At the time of writing this article, or at least publishing it here on UK Whitegoods, the core of the story below was written over two years ago. In fact it was conceived and much of it written at the very end of 2005, completed early in 2006 and then internally published within UK whitegoods early in 2006 under the title of "Lifting The Lid On The Appliance Industry" which was subsequently changed.
Some updates were added mid-2006.
This internal document more or less led to the formation of ISE Appliances and at least one major national newspaper wanted to print this, albeit in a slightly edited format.
There are two questions that will, probably, immediately spring to mind for most people so I'll deal with those first before we go into why I think the public are being ripped off and having the wool firmly pulled over their eyes.
Why didn't you publish this before or in a newspaper if you had the chance?
Pretty simple really, I was convinced that it was too risky to publish it and, at the time we hadn't the resources to deal with waging a war against what I regarded as sharp practice at best or downright deceit perhaps in some ways. There was also no desire to rock the boat really so I left it alone.
Why publish this now?
Because it's getting worse, not better.
Sealed tanks, spiraling spares costs, more and more rubbish machines coming into the UK and poorer service. I think people have a right to know why, or at least my take on it all as no doubt there will be a total blanket of denial from the industry that such things would ever go on.
I'll leave you to make up your own mind and offer any comment you may have in the forums.
We all know that spare part prices are high in relation to the cost of a finished product and we've lived with this for many years. In fact a £200 washing machine can cost over £1000 to build from spares which hardly seems fair on the people that buy them in good faith.
The thing is, has anyone asked why?
At UK whitegoods we did and the answers that came back from people within the industry that wish not to have their names known for obvious reasons, are quite shocking. From product and spares buyers, to brand owners, to service managers and spares distributors we asked all that we could and we've arrived at some conclusions which not only seem brazenly obvious when you think about it, but are also extremely environmentally damaging policies.
It is well known that, in effect, the domestic appliance market is a stagnant one. This means that there is little to no growth in the marketplace and, especially over the last two decades bar the arrival of Dyson vacuum cleaners, there has been little innovation. So how do you grow a business within such an environment as seems required to consider a company successful?
Easy, shorten the lifespan of the product.
Think about it, if the replacement cycle was about ten years and you half that to five then you can double your sales. It isn't rocket science.
This is borne out by market research carried out by GfK which concludes that in 2001 56% of washing machines replaced where over ten years old. By the end of 2005 that figure had dropped to 39% of all washing machines sold*. A staggering change to the market in only four years but to put it into perspective, in the UK with approximately 1.4M** units sold every year that equates to an additional 238,000 washing machines (only) a year being sent to landfill early!
The only other way to increase market share without any innovation is to buy the competition. Which is why we see so many large corporations owning multiple brands now. However, in a market where costs are being cut on new appliances all the time, everyone has to compete as it is a free market after all and this means that most manufacturers are forced down the same paths in terms of reducing costs and cutting quality.
Of course doing this means that margins are also cut. Which in turn means that the service levels are cut. And the manufacturing businesses are forced into looking at other ways to gain income where it cannot be made on the products. This has led to call centres, centralised call logging, outsourcing and staff level reductions. And, as the poor relation in the chain, service is ignored to a large extent also leading to poorer service levels.
To expand a little on the notion that buying the competition is one way in which to increase market share, all the five top manufacturers in Europe and indeed the world, make, own or sell under multiple brand names.
Customers more often than not have no idea who actually made the machine as the name on the front does not provide much of a clue as to who made it. Quite often a manufacturer will have several brand names in one pricing area and a customer, dissatisfied with the appliance that they just had, will replace it with one from the same manufacturer only with a different name on the front. There is no information in-store for the customer to make an educated choice and the large multiple retailers staff simply don't know as they have limited training and little real product knowledge more often than not.
Where retailers do provide information it is most often plain wrong or simply misleading.
