CHAPTER 12. MANUFACTURER IMPACT ANALYSIS

12.1 INTRODUCTION ............................................................................................. 12-1

12.2 METHODOLOGY ............................................................................................ 12-1

12.2.1 Phase I: Industry Profile..................................................................................... 12-2

12.2.2 Phase II: Industry Cash-Flow Model and Interview Guide ............................... 12-2

12.2.2.1 Industry Cash-Flow Analysis............................................................... 12-2

12.2.2.2 Interview Guide ................................................................................... 12-3

12.2.3 Phase III: Subgroup Analysis............................................................................. 12-3

12.2.3.1 Manufacturing Interviews.................................................................... 12-3

12.2.3.2 Revised Industry Cash-Flow Analysis................................................. 12-3

12.2.3.3 Manufacturer Subgroup Analysis........................................................ 12-4

12.2.3.4 Manufacturing Capacity Impact .......................................................... 12-5

12.2.3.5 Employment Impact............................................................................. 12-5

12.2.3.6 Cumulative Regulatory Burden ........................................................... 12-6

12.3 GRIM INPUTS AND ASSUMPTIONS............................................................ 12-6

12.3.1 Overview of the GRIM ...................................................................................... 12-6

12.3.2 Sources for GRIM Inputs................................................................................... 12-7

12.3.2.1 Corporate Annual Reports ................................................................... 12-7

12.3.2.2 Standard and Poor’s Credit Ratings..................................................... 12-8

12.3.2.3 Shipment Model................................................................................... 12-8

12.3.2.4 Engineering Analysis........................................................................... 12-8

12.3.2.5 Manufacturer Interviews...................................................................... 12-8

12.3.3 Financial Parameters.......................................................................................... 12-8

12.3.4 Corporate Discount Rate.................................................................................... 12-9

12.3.5 Trial Standard Levels....................................................................................... 12-11

12.3.6 NIA Shipment Forecast.................................................................................... 12-12

12.3.6.1 Base-Case Shipments Forecast .......................................................... 12-12

12.3.6.2 Standards-Case Shipments Forecast .................................................. 12-13

12.3.7 Production Costs.............................................................................................. 12-13

12.3.8 Conversion Costs and Stranded Assets............................................................ 12-14

12.3.8.1 Commercial Clothes Washer Conversion Costs................................ 12-14

12.3.9 Markup Scenarios ............................................................................................ 12-15

12.3.9.1 Preservation of Gross Margin Percentage Markup Scenario............. 12-16

12.3.9.2 Preservation of EBIT Markup Scenario............................................. 12-16

12.4 INDUSTRY FINANCIAL IMPACTS ............................................................ 12-17

12.4.1 Introduction...................................................................................................... 12-17

12.4.2 Commercial Clothes Washer Industry Financial Impacts ............................... 12-19

12.5 IMPACTS ON THE LOW-VOLUME COMMERCIAL CLOTHES WASHER 

MANUFACTURER ........................................................................................ 12-21

12.6 OTHER IMPACTS.......................................................................................... 12-23

12.6.1 Employment..................................................................................................... 12-23

12.6.2 Production Capacity......................................................................................... 12-25

12.6.3 Cumulative Regulatory Burden ....................................................................... 12-26

12-i
12.6.3.1 DOE Regulations for Other Products Produced by Commercial Clothes 

Washer Manufacturers......................................................................... 12-26

12.6.3.2 Other Regulations That Could Impact Commercial Clothes Washer 

Manufacturers...................................................................................... 12-27

12.7 CONCLUSION................................................................................................ 12-28

12.7.1 Commercial Clothes Washers.......................................................................... 12-28

LIST OF TABLES

Table 12.2.1 SBA and NAICS Classification of Small Businesses Potentially Affected by 

This Rulemaking................................................................................................ 12-5

Table 12.3.1 Financial Parameters based on 2006–2012 Weighted Company Financial 

Data .................................................................................................................... 12-9

Table 12.3.2 Cost of Equity Calculation...................................................................... 12-10

Table 12.3.3 Cost of Debt Calculation......................................................................... 12-11

Table 12.3.4 Trial Standard Levels for Commercial Clothes Washers ....................... 12-11

Table 12.3.5 Total Base-Case 2018 NIA Shipments................................................... 12-12

Table 12.3.6 Base-Case Distribution of Efficiencies for Front-Loading Commercial 

Clothes Washers in 2018 ................................................................................. 12-12

Table 12.3.7 Base-Case Distribution of Efficiencies for Top-Loading Commercial 

Clothes Washers in 2018 ................................................................................. 12-12

Table 12.3.8 MPC Breakdown for Front-Loading Commercial Clothes Washers...... 12-14

Table 12.3.9 MPC Breakdown for Top-Loading Commercial Clothes Washers........ 12-14

Table 12.3.10 Product Conversion Costs for Front-Loaders by EL ............................ 12-15

Table 12.3.11 Product Conversion Costs for Top-Loaders by EL .............................. 12-15

Table 12.3.12 Capital Conversion Costs for Front-Loaders by EL............................. 12-15

Table 12.3.13 Capital Conversion Costs for Top-Loaders by EL ............................... 12-15

Table 12.3.14 Preservation of EBIT Markups for Front-Loading Commercial Clothes 

Washers............................................................................................................ 12-16

Table 12.3.15 Preservation of EBIT Markups for Top-Loading Commercial Clothes 

Washers............................................................................................................ 12-17

Table 12.4.1 Manufacturer Impact Analysis for Commercial Clothes Washers –

Preservation of Gross Margin Percentage Markup Scenario........................... 12-19

Table 12.4.2 Manufacturer Impact Analysis for Commercial Clothes Washers –

Preservation of EBIT Markup Scenario........................................................... 12-19

Table 12.6.1 Potential Changes in the Total Number of Domestic Commercial Clothes 

Washer Production Workers in 2018............................................................... 12-24

