturer.

Whirlpool emerged in July with an unsolicited bid after Maytag already had accepted a $1.1 billion offer from a private equity group and then contacted 36 potential buyers to see if there were any better deals. An investment group led by Chinese appliance maker Haier Group stepped forward with a preliminary offer valued at $1.3 billion but quickly retreated when Whirlpool announced its rival bid.

Drake and others say that even if Whirlpool and Maytag merge, there will be plenty of competing manufacturers to ensure vigorous competition, especially with “big box” retailers like Home Depot pressing manufacturers to keep their profit margins in line.

“The big thing we see happening in the appliance industry is the influx of Asians and Europeans, causing everyone to raise their games as far as innovations and product design,” said Peter Greene, president of market research firm NPD Houseworld. “In the end, the consumer benefits.”

Fueled by soaring home sales, a wave of kitchen remodeling and the trend toward “nesting,” major appliance sales have been growing rapidly, up 16 percent to nearly $22 billion in the latest 12-month period, according to an estimate from NPD.

The so-called “traditional white goods” sector also has been energized as major appliances have turned into status symbols, providing the crowning touch to costly kitchen renovations. Not every homeowner can afford a Viking six-burner range or Sub-Zero refrigerator, but those commercial-style models have fueled fresh interest in appliance design and technology.

In addition to the big American manufacturers, Korea's LG Electronics and Samsung Group are competing for U.S. business, along with European brands like Bosch, Akso and Electrolux, maker of Frigidaire. Chinese manufacturers, which provide the inexpensive components for many of the world's biggest brands, are lurking in the background as evidenced by the aborted bid from the Haier-led group.

Drake, of the independent dealers’ group, said retailers are hoping a new wave of products and sales will be driven by the recent passage of a sweeping energy bill , which includes tax credits for manufacturers that produce “super-efficient” appliances.

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