The whitegoods industry suffers from brand engineering on an unprecedented scale leading to massive consumer confusion. To illustrate that point here are the top selling brands in the UK & Europe:
As you can see a classic example is that of AEG, actually made by Electrolux with most appliances produced outside Germany, where the customer is led to believe that they are buying into a quality German brand. They're not.
A classic example of misleading consumers is the De Dietrich brand which is marketed as an upmarket alternative to Meile and the likes and yet, when you actually look closely, you find that the brand is owned by Fagor and shares spares with the cheap Brandt brand. They even have bought washing machines in from Electrolux and branded them as De Dietrich charging much more for them than the equivalent Zanussi or AEG appliance.
Worse still is that many very well known quality brand names are used to sell poor quality products not manufactured by the company selling them or even in the country of origin. For example, Bosch's lower end machines are made in Spain in a factory that they bought to produce low priced machines. For years they have been badged as "Made In The EU", note not Spain, yet German produced machines are badged clearly as "Made In Germany". Unless the customer looks carefully they won't notice, they just think Bosch = German and the label does not allow an informed decision by the customer.
Whirlpool do the same, selling standard Whirlpool dishwashers as supposed high quality German Bauknecht machines. No doubt this will continue with the recent acquisition of the Maytag brand. Of the UK brands we have Hotpoint. This is actually owned by The Indesit Company and many of the components used are from Indesit's other sources outside the UK.
In short, consumers are being fleeced by not being informed of what they are buying and from who.
It is also very clear that a mere handful of companies run the industry.
No, it's all common sense really.
In the UK the bulk of appliance sales are through major chains such as Currys, Comet, Argos etc. and all of these sell extended warranties. They are very successful in doing so with as much as 60% of all appliances sold also having an extended warranty sold with them. This is good business for the retailers, but when you add the cost of a warranty to the machine the price dramatically increases, often approaching twice the ticket price in store.
Lower appliance prices allows these "packages" to appear cheaper and manufacturers are forced by retailers to meet price points on most appliances, not just washing machines and dishwashers. One cooker manufacturer when asked why a cooling fan was not fitted to stop the control knobs getting too hot stated that they could not afford to fit one as then the appliance would not meet the price point for sale in Currys. So performance and, to an extent, safety are being sacrificed to meet retailer's pricing policies. The same thing happens with B&Q, Comet, etc.
So the retailers call the shots to a large degree as well and must share much of the blame.
Manufacturers follow and a price war ensues giving rise to slogans and campaigns like "Always lowering prices", Price Meltdown amongst others. But are lower prices actually in the interest of the customer if you have to sacrifice so much in order to achieve them?
Of course consumers, looking for lower prices, are given what they ask for in terms of price but it is all too often not pointed out the sacrifices that they are making to obtain the low pricing. Only when the machines are used, often for some time, that the deficiencies become apparent by which time it's too late to do much about it.
Of course a way to increase revenue is to increase it at the back end by stealth.
Overcharging for spares means that you can claw back revenue from end users who's appliances break, but more importantly, you can reclaim monies from the insurers bearing in mind how many appliances are sold with an extended warranty. However having a situation where the spares are so expensive has its price as, if the appliance has no warranty then it is very easy to be placed in a position where the machine is made artificially "Beyond Economical Repair" (BER).
Of course early BER, whether insured or not, simply adds to the environmental issues and further feeds the sales of new machines.
It has been noted by some industry figures that there appears to be patterns of specific component failures at certain periods. As if certain components are designed to have a certain lifespan. Whilst this may well be coincidental the parties we've spoken to strongly believe that it is not coincidental in the slightest, failures are designed in some cases. Of course, in any event, no proof of such practices exist but there is a compelling amount of anecdotal evidence to support the theory.
On the surface it appears that the insurers are footing the bill for high spares pricing to a large extent as it is seen as a victimless crime. But really they do not.
No, the real bill is passed, as ever, to the customer!