Table 12.6.2 Other DOE and Federal Actions Affecting the Commercial Clothes Washer 

Industry ............................................................................................................ 12-27

LIST OF FIGURES

Figure 12.3.1 Using the GRIM to Calculate Cash Flow................................................ 12-7

Figure 12.4.1 Annual Industry Net Cash Flows for Commercial Clothes Washers 

(Preservation of Gross Margin Markup Scenario)........................................... 12-20

12-ii
Figure 12.4.2 Annual Industry Net Cash Flows for Commercial Clothes Washers 

(Preservation of EBIT Markup Scenario)........................................................ 12-20

Figure 12.6.1 Commercial Clothes Washer Domestic Production Employment by Year

.......................................................................................................................... 12-25

12-iii
CHAPTER 12. MANUFACTURER IMPACT ANALYSIS

12.1 INTRODUCTION

In determining whether a standard is economically justified, the U.S. Department of 

Energy (DOE) is required to consider “the economic impact of the standard on the manufacturers 

and on the consumers of the products subject to such a standard.” (42 U.S.C. 6295(o)(2)(B)(i)) 

The statute also calls for an assessment of the impact of any lessening of competition as 

determined in writing by the Attorney General. Id. DOE conducted a manufacturer impact 

analysis (MIA) to estimate the financial impact of more stringent energy conservation standards 

on manufacturers of commercial clothes washers, and assess the impact of such standards on 

direct employment and manufacturing capacity.

The MIA has both quantitative and qualitative aspects. The quantitative part of the MIA 

primarily relies on the Government Regulatory Impact Model (GRIM), an industry cash-flow 

model adapted to the equipment classes covered by this rulemaking. The GRIM inputs include 

information on industry cost structure, shipments, and pricing strategies. The GRIM’s key output 

is the industry net present value (INPV), which is the sum of discounted industry annual cashflows over the analysis period. The model estimates the financial impact of more stringent 

energy conservation standards by comparing changes in INPV between a base case and the 

various trial standard levels (TSLs) in the standards case. The qualitative part of the MIA 

addresses product characteristics, manufacturer characteristics, market and product trends, as 

well as the impact of standards on subgroups of manufacturers.

12.2 METHODOLOGY

DOE conducted the MIA in three phases. Phase I, “Industry Profile,” consisted of 

preliminary research directed at characterizing the commercial clothes washer manufacturing

industry. This research involved collecting data on market share, sales volumes and trends, 

pricing, employment, and the industry financial structure.

In Phase II, “Industry Cash Flow Model and Interview Guide,” DOE created a framework 

GRIM to analyze the economic impact of amended energy conservation standards on the 

commercial clothes washer manufacturing industry as a whole. The DOE also developed a 

manufacturer interview guide to gather additional information on the potential impacts on 

manufacturers in Phase III.

In Phase III, “Subgroup Impact Analysis,” DOE interviewed manufacturers representing 

an estimated 98 percent of the commercial clothes washer market. Interviewees included

manufacturers with various market shares and product focus, providing a representative crosssection of the industry. During interviews, DOE discussed financial topics specific to each 

manufacturer and obtained each manufacturer’s view of the industry. The interviews provided 

DOE with valuable information for evaluating the impacts of amended energy conservation 

standards on manufacturer cash flows, investments, and employment.

12-1
12.2.1 Phase I: Industry Profile

In Phase I of the MIA, DOE prepared a profile of the commercial clothes washer industry 

that built upon the market and technology assessment prepared for this rulemaking. (See chapter 

3 of this final rule Technical Support Document (TSD)). Before initiating the detailed impact 

studies, DOE collected information on the present and past market structure and characteristics 

of the industry, tracking trends in market share, product attributes, product shipments, 

manufacturer markups, and the cost structure for various manufacturers.

The profile also included a top-down analysis of manufacturers in the industry using 

Security and Exchange Commission (SEC) 10–K filings,

a Standard & Poor’s (S&P) stock 

reports,b and corporate annual reports released by both public and privately held companies. 

DOE used this and other publicly available information to derive preliminary financial inputs for 

the GRIM (e.g. revenues; cost of goods sold; depreciation; selling, general and administrative 

expenses (SG&A); and research and development (R&D) expenses).

12.2.2 Phase II: Industry Cash-Flow Model and Interview Guide

Phase II focused on the financial impacts of amended energy conservation standards on 

the commercial clothes washer manufacturing industry as a whole. Amended energy 

conservation standards can affect manufacturer cash flows in three distinct ways: (1) by creating 

a need for increased investment, (2) by raising production costs per unit, and (3) by altering 

revenue due to higher per-unit prices and/or possible changes in sales volumes. DOE created a 

framework GRIM to analyze the economic impact of amended energy conservation standards on 

the commercial clothes washer manufacturing industry as a whole. In preparing the GRIM, DOE 

used the financial values derived during Phase I and the shipment assumptions from the NIA. 

Additionally, DOE prepared a written guide for manufacturer interviews to collect additional 

data critical to developing other inputs for the GRIM.

12.2.2.1 Industry Cash-Flow Analysis

The GRIM uses several factors to determine a series of annual cash flows over a period

from the announcement year of the amended energy conservation standards until thirty years 

after the standards’ compliance date. INPV is the sum of these annual cash flows discounted by 

the industry weighted average cost of capital. Inputs to the GRIM include the manufacturing 

costs, markups, and shipment forecasts developed in other analyses as well as the industry 

weighted average financial parameters developed in Phase I. DOE derived the manufacturing 

costs from the engineering analysis as presented in chapter 5 of this final rule TSD, information 

provided by the industry, publicly available financial reports, and interviews with manufacturers. 

To examine the range of possible impacts, DOE developed alternative markup scenarios based 

on discussions with manufacturers. DOE’s shipments analysis, presented in chapter 9 of the final 

rule TSD, provided the basis for the shipment projections. DOE derived the financial parameters 

using publicly available reports and revised them using information received during confidential 

manufacturer interviews. DOE used the GRIM to compare INPV in the base case with INPV at 

a Available online at www.sec.gov. b Available online at www2.standardandpoors.com.

