"This is a highly competitive industry where we're the last American large-appliance company," Bitzer says, adding that: "North American business, in turn, is strongly driven by — we know — housing and by product introductions... Housing is a big factor, in particular existing home sales."
"Inflation was a two or three-year massive problem. Overall it added almost $2.5 billion to our cost base... last year we were able to get $800 million out of the way... we're still operating slightly higher than before," Bitzer says on inflationary pressures affecting Whirlpool. "We're now tackling where we can, logistic costs, product costs. We're also questioning and addressing our overall infrastructure cost. We have simplified business going forward and as such, we probably don't need the kind of more or less complicated structure which we had before. We're addressing the cost at multiple levels. Frankly... we're not counting on big deflation, just a moderation is already fine."
So it's a critical milestone. And I think we-- it was more than appropriate to kind of update investors about what's for different Whirlpool going forward and what our mid-term targets are.
BRIAN SOZZI: How difficult is it to transform a legacy historic appliance maker-- and I think the history of Whirlpool was lost on me a little bit. I went onto your website. I mean, this is an iconic company. I mean, how do you unwind some of these things that may not be working anymore?
MARC BITZER: Yeah, you know, Brian, first of all, I mean, we have an incredible, strong legacy in history. Our company is 113 years old. Our headquarter's literally a mile away from where the company was founded.
BRIAN SOZZI: That's wild.
MARC BITZER: We had only 70 CEOs in our history. So it's a company with a lot of legacy and history. But we all recognize, you know, just because you have a great past doesn't mean you have a great future.
And the [INAUDIBLE] one is not changing the things which work and change the things which might need adjustment. I think with what we define as a portfolio transformation but then also what we call our strategic imperatives, I think we've set the parameters right in terms of where we need more pushes without giving up our great tradition and history.
So I think we found a good balance. And-- but, you know, it's-- this is a highly competitive industry where we're the last American large appliance company. And that was very different when I joined the company. So-- but I think we have all the things right to have a great future going forward.
BRIAN SOZZI: You want to get me excited during the week, Marc. Send over a slide deck talking about long-term financial targets. But that's what you did at the New York Stock Exchange today. My interpretation was that the first half of the year, because the housing market is still under pressure because of higher rates, it's going to hold Whirlpool back a little bit. Is that the right assessment and things improve in the back half of the year?
MARC BITZER: You know, fundamentally, Brian, it's-- if our business being so overall driven by the North America business-- but North America business in turn is strongly driven, we know, by housing and by product introductions. And we can spend later on talking a little bit of product introduction because there's a really good portfolio.
But housing is a big factor, OK? And particularly existing home sales. And of course, we all know last December was a-- there was a 28-year low of existing home sales. So of course, that creates a little bit an overhang. But, you know-- but the housing market has been soft for almost two decades.
BRIAN SOZZI: Yeah.
MARC BITZER: So the question is not, does it come around? The question is, when does it come around?
BRIAN SOZZI: When does it come around?
MARC BITZER: When does it come?
BRIAN SOZZI: Do you need the rate cuts for it to come around?
MARC BITZER: I think-- first of all, the new home starts, they're kind of already recovering. 1.4, 1.46 is getting better. I think we need 1.7, 1.9. I mean, the society-- on existing home sales, I think you need probably not just one cut, but two or three cuts.
I think you would have to see below 6% mortgage rates on a sustained base to really kind of unfreeze the market because, again, we sometimes lose perspective of what happened in the course of 24 months. Existing home sales dropped from 6.4 million to 3.8. I mean, I don't think you've ever seen such a kind of drop.
So it literally froze to-- so to fall that, I think it takes more than one interest rate reduction. And that's ultimately we're going to see when and how it will happen. And it's kind of-- but that by definition, we're not-- it's more a back-half event when it starts moving.
And my first half of the year-- and we guide it towards this morning earnings call. I think we'll still be a little bit softer. But we know that. We're prepared for that. We have our costs and controls. So I think we're in good shape.
BRIAN SOZZI: Has inflation become less of a problem for Whirlpool?
MARC BITZER: Well, you know, inflation was a two- or three-year massive problem. You know, it's-- overall, it added almost 3 billion, 2 and 1/2 billion to our cost base. And these are unheard number.
BRIAN SOZZI: That's astronomical.
MARC BITZER: Yeah, that's astronomical. So last year, we were able to get 800 million of that out of the way. This year we take another 500 million out. So we're still operating slightly higher than before.
And, you know some of the inflation-- I mean, you have wage inflation. That doesn't go away. It just stays there. I think what we do see is, now, clearly-- I mean, we saw that already last year-- moderation of inflation rate. And right now it's flat.
But again, that doesn't mean that you get all the costs back to pre-COVID levels, so. But I think we-- you know, we overall-- we're now tackling where we can-- logistic costs, product costs. We're also questioning and addressing our overall infrastructure costs.