Insurance companies do not insure anything just for the benefit of it to the customer, no, they're in business to make money for their shareholders and investors. So as the spares prices or cost to repair rise then so too does the amount charged for a policy. If we move to a total throw-away mentality in respect to appliances then the costs will rise yet further . They have to. In the meantime the poor customer that bought a machine without insurance and suffers a breakdown is faced with a ludicrous repair cost in many cases. Not because the repairer is overcharging for his services, but simply due to the high cost of repairs which leads to the impression that repairs are expensive. This serves to price repairs out of the market and feeding still more new appliance sales.
Due to WEEE, the Waste Electronic and Electrical Equipment directive, many industry onlookers think that this will raise the retail prices of products and force manufacturers to become more eco-friendly than the lip service presently paid to environmental issues.
Not so it would seem.
As reported by The Telegraph on the 6th June 2006, manufacturers are urging the UK government to allow them to impose an "eco tax" on products to cover the disposal costs. Electrolux, Philips, Whirlpool, Smeg, Bosch (BSH Group) Aga, Dyson and Kenwood among others have written to government urging for changes to the WEEE Directive to accommodate them. The tactic employed was that they would no longer be able to produce in the UK and are essentially trying to blackmail government into meeting their demands by threatening to move production (which pretty much doesn't exist in the UK anyway) overseas or indeed to pull out of the UK market.
So what are they to do in the rest of Europe then? They actually have, apparently, managed to secure charging an "eco-tax" according to AMDEA (Association of Manufacturers of Domestic Electrical Appliances) chairman Peter Carver.
The manufacturers state that jobs are being placed at risk, how? Will everyone stop buying appliances because of a price rise? I don't think that they will as the machines are still required, so what's the end game then?
But really there are not that many jobs that are dependent on manufacturing appliances in the UK as the vast bulk of production is from overseas, even the vast bulk of the components used for what little is UK produced come from outside the UK. In other words, it's a hollow threat intended to be a scaremongering tactic. Most of the employees spoken of are administration staff that are there to provide support and sales functions.
What is not included in this article is the damage being done to the independent traders and repairers by the tactics employed. There are approximately 3500 independent repair businesses in the UK that employ some 7000+ people nationally and that is only the pure repair businesses, not retailers. Are their jobs of no value or are they just of little value in comparison to the sales figures?
There is no positive here with the current trends whatsoever. Whilst the manufacturers and retailers are happy at increased sales volumes the effect is to drive prices down. In tandem with the spares pricing policies we have highlighted this is forcing a high BER rate in, especially, the sub-£200 market. So to get five years out a machine at £200 you have to pay for an extra warranty, making the poorer quality machine cost, in most cases, £370 or more and still there are the issues of breakdowns and early BER after the warranty ends.
As stated, in the past four years an additional 238,000 washing machines have been retired early, where do they go? They invariably will end up on a landfill site. Presently no manufacturer except ISE has any policy at all on returning products for recycling despite labels and claims in sales literature.
For example. in the early 1990's Zanussi (now owned by Electrolux Group) introduced the Carboran tub and base units in all its washing machines and washer dryers. The buzz was that this new material could be recycled, ground down into pellets and re-used up to ten times.
We have still to have a returns procedure issued from Electrolux to enable this recycling, over fifteen years later. Much of the repair trade is totally unaware that this material even is recyclable and these are the very people that have the ability to ensure that the material doesn't just go to landfill! I wonder how many tons of Carboran are now buried in landfill sites.
But I mentioned this close on quarter of a million washing machines per year to landfill, well thatÃ's just washing machines. Add to that ovens, hobs, hoods, dishwashers, fridges, freezers, microwaves and the cadre of other appliances and the scale of the problem is just immense. And nobody is doing anything about it not government, manufacturers or retailers and they appear also not to care much, they make too much money from the cycle to be concerned.