12-2

 
various TSLs (the standards cases). The difference in INPV between the base and standards 

cases represents the financial impact of the amended standard on manufacturers.

12.2.2.2 Interview Guide

During Phase III of the MIA, DOE interviewed manufacturers of commercial clothes 

washers to gather information on the effects of amended energy conservation on revenues and 

finances, direct employment, capital assets, and industry competitiveness. Before the interviews, 

DOE distributed an interview guide to representatives of each participating manufacturer. The 

interview guide provided a starting point to help identify relevant issues and understand the 

impacts of amended energy conservation standards on individual manufacturers or subgroups of 

manufacturers. The information DOE received from these meetings is protected by nondisclosure agreements and resides with DOE’s contractors. The topics covered as part of these 

interviews include (1) key issues related to this rulemaking; (2) engineering and life cycle cost; 

(3) manufacturer markups and profitability; (4) financial parameters; and (5) conversion costs. 

The interview guide is presented in appendix 12-A.

12.2.3 Phase III: Subgroup Analysis

While conducting the MIA, DOE interviewed a representative cross-section of 

commercial clothes washer manufacturers. The MIA interviews broadened the discussion to 

include business-related topics. DOE sought to isolate key issues and concerns, to obtain 

feedback from industry on the approaches used in the GRIM, and to identify key manufacturer 

subgroups for analysis.

12.2.3.1 Manufacturing Interviews

The information gathered in Phase I and the cash-flow analysis performed in Phase II are 

supplemented with information gathered from manufacturer interviews in Phase III. The 

interview process provides an opportunity for interested parties to express their views on 

important issues privately, allowing confidential or sensitive information to be considered in the 

rulemaking process.

DOE used these interviews to tailor the GRIM to reflect the unique financial 

characteristics of the commercial clothes washer manufacturing industry. Companies with 

various market shares and product focus were interviewed to provide a representation of the

industry. Interviews were scheduled well in advance to provide every opportunity for key 

individuals to be available for comment. Although a written response to the questionnaire was 

acceptable, DOE sought interactive interviews, as they help to clarify responses and identify 

additional issues. The resulting information provides valuable inputs to the GRIM.

12.2.3.2 Revised Industry Cash-Flow Analysis

In Phase II of the MIA, DOE provided manufacturers with preliminary financial figures 

for review and evaluation. During the interviews, DOE requested comments on the values it 

selected for the parameters. DOE revised its industry cash-flow model based on this feedback. 

Section 12.3.3 provides more information on how DOE calculated the parameters.

12-3
12.2.3.3 Manufacturer Subgroup Analysis 

Using average cost assumptions to develop an industry cash flow estimate is not adequate 

for assessing differential impacts among subgroups of manufacturers. Small, low-volume 

manufacturers, or manufacturers exhibiting a cost structure that differs significantly from the 

industry average could be more negatively affected. Ideally, DOE would consider the impact on 

every manufacturer individually; however, it typically uses the results of the industry 

characterization to group manufacturers exhibiting similar characteristics. During the interview 

process, DOE discussed the potential subgroups and subgroup members that have been identified 

for the analysis. DOE looked to the manufacturers and other stakeholders to suggest what 

subgroups or characteristics are the most appropriate for the analysis. 

Small-Business Manufacturers

DOE used the Small Business Administration (SBA) small business size standards as 

amended by the Office of Management and Budget on January 1, 2012, and effective January 7, 

2013, and the North American Industry Classification System (NAICS) code, presented in Table 

12.2.1, to determine whether any small entities would be affected by the rulemaking.c For the 

equipment classes under review, the SBA bases its small business definition on the total number 

of employees for a business including the total employee count of a parent company and its 

subsidiaries. An aggregated business entity with fewer employees than the listed limit is 

considered a small business.

As there is currently an energy conservation standard for commercial clothes washers, 

DOE used its own publically available Compliance Certification Database1 as a starting point to 

identify manufacturers of commercial clothes washers. Additionally, DOE used public 

certification databases provided by the California Energy Commission (CEC)2 and ENERGY 

STAR3 to identify commercial clothes washer manufacturers. DOE then checked this list of 

commercial clothes washer manufacturers against the employee limit for small businesses using 

reports from vendors such as Dun & Bradstreet. DOE also consulted publicly available data from 

the Small Business Association (SBA) to determine the presence of any additional small 

businesses in the industry. Further, DOE asked interested parties and industry representatives if 

they were aware of other small business manufacturers and checked any companies identified 

against the small business criteria. 

For the Framework document, DOE considered businesses with primary NAICS code 

333312, “Commercial Laundry, Dry Cleaning, and Pressing Machine Manufacturing.”A search 

of companies operating under this 2007 NAICS code indicated that there was potentially one 

small business that manufactures commercial clothes washers covered by this rulemaking. DOE 

has since confirmed that this small business is not a manufacturer, and thus will not be 

considered for the purposes of this small business analysis. In 2012, commercial laundry 

manufacturing was rolled into NAICS code 333318, “Other Commercial and Service Industry 

Machinery Manufacturing,” d DOE has updated its search for small business manufacturers, 

c The size standards are available on the SBA’s website at www.sba.gov/content/table-small-business-sizestandards. d NAICS code 333318 includes all manufacturing of commercial and service industry equipment, except optical 

instruments and lenses, and photographic and photocopying equipment, and has a size limit of 1,000 employees, as 

defined by the Small Business Administration. 

12-4

 
using this new NAICS classification and corresponding size limit provided by the Small 

Business Administration. During this updated research, DOE did not identify any manufacturer 

of commercial clothes washers that qualifies as a small business as specified by the SBA

employee limits.