We have a simplified business going forward. And as such, we probably don't need the kind of more or less complicated structure which we had before. So we're addressing with costs on multiple levels. But frankly, the inflation, we're not counting on a big deflation. Just a moderation is already fine.
BRIAN SOZZI: There's been some reporting within the past two weeks on appliance quality. I'm sure you saw these stories. Y'all finds them write this stuff. But unless I have-- I made a note. I'm like, when I talk to Marc, I have to ask him about this stuff. Because appliance quality seems to have gotten a bad rap. Maybe companies have taken quality out of their products. Or they, break and you have to replace them. Set the record straight.
MARC BITZER: Yeah, so I saw the article . It hurt my feelings. I don't think it is a reflection of the actual facts. So let me explain to you why.
Appliance life is not driven by calendar years. It's driven by usage. It's like a car. I mean, of course, the more miles you put on a car, that's-- it's not driven by years. And what happened. COVID and post-COVID, people are using it much more intensively. I mean, we see that on replacement market.
So yes, people are using it more intensively. And therefore, it gets replaced a little bit earlier there may have been in the past. The actual quality data-- and we have pretty good data because we see every single warranty call-- actually at Whirlpool, I mean, over the last 20 years, every year went down.
So we're right now hovering-- and that's a more or less public number. But we're hovering around a 4% failure rate in first year, so. And that compares to more high-single digits a couple of years ago.
So we feel very good about quality improvement and particularly in the context of products which get more complicated, have much more technology and electronics. And so we feel very good about the actual quality rate. But the usage is more intensive. So I think people are confusing two trends here.
BRIAN SOZZI: And you're also making a big innovation push this year. A lot of focus on small appliances. I think that may have surprised a lot of investors. These are higher margin products?
MARC BITZER: Yeah. Yeah, I mean, so small domestic appliances is a business which historically was embedded from the numbers in our regional report. So in some ways, you could refer to a hidden gem because we-- but it's-- it is one of our best businesses. And small domestic appliances, they also like the majors live from innovation.
So small domestic, of course, in our case has a strength in stand mix of heritage business. But, you know, we know from consumer perspective in terms of, if you ask consumers, What is your most preferred brand on espresso makers? we get a high preference. So--
BRIAN SOZZI: It's Starbucks, Marc.
MARC BITZER: Yeah, well. So in a certain way, consumers give us license to go in other categories. So that's why we're pushing this year heavily into fully automatic espressos and semi-automatics.
But it's not only small domestic appliances. We have on a major business, we have a massive new launch. We have a new front loader coming. We just launched Maytag Pet launch dishwasher. So this ultimately comes down to this is an industry, if you stand still on innovation, that's a bad path. And we kept on investing.
BRIAN SOZZI: Are you back-- when are you back to growth? My sense from the presentation was not until 2026 in the US.
MARC BITZER: You know, part of it comes back to what you asked earlier. So the housing will come around. But keep also in mind, even if housing moves-- for example, new homes, we're at the tail end of a new home. So the new home gets started, gets built. The appliances are pretty much the last thing before the house is complete.
So we by definition have a little bit of tail end until we see the full momentum. On the other hand, it's very predictable because we know once a house is being built at one point, the appliances come in. So I think what you see behind this one, yeah, from a broader industry, we're kind of conservative, if you want to say, or moderately conservative for the next 12 to 18 months. But after that, we feel very good at.
BRIAN SOZZI: Of course, we're asking all leaders. We're getting ready to head into election season. Now I remember talking to you in the past of how Chinese companies were dumping various products on the US, lowering prices and hurting American manufacturers. Has that started to improve? And what policies have lawmakers put in place that have been helping your business?
MARC BITZER: Yeah, so it's, obviously, always dangerous if a CEO comments on politics. And I will try to be careful around this one. It is ultimately, this is globally a very competitive industry. As I mentioned before, we're the last American large appliance company. Everybody else-- there's two Europeans left. And the rest is Asian. Nothing against Asia, but it's just-- it's Korean, one Japanese, and the Chinese company.
So yeah, we're competing, if you want to say, as an American company against a lot of foreign competitors. We are all in favor of if it's a level playing field. We have our confidence. We know how to produce. We know how to cost efficiently with innovation to produce.
I think where we in the past, you know, we're concerned if people are selling products in the US below their domestic markets and these kind of things. Has it moderated over the last couple of years? A little bit. And we're still here in some categories where we would have some concerns, you know?
But at the same time, as a company, we are also particularly focused on input costs. So for example, for us, steel cost is a big deal. And steel costs, if I buy today steel in the US, it's about twice as expensive as China steel. So fundamental competitiveness of input cost is for us a really big deal.
BRIAN SOZZI: All right, let's leave it there. I say, Marc, it's always good to see you. You always give us some of the best insight in the market. We'll catch up with you soon. Much more ahead on Yahoo Finance. Don't go anywhere.
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