But the cost to the environment is just massive. The raw materials being consumed to feed the sales machines in conjunction with the impact of all these appliances not being recycled is far more damaging and polluting than any energy savings being made by the newer appliances and, in many cases, even that can be a false economy as we highlighted in our online article about the EU energy labelling systems. In short, the EU labelling system whilst being introduced with the best of intentions, does not actually make choice for the consumer any easier, in fact it further clouds the issues. Besides which the performance is adversely affected and customers are not getting what they expect in comparison to appliances which they have previously owned.
With the new performance of appliances comes a raft of new issues for consumers to deal with.
Engineers are virtually sick of hearing, "but I've done it that way for years" when we advise on how to achieve optimal results from the new raft of washing machines and dishwashers. People are set in their ways and are very often relying on information passed down from the previous generation to determine how to wash clothing or dishes in an appliance.
The problem is that the clothing, dishes, detergents, additives and appliances themselves have advanced from then, things have changed and how they are used must also change. Sources for information of this nature are, at best, extremely limited and, even when the information is available, customers often don't want to hear as they think they know better. This is largely because there is no clear message being delivered and no single source of knowledge other than the appliance and detergent manufacturers, both of whom customers seem to be distrustful of.
This situation has largely been created by the EU labelling system.
In the UK consumers predominantly use 30°C and 40°C mixed synthetics or cotton washes and yet all the eco label tests are made using a 60°C cotton wash which accounts for less than 20% of all washing carried out in the UK. The test is not representative of the UK consumer and does not reflect a UK consumers wash habits, therefore it gives a false impression of the results that will be achieved.
But consumers seem to regard the "A" class appliance as a badge of performance and, very importantly, quality. Which it is not in either instance unless you perform a wash under laboratory conditions. The tests do not represent real world use. Even the wash load sizes quoted are unrealistic, it is alleged that the manufacturers actually employ professional packers/folders to determine the load capacity of a washing machine. In reality, from a study by Which magazine, the average UK wash load is 2.5Kg despite most machines now having a capacity of 5Kg or more according to the manufacturers.
The effects on consumers buying a new appliance, after any sort of previous experience, is profound to say the least. The public have to deal with massively extended wash times for both dish and wash as well as poorer results far more easily achieved through misunderstanding of the various products being used. In effect, customers have to cope with massively changed performance and they do not like it or cope with it well, often blaming the appliance and assuming a fault that does not in fact exist.
Education is the key here, consumer education is paramount in this area.
However, even allowing for consumer education there are still some very real concerns.
From evidence garnered from industry it would appear that, if the customer doesn't get the result the first time, they simply re-wash or use unnecessary additives in a vain attempt to remove stains and get the required results. Often negating the benefits of the originally used appliance and detergent and, in any case, simply adding to the environmental impact by effectively doubling the wash process and use of detergent as well as any additional products used.
If this doesn't work the article is often disposed of and replaced. This was clearly not the intention of the EU Directives and simply exacerbates the environmental impact by producing still more waste and pollution.
The situation in regards to the environment is getting worse. Manufacturers are now producing washing machines with sealed inner tub groups. This means that common problems such as items trapped in the drum that cannot be removed without a stripdown or that bearings fail on can be repaired only by replacing the entire assembly. It is not possible to replace the actual parts that have failed or to remove the restriction. Both The Indesit Company and Electrolux have these sorts of machines in the field now. Already we have instances where tub groups are being replaced because of a trapped bra wire. So a part costing more than £100 has to be replaced due to a bra wire which would normally be easily removed with little or no spares use! Where is the sense in that?
Not only that, why are we using the natural resources to produce these spares and all the cost in energy to produce and ship them which is totally unnecessary? Bearing in mind that there are no returns polices for these supposed "recyclable" parts, especially outside of the manufacturer's own service network.
Thus far, none of the manufacturers using such systems have any recycling policy for the parts.
Then, when these appliances do come out of warranty who is going to pay for these sorts of repairs? I suspect that even the insurance companies will write-off a great many and it means more machines are off to landfill.