Table 12.2.1 SBA and NAICS Classification of Small Businesses Potentially Affected by 

This Rulemaking

Industry Description Revenue Limit Employee Limit NAICS

Commercial Laundry, Dry-cleaning, and Pressing 

Machine Manufacturing N/A 500 333312

Other Commercial and Service Industry Machinery 

Manufacturing N/A 1,000 333318

Low-Volume Manufacturers

While no small business manufacturers of commercial clothes washers were identified 

during interviews, one manufacturer was identified as having significant commercial clothes 

washer market share, but much lower revenues than its diversified competitors. This 

manufacturer’s business is highly concentrated in the production of both commercial and 

residential laundry products. Still, it is not a small business per the SBA definition for 

manufacturers of commercial clothes washers. DOE subsequently assigned this manufacturer its 

own sub-category, the “Low-Volume Manufacturer” (LVM), to evaluate the disproportionate 

impacts of amended standards for commercial clothes washers on this manufacturer. The 

analysis of impacts on this subgroup is found in section 12.5.

12.2.3.4 Manufacturing Capacity Impact

One possible outcome of amended energy conservation standards is the obsolescence of 

existing manufacturing assets, including tooling and production equipment. The manufacturer 

interview guide contains a series of questions to help identify impacts of amended standards on 

manufacturing capacity, specifically capacity utilization and plant location decisions in the 

United States and North America, with and without amended standards; the ability of 

manufacturers to upgrade or remodel existing facilities to accommodate the new requirements; 

the nature and value of any stranded assets; and estimates for any one-time changes to existing 

plant, property, and equipment (PPE). DOE’s estimates of the one-time capital changes and 

stranded assets affect the annual cash flow projections in the GRIM. These estimates can be 

found in section 12.3.80; DOE’s discussion of the capacity impact can be found in section 

12.6.2.

12.2.3.5 Employment Impact 

The impact of amended energy conservation standards on employment is an important 

consideration in the rulemaking process. To assess how domestic direct employment patterns 

might be affected, the interviews explored current employment trends in the commercial clothes 

washer industry. The interviews also solicited manufacturer views on changes in employment 

patterns that may result from more stringent standards. The employment impacts section of the 

interview guide focused on current employment levels associated with manufacturers at each 

production facility, expected future employment levels with and without amended energy 

12-5
conservation standards, and differences in workforce skills and issues related to the retraining of 

employees. The employment impacts are reported in section 12.6.1.

12.2.3.6 Cumulative Regulatory Burden

DOE seeks to mitigate the overlapping effects of regulation on manufacturers of 

commercial clothes washers. These effects may be the result of other regulatory actions 

affecting commercial clothes washers, or of amended energy conservation standards for other 

products and equipment made by the same manufacturers. DOE identified regulations relevant to 

commercial clothes washer manufacturers using its own research and discussions with 

manufacturers. A discussion of the cumulative regulatory burden of energy conservation 

standards and the impact on manufacturers of multiple, product-specific regulatory actions can 

be found in section 12.6.3.

12.3 GRIM INPUTS AND ASSUMPTIONS

The GRIM serves as the main tool for assessing the impacts on industry due to amended 

energy conservation standards. DOE relies on several sources to obtain inputs for the GRIM. 

Data and assumptions from these sources are then fed into an accounting model that calculates 

the industry cash flow both with and without amended energy conservation standards.

12.3.1 Overview of the GRIM

The basic structure of the GRIM, illustrated in Figure 12.3.1, is an annual cash flow 

analysis that uses manufacturer prices, manufacturing costs, shipments, and industry financial 

information as inputs, and accepts a set of regulatory conditions such as changes in costs, the 

need for additional investments, and changes in associated margins. The GRIM spreadsheet uses 

a number of inputs to arrive at a series of annual cash flows, beginning with the present year, 

2014, and continuing to 2047, 30 years after the compliance year of the rulemaking. The model 

calculates the INPV by summing the stream of annual discounted cash flows during this period.4

12-6
Figure 12.3.1 Using the GRIM to Calculate Cash Flow

The GRIM projects cash flows using standard accounting principles and compares INPV 

between the base-case and the standard-case scenarios. The difference in INPV between the base 

case and the standard case(s) represents the estimated financial impact of the amended energy 

conservation standards on manufacturers. Appendix 12-B provides more technical details and 

user information for the GRIM.

12.3.2 Sources for GRIM Inputs

The GRIM uses several different sources for data inputs in determining industry cash 

flow. These sources include corporate annual reports, company profiles, U.S. Census data, credit 

ratings, the shipments model, the engineering analysis, and the manufacturer interviews.

12.3.2.1 Corporate Annual Reports

Corporate annual reports for publicly held companies are freely available to the general 

public through the SEC as filings of Form 10-K. Additionally, some privately held companies 

publish annual financial reports on their corporate websites. DOE developed initial financial 

inputs to the GRIM by examining the publicly available annual reports of companies primarily 

engaged in the manufacture of home appliances whose combined product range includes 

commercial clothes washers. As these companies do not provide detailed information about their 

individual product lines, DOE used the aggregate financial information at the corporate level in 

developing its initial estimates of the financial parameters to be used in the GRIM. In doing so, 

DOE assumes that the industry-average figures calculated for these companies were 

representative of manufacturing for commercial clothes washers. These figures were later revised 

using feedback from interviews to be representative of the commercial clothes washer 

manufacturing industry. DOE used corporate annual reports to derive the following initial inputs 

to the GRIM:

• Tax rate;

• Working capital;

• SG&A;

• R&D;

• Depreciation;

• Capital expenditures; and

• Net PPE.

12-7
12.3.2.2 Standard and Poor’s Credit Ratings

S&P provides independent credit ratings, research, and financial information. DOE relied 

on S&P reports to determine the industry’s average cost of debt when calculating the weighted

average cost of capital.

12.3.2.3 Shipment Model

The GRIM used shipment projections derived from DOE’s shipments model in the 

national impact analysis (NIA). The model relied on historical shipments data for commercial 

clothes washers. Chapter 10 of the final rule TSD describes the methodology and analytical 

model DOE used to forecast shipments.

12.3.2.4 Engineering Analysis 

DOE conducted the engineering analysis for this rulemaking using the efficiency-level 

approach, combined with the cost-assessment approach, to develop a cost for each efficiency 

level for commercial clothes washers. During this analysis, DOE used a manufacturing cost 

model to develop manufacturer production cost (MPC) estimates for commercial clothes 

washers. The analysis yielded the labor, materials, overhead, and total production costs for 

products at each efficiency level. The engineering analysis also estimated a manufacturer markup 

to determine the manufacturer selling price (MSP) for each product at every efficiency level. 

Chapter 5 of the final rule TSD describes the engineering analysis in detail.

12.3.2.5 Manufacturer Interviews

As part of the MIA, DOE conducted interviews with a representative cross-section of 

manufacturers. Through these discussions, DOE obtained information to determine and verify 

GRIM input assumptions. Key topics discussed during the interviews and reflected in the GRIM 

include:

• Capital conversion costs (one-time investments in PPE);

• Product conversion costs (one-time investments in research, product development, 

testing, and marketing);

• Product cost structure, or the portion of the MPCs related to materials, labor, 

overhead, and depreciation costs;

• Projected total shipment and shipment distribution mix; and

• MPCs estimated in the engineering analysis.

12.3.3 Financial Parameters

In the manufacturer interviews, DOE used the financial parameters from 2006 to 2012 for 

three manufacturers of commercial clothes washers which command a combined market share of 

over 95 percent as a starting point for determining the commercial clothes washer industry 

financial parameters. The industry financial parameters were determined by weighting each 

manufacturer’s individual financial parameters by their respective market share, and correcting 

for the fraction of the market that was not represented. Table 12.3.1 below shows the data used to 

determine the initial financial parameter estimates.

12-8
Table 12.3.1 Financial Parameters based on 2006–2012 Weighted Company Financial Data

Parameter Industry Weighted

Average Manufacturer A Manufacturer B Manufacturer C

Tax Rate 

(% of Taxable Income) 29.2 34.8 23.5 17.6

Working Capital 

(% of Revenue) 9.5 15.7 3.2 2.4

SG&A 

(% of Revenue) 11.7 14.1 9.2 17.2

R&D 

(% of Revenue) 2.5 2.3 2.7 1.7

Depreciation 

(% of Revenue) 3.7 4.3 3.1 4.9

Capital Expenditures 

(% of Revenue) 2.1 2.1 2.1 5.6

Net Property, Plant, and 

Equipment 

(% of Revenues)

16.0 15.0 16.9 22.6

During interviews, manufacturers were asked to provide their own figures for the 

parameters listed in Table 12.3.1. Where applicable, DOE adjusted the financial parameters

according to the manufacturers’ feedback.

12.3.4 Corporate Discount Rate

A company’s assets are financed by a combination of debt and equity, and the weighted

average cost of capital (WACC) represents the minimum rate of return necessary to cover the 

debt and equity obligations manufacturers use to finance operations. The WACC is the total cost 

of debt and equity weighted by their respective proportions in the capital structure of the 

company. 

DOE estimated the WACC for the commercial clothes washer manufacturing industry 

based on three representative companies, using the following formula:

WACC = After-Tax Cost of Debt x (Debt Ratio) + Cost of Equity x (Equity Ratio) 

The cost of equity is the rate of return that equity investors (including, potentially, the 

company) expect to earn on a company’s stock. These expectations are reflected in the market 

price of the company’s stock. The capital asset pricing model (CAPM) provides one widely used 

means to estimate the cost of equity. According to the CAPM, the cost of equity (expected 

return) is:

Cost of Equity = Risk-free Rate of Return + β x Risk Premium 

where:

12-9
Risk-free rate of return is the rate of return on a “safe” benchmark investment, typically 

considered the short-term Treasury Bill (T-Bill) yield. In practice, investors use a variety of 

different maturity T-Bills to estimate the risk-free rate. DOE used the 10-year T-Bill return 

because it captures long-term inflation expectations and is less volatile than short-term rates. The 

risk-free rate is estimated to be approximately 5.2 percent, which is the average 10-year T-Bill

return between 1928 and 2012.

Risk premium is the difference between the expected return on stocks and the risk-free

rate of return. DOE used the average annual return on the S&P 500 between 1928 and 2012 as 

the expected return on stocks to arrive at an estimated market risk premium of 6.1 percent. 

Beta (β) is the correlation between the movement in the price of the stock and that of the 

broader market. In this case, Beta equals one if the stock is perfectly correlated with the S&P 500 

market index. A Beta lower than one means the stock is less volatile than the market index.

Values for Beta are only available for publicly traded companies.

DOE used the capital asset pricing model to calculate the cost of equity for three

commercial clothes washer manufacturers whose combined market share is over 95 percent. 

DOE determined that the industry-average cost of equity for the commercial clothes washer

industry is 15.7 percent (see Table 12.3.2). 

Table 12.3.2 Cost of Equity Calculation

Parameter Industry Weighted 

Average

Manufacturer 

A

Manufacturer 

B

Manufacturer 

C

(a) Average Beta 1.72 1.75 1.75 1.03

(b) Yield on 10 Year T-Bill 

(1928–2012) (%) 5.16

(c) Market Risk Premium 

(1928–2012) (%) 6.10

Cost of Equity (b) + [(a)*(c)] 

(%) 15.67

Equity/Total Capital (%) 59.67 45.87 69.20 75.54

Bond ratings are a tool to measure default risk and arrive at a cost of debt. Each bond 

rating is associated with a particular spread. One way of estimating a company’s cost of debt is 

to treat it as a spread (usually expressed in basis points) over the risk-free rate. DOE used this 

method to calculate the cost of debt for three manufacturers by using S&P and other estimates of 

corporate credit ratings and adding the relevant spread to the risk-free rate. 