Later on in life, when bearings fail a new Hotpoint will cost almost £200 to repair under this new system. The spares to do this on previous machines cost about £30 or less, even with labour added it equates to less than half the cost of replacing the newer sealed tubs. People will not spend £200 to repair a machine, even two years old, that only cost £250, I very much doubt that insurers will be prepared to stand those costs either.
Still more to landfill.
However the effect of high spares pricing and modular components goes still further, on Whirlpool US styled fridge freezers, some of the electronic boards can cost almost 50% of the total cost of a replacement product. Almost £400 for a single electronic component in a machine that retails around £800. How can this be and how is this encouraging people not to throw away the product should it fail?
There are quite literally slews of such examples throughout the industry, some are even worse and still more shocking than these.
It is not hard to reach the conclusion that, with spares pricing so artificially high and no returns policy, path to recycling or even disposal in an environmentally friendly way, that the manufacturers are encouraging early replacement and merely paying lip service to the environmental concerns raised by their customers.
In many ways it is a sickening situation.
It is a sad fact that the people that buy a cheaper appliance are often those that use them more due to larger families. The problem is that with the higher useage they fail even sooner. It is not unusual for these people to be buying a machine on credit, they try to save money by not taking an extended warranty and the machine actually fails before they finish paying for it. Often this is a repair that they cannot afford to have carried out, or the machine is BER. Feeding a cycle of debt and placing people caught in this situation in an impossible situation. Others that buy a cheap machine tend to be pensioners who again, cannot afford to pay for expensive repairs.
Sadly these people think that they are getting a good deal, a good brand name at an advantageous price when in fact nothing could be further from the truth.
It is sad that the disadvantaged would, in many cases, be better off using a local laundromat, which of course the cheap washing machine has killed off. There are few places, outside student areas, where you can go and wash clothing these days. Just another industry that has been severely affected by cheap appliances.
And, when appliances do break now, this means that the customer has little option but to ask friends and relatives to wash for them, putting more strain on other machines as there's no option!
So where do all these cheap appliances come from? Well in manufacturing appliances, as with everything else, the single biggest cost is labour to actually produce the goods themselves.
Increasingly we see more and more appliances coming from China, which has little environmental policy and employs cheap, often child, labour to fulfil its needs. Virtually every manufacturer sources either finished goods or components from the Far East with no regard at all for the environmental damage or the use of cheap labour. There is no moral policy applied, simply the exploitation of these emerging markets.
As a result, quality suffers and appliances are scrapped even earlier.
We see that most Far Eastern companies, including big brand names like Samsung and LG have serious problems with after sales services. Spares and technical information can be very hard to acquire with some parts alone being quoted with over a four month lead time. In short these appliances are not designed to be repaired, they are designed to be replaced.
Lately we've seen the introduction of many gimmicks to sell more appliances, largely washing machines, like silver nano, steam and quick washes.
However, despite all the press releases from the manufacturers using such tactics, when you actually ask them to provide the proof behind the claims they cannot produce any.
Recently silver nano technology, a silver based coating for drums that is claimed to kill bacteria, has been called into question. On LG's steam direct, marketed on the basis that it saves water (ridiculous) and that it saves on ironing as well as killing bacteria, we have asked for the evidence to support the marketing hype. None has been forthcoming. Frankly there appears to be no evidence to support the claims being made, but then, no-one challenges them and it looks good on a POS banner!
Not until the consumer uses the machine do they find that the claims are not what they thought.
Quick wash is really a huge debate in itself. To meet EU water consumption targets it is currently, with today's technology, not possible to perform a "quick wash" and still achieve the same results. Physics doesn't allow it and it's common sense. People are using these types of features to get around the extended wash times (mentioned earlier) but then getting poor wash results, this happens with dishwashers as well, leading to re-washing.
One manufacturer, Bosch, offers a quick wash that does work, it increases the water level to levels of a machine of ten years or more ago and gives the results. This totally defeats the argument for the EU energy label yet again as the manufacturers are simply finding a way around the problem, not actually solving the problem.
There is no way around the fact that you can either have performance or economy, you can rarely have both despite the claims made, which have little or no evidence to support themselves. But people are being led to believe that there is some magic cure to all these ills when there is not. Yet all these machines meet every condition to allow the proper rating to sell. After all a machine without an "A" rating is unlikely to sell given that over 90% of all washing machines sold have an "A" rating!
A problem made still worse with "A" ratings on refrigeration. Many of the appliances don't even keep the food in a safe condition to eat! They are potentially extremely dangerous.
The service engineer is the person that has to deal with the customer face to face and attempt to explain why the machines are not performing as well as older one, why spares cost so much and why the newer machine hasn't lasted as long as the old one.
The engineers have a huge understanding of the products themselves, but not through any training offered on them and most often little understanding of the politics behind the changes.
But by not training the engineers on the products or often even supplying technical documentation as for many manufacturers, the engineer is fortunate if he has merely a parts list and a wiring diagram, he is likely to get things wrong. Is this really any wonder if he's not given any technical support at all?
Yet again, this leads to still more products scrapped early. You see, if the engineer is unsure of a fault he is liable to adopt a "belt and braces" approach and order several parts at once in an attempt to resolve the issue. Of course this pushes the cost of repairs up still further and encourages early replacement or the product to be written off by the insurer. It is not a malicious act on the part of the engineers at all, they are simply forced to do this through lack of information from the manufacturers. Of course the use of parts that are not required also has an environmental impact.
It may come as a surprise that manufacturers will not, under any circumstances, often share any technical information with the independent trade. But sadly it is true. Some will not even divulge the meaning of fault codes displayed on electronic machines to members of the trade. The public have no chance of obtaining this information.
The manufacturers are actually breeding an environment, deliberately or not, where engineers can be regarded as rogue traders, not because they cannot do the job professionally or have the skills, they are simply be being totally kept in the dark by manufacturers. Of course the manufacturer may well see this as a positive move towards garnering still more sales through scrapped appliances.
Is it any wonder that many are scrapped needlessly every year due to this policy, we don't think it is.
The service engineer is supposed to act as an ambassador for these companies, to tell people how good the products are and to repair them if they are faulty. Instead, they find themselves in a situation where they are apologising for the poor performance and/or high spares pricing as well as the total lack of technical support and trying to justify it to the customer. This is not what we should expect of the engineer and we do not think that any engineer should be placed in such a position.
Who ultimately foots the bill?
The people in the street that buy and use appliances are who ultimately pays the bill. They pay it in hidden stealth costs, like higher spares prices, shorter life spans and increased insurance premiums which are all hidden costs designed to be taken off the in-store ticket price offering the customer a supposed "bargain".
Now the manufacturers want to levy an eco-tax, only so that they do not have to raise the prices to try to cover the cost of the environmentally damaging policies so that they remain looking as if they are squeaky clean and low cost, it becomes UK Government or EU Government bodies that get the blame for the extra cost, not them. If they'd done it right in the first place, as they had us all believe, then legislation to force the issue would not have been necessary would it?
The only way that this situation will be changed is through consumer, media and government pressure being brought to bear on the perpetrators of these policies which are tantamount to environmental terrorism by legitimate companies.
As ever the power lies with the consumer and voters.
*ERT, June 2006
** Office of National Statistics figures to end 2004
Sealed tanks are now confirmed to be in regular use by:
Samsung have addressed the service problems and have improved major home appliance service massively since the article was written.
LG are trying to sort service out from what we are told.
Currys and Comet continue to fight each other on price.
The WEEE Directive is proving ineffective in many ways despite the propaganda to the contrary from government. It has failed to raise prices and the cost to the manufacturer to "dispose" of the problem is about £2 per appliance. The local councils and, ultimately, taxpayers are footing the bill for scrapped appliances to be collected.
ISE Appliances continues to grow as more people cotton on to all this and want to escape the trap.