Since proceeds from debt issuance are tax deductible, DOE adjusted the gross cost of 

debt by the industry-average tax rate to determine the net cost of debt for the industry. DOE 

determined that the after-tax industry-average cost of debt for the commercial clothes washer

industry is 4.9 percent. Table 12.3.3 presents the derivation of the cost of debt and the capital 

structure of the industry (i.e. the debt ratio (debt/total capital)).

12-10
Table 12.3.3 Cost of Debt Calculation

Parameter

Industry

Weighted 

Average

Manufacturer 

A

Manufacturer 

B

Manufacturer 

C

S&P Bond Rating -- BBB BBB BBB

(a) Yield on 10 year T-Bill 

(1927–2011) (%) 5.16

(b) Gross Cost of Debt (%) 6.76 6.76 6.76 6.76

(c) Tax Rate (%) 28.14 34.82 23.53 20.54

Net Cost of Debt (b) x[1-(c)] 

(%) 4.86

Debt/Total Capital (%) 40.33 54.13 30.80 24.46

Correcting for an inflation rate of 3.1 percent over the analysis period, DOE’s calculated 

value for the commercial clothes washer industry’s inflation-adjusted WACC and the initial 

estimate of the discount rate is 8.2 percent. During interviews, manufacturers were asked to 

provide their estimate of the discount rate. Subsequently, DOE adjusted the discount rate to 8.6 

percent.

12.3.5 Trial Standard Levels 

DOE developed TSLs to analyze the impact on manufacturers of amended energy 

efficiency standards for two equipment classes of commercial clothes washers. Table 12.3.4

presents the TSLs and the corresponding equipment class efficiency levels based on Modified 

Energy Factor (10 CFR part 430, subpart B, appendix J2).

TSL 3 is comprised of the max-tech efficiency levels for both equipment classes. TSL 2

is comprised of efficiency level 2 for front-loading commercial clothes washers and efficiency 

level 1 for top-loading commercial clothes washers. TSL 1 is comprised of efficiency level 1 for 

each equipment class.

Table 12.3.4 Trial Standard Levels for Commercial Clothes Washers

Equipment Class

Base 

Case TSL 1 TSL 2 TSL 3 TSL 4

Front-Loading

Commercial Clothes 

Washers

Efficiency Level Baseline EL 1 EL 2 EL 2 EL 3

MEF (using Appendix 

J2) 1.65 1.8 2.0 2.0 2.2

Top-Loading

Commercial Clothes 

Washers 

Efficiency Level Baseline EL 1 EL 1 EL 2 EL 2

MEF (using Appendix 

J2) 1.15 1.35 1.35 1.55 1.55

12-11
12.3.6 NIA Shipment Forecast

The GRIM estimates manufacturer revenues based on total-unit-shipment forecasts and the 

distribution of these values by efficiency level. Changes in the efficiency mix at each standard 

level are a key driver of manufacturer finances. For this analysis, the GRIM used commercial 

clothes washer shipment data from the NIA. Chapter 9 of the final rule TSD explains DOE’s 

calculations of total shipments in detail.

Table 12.3.5 shows total shipments forecasts for both equipment classes of commercial 

clothes washers in 2018, the year new standards for commercial clothes washers would take 

effect.

Table 12.3.5 Total Base-Case 2018 NIA Shipments 

Equipment Class Total Industry Shipments

Front-Loading

Commercial Clothes Washers 58,300

Top-Loading

Commercial Clothes Washers 132,100

12.3.6.1 Base-Case Shipments Forecast

As part of the shipment analysis, DOE estimated the distribution of shipments by 

efficiency level for both equipment classes of commercial clothes washers. DOE held the basecase energy efficiency distribution constant throughout the forecast period. Table 12.3.6 and 

Table 12.3.7 show the base-case distributions of shipments by efficiency level estimated in the 

NIA for the commercial clothes washer equipment classes.

Table 12.3.6 Base-Case Distribution of Efficiencies for Front-Loading Commercial Clothes 

Washers in 2018

Efficiency Level Baseline EL 1 EL 2 EL 3

MEF 1.65 1.8 2 2.2

% of Shipments 0% 31.0% 69.0% 0.0%

Table 12.3.7 Base-Case Distribution of Efficiencies for Top-Loading Commercial Clothes 

Washers in 2018

Efficiency Level Baseline EL 1 EL 2

MEF 1.15 1.35 1.55

% of Shipments 62.0% 26.7% 11.3%

12-12
12.3.6.2 Standards-Case Shipments Forecast

To examine the impact of amended energy conservation standards on shipments, which 

in turn affects the INPV, DOE used the base-case shipments described in the previous section as 

a point of comparison for shipments forecast in the standards case. For each TSL described in the 

standards case, DOE used the shipments forecasts developed in the NIA for commercial clothes 

washers. DOE assumed the presence of cross-price elasticity in determining efficiency 

distributions for the standards case, meaning that a portion of shipments moves from one 

equipment class to the other as the former becomes comparatively more expensive to produce. 

The remaining portion of shipments for products that fall below the amended energy 

conservation standards are assumed to “roll-up” to the new standards efficiency level for a given 

equipment class on the compliance datee and thereafter. 

As in the shipments analysis, DOE assumed no relative price elasticity in the commercial 

clothes washer market, meaning that amended energy conservation standards that increase the 

first cost of commercial clothes washers would lead to no change the number of total shipments.

12.3.7 Production Costs

Changes in the MPCs of commercial clothes washers can affect revenues, gross margins, 

and cash flow of the industry, making product cost data key GRIM inputs for DOE’s analysis. In 

the engineering analysis, DOE created separate cost curves for the two commercial clothes 

washer equipment classes using data from tear-downs to develop both the baseline MPCs and the 

incremental costs that correspond to the proposed design options. Generally, manufacturing 

higher efficiency products is more costly than manufacturing baseline products due to the use of 

more complex components.

The cost model disaggregated the MPCs at each efficiency level into material, labor, 

overhead, and depreciation. For materials, DOE used the incremental component and raw 

material costs that correspond to the proposed design options at each EL. For labor, DOE 

estimated the labor contribution at each EL by examining how the proposed design options may 

influence manufacturing and assembly practices. For depreciation, DOE used a depreciation 

value that is consistent with historical information in SEC 10-Ks. The remainder of total 

overhead was allocated to factory overhead. 

Later, manufacturers validated these estimates and assumptions during interviews. DOE 

used the resulting MPCs and cost breakdowns as described in section 12.3.2.4 above, and further 

detailed in chapter 5 of the final rule TSD, for each efficiency level analyzed in the GRIM.

The MSP is comprised of production costs (the direct manufacturing costs or MPCs), nonproduction costs (indirect costs including SG&A), and profit. DOE calculated the MSPs for 

commercial clothes washers by multiplying the MPCs by the appropriate manufacturer markup 

for that product. Table 12.3.8 and Table 12.3.9 show the production cost estimates used in the 

GRIM for the representative equipment classes for commercial clothes washers.

e The estimated compliance date for the commercial clothes washer energy conservation standard is 2018.

12-13

 
Table 12.3.8 MPC Breakdown for Front-Loading Commercial Clothes Washers

EL MEF WF Materials Labor Depreciation Overhead MPC Mfr. 

Markup MSP

EL1 1.80 4.5 $441.87 $97.76 $32.54 $272.06 $844.23 1.285 $1,084.84

EL2 2.00 4.0 $442.17 $97.71 $32.55 $272.11 $844.54 1.285 $1,085.23

EL3 2.20 3.7 $458.00 $99.43 $33.31 $273.42 $864.15 1.285 $1,110.43

Table 12.3.9 MPC Breakdown for Top-Loading Commercial Clothes Washers

EL MEF WF Materials Labor Depreciation Overhead MPC Mfr. 

Markup MSP

EL1 1.35 8.8 $239.69 $65.27 $20.52 $206.92 $532.40 1.285 $684.13

EL2 1.55 6.9 $273.83 $75.39 $22.05 $200.76 $572.03 1.285 $735.06

12.3.8 Conversion Costs and Stranded Assets

Amended energy conservation standards typically cause manufacturers to incur one-time 

conversion costs to bring their production facilities and equipment designs into compliance with 

new regulations. For the MIA, DOE classified these one-time conversion costs into two major 

groups: product conversion costs and capital conversion costs. Product conversion costs are 

investments in research, development, testing, marketing, and other non-capitalized costs 

focused on making equipment designs that comply with the amended energy conservation 

standard. Capital conversion costs are investments in property, plant, and equipment needed to 

adapt or change existing production facilities so that new equipment designs can be fabricated 

and assembled. In the instance where changes to energy conservation standards result in the 

obsolescence of manufacturing capital, the un-depreciated value of any obsolete equipment is 

considered a stranded asset. In addition to product and capital conversion costs, stranded assets 

also factor into the GRIM’s calculation of annual cash flows. The following sections describe 

the inputs DOE used in the GRIM in greater detail.

12.3.8.1 Commercial Clothes Washer Conversion Costs

DOE based its estimates of the conversion costs required to meet each TSL on 

confidential information received during manufacturer interviews. DOE asked manufacturers to 

estimate their investments in product development and new manufacturing capital and their 

anticipated stranded capital assets at various efficiency levels. DOE then reviewed public 

information in the DOE Compliance and Certification, California Energy Commission (CEC), 

and ENERGY STAR product databases, as well as manufacturer websites to understand which 

products manufacturers would need to upgrade at each efficiency level. DOE mapped 

manufacturers’ estimates of investments and stranded assets to a composite database of products

to disaggregate their reporting and allocate the estimated costs across the various equipment 

classes and efficiency levels that each representative company manufactures. From this, DOE 

also developed an average cost estimate to bring non-compliant products in each equipment class 

12-14
into compliance at each efficiency level. DOE applied these average cost estimates to the 

remaining products in the database to arrive the compliance costs required by the remainder of 

industry. These figures were then added to the disaggregated estimates of individual 

manufacturer conversion costs to arrive at a total industry estimate of product and capital 

conversion costs and stranded assets for each efficiency level of each equipment class. 

Table 12.3.10 Table 12.3.10 through Table 12.3.13 show DOE’s estimates of the product 

and capital conversion costs necessary for each commercial clothes washer equipment class at 

each efficiency level identified. None of the manufacturers interviewed provided comment 

regarding potential stranded assets.

Table 12.3.10 Product Conversion Costs for Front-Loaders by EL

EL (J2 MEF) Product Conversion Costs (Millions 2012$)

EL1 (1.80) $0.0

EL2 (2.00) $0.3

EL3 (2.20) $11.9

Table 12.3.11 Product Conversion Costs for Top-Loaders by EL

EL (J2 MEF) Product Conversion Costs (Millions 2012$)

EL1 (1.35) $9.9

EL2 (1.55) $50.6

Table 12.3.12 Capital Conversion Costs for Front-Loaders by EL

EL (J2 MEF) Capital Conversion Costs (Millions 2012$)

EL1 (1.80) $0.0

EL2 (2.00) $0.0

EL3 (2.20) $24.5

Table 12.3.13 Capital Conversion Costs for Top-Loaders by EL

EL (J2MEF) Capital Conversion Costs (Millions 2012$)

EL1 (1.35) $0.0

EL2 (1.55) $38.7

12.3.9 Markup Scenarios

MSP is equal to MPC times a manufacturer markup. The MSP includes direct 

manufacturing production costs (i.e., material, labor, depreciation, and overhead estimated in 

DOE’s MPCs) and all non-production costs (i.e., SG&A, R&D, and interest), along with profit.

In the base case, DOE used the same baseline markups calculated in the engineering 

analysis for both equipment classes. In the standards case, DOE modeled two markup scenarios 

to represent the uncertainty about the potential impacts on prices and profitability following the 

implementation of amended energy conservation standards: (1) a preservation of gross margin 

12-15
percentage markup scenario, and (2) a preservation of earnings before interest and taxes (EBIT) 

markup scenario. Modifying these markups from the base case to the standards cases yields 

different sets of impacts on manufacturers by changing industry revenue and cash flow.

To calculate the baseline manufacturer markup, DOE evaluated publicly available 

financial information for manufacturers whose product offerings include commercial clothes 

washers. During manufacturer interviews, DOE received feedback supporting the calculated 

1.285 baseline manufacturer markup. For both GRIM markup scenarios, DOE assumed a 

predominantly flat markup structure, placing no premium on higher efficiency products. 

12.3.9.1 Preservation of Gross Margin Percentage Markup Scenario

The preservation of gross margin percentage markup scenario assumes that the baseline 

markup of 1.285 is maintained for all products in the standards case. As production costs 

increase with efficiency, this scenario implies that the absolute dollar markup will increase as 

well. This scenario represents the upper bound of industry profitability as manufacturers are able 

to fully mark up and pass through higher production costs to their customers.

12.3.9.2 Preservation of EBIT Markup Scenario

DOE also modeled the preservation of EBIT markup scenario to estimate a lower bound 

of profitability for the industry. This is similar to the preservation of gross margin percentage

markup scenario with the exception that in the standards case, minimally compliant products lose 

a fraction of the baseline markup. The lower markup for minimally compliant products is derived 

by calibrating the markup for minimally compliant products such that industry-wide EBIT in the 

year after standards go into effect matches EBIT of the same year in the base case. This scenario 

represents a more substantial impact to the commercial clothes washer industry in the form of 

reduced gross margin percentage as manufacturers vie to maintain the lowest possible prices for 

marginally compliant products while securing the same level of EBIT they saw prior to new and 

amended standards. While all compliant products receive the 1.285 markup in the preservation of 

gross margin percentage markup scenario, Table 12.3.14 through Table 12.3.15 list the calibrated 

markups used in the preservation of EBIT markup scenario.

Table 12.3.14 Preservation of EBIT Markups for Front-Loading Commercial Clothes 

Washers

EL J2 MEF Minimally Compliant EL

EL 1 EL 2 EL 3

EL 1 1.80 1.285

EL 2 2.00 1.285 1.285

EL 3 2.20 1.285 1.285 1.282

12-16
Table 12.3.15 Preservation of EBIT Markups for Top-Loading Commercial Clothes 

Washers

EL J2 MEF Minimally Compliant EL

EL 1 EL 2

EL 1 1.35 1.285

EL 2 1.55 1.285 1.277

12.4 INDUSTRY FINANCIAL IMPACTS

Using the inputs and scenarios described in the previous sections, DOE used the GRIM to 

estimate the financial impacts on the commercial clothes washer industry. The MIA uses two key 

financial metrics: INPV and annual cash flows. The main results of the MIA are reported in this 

section. 

12.4.1 Introduction

The INPV measures the industry value and is used in the MIA to compare the economic 

impacts of different TSLs in the standards case. The INPV is different from DOE’s NPV, which 

is applied to the U.S. economy at large. The INPV is specific to the commercial clothes washer

manufacturing industry, and is the sum of all annual net cash flows discounted at the industry’s 

WACC. The GRIM for the commercial clothes washer industry models cash flows from the 

present year, 2014, to 2047. This timeframe models both the short-term impacts on the industry 

from the announcement of the standard until the compliance date in 2018, and a long-term 

assessment over the 30-year analysis period immediately thereafter. 

In the MIA, DOE compares the INPV at the base case (no amended energy conservation 

standards) to that at each TSL in the standards case. The difference between the base case and a 

standards case INPV is an estimate of the economic impacts that implementing that particular 

TSL would have on the industry. For the commercial clothes washer industry, DOE examined 

the two markup scenarios described above: the preservation of gross margin percentage markup 

scenario and the preservation of EBIT markup scenario. DOE’s estimates of INPV for the full 

analysis period (2015 – 2047) for the base case and at each TSL in the standards case are 

presented in 

Table 12.4.1and Table 12.4.2 below. While INPV is useful for evaluating the long-term 

effects of amended energy conservation standards, short-term changes in cash flow are also 

important indicators of the industry’s financial situation. For example, a large investment over 

one or two years could strain the industry’s capital reserves and cash flow. Consequently, the 

sharp drop in financial performance could cause investors to flee, even if recovery is possible. 

Thus, a short-term disturbance can have long-term effects that the INPV cannot capture. To get 

an idea of the behavior of annual net cash flows, Figure 12.4.1 and Figure 12.4.2 below present 

the annual net or free cash flows from 2014 through 2047 for the base case and each TSL in the 

standards case.

12-17
Annual cash flows are discounted to the year of the final rule publication, 2015. Between 

2015 and the 2018 compliance date, cash flows are driven by the level of conversion costs and 

the portion of these investments made each year. After the standard announcement date (i.e., the 

publication date of the final rule), industry cash flows begin to decline as companies use their 

financial resources to prepare for the amended energy conservation standard. The more stringent 

the amended energy conservation standard, the greater the impact on industry cash flows in the 

years leading up to the compliance date, as product conversion costs lower cash flows from 

operations and capital conversion costs increase outlays of cash for capital expenditures.

Free cash flow in the year the amended energy conservation standards take effect is 

driven by two competing factors. In addition to capital and product conversion costs, amended 

energy conservation standards could create stranded assets, i.e., the residual un-depreciated value 

of tooling and equipment that would have enjoyed longer use if the energy conservation standard 

had not made them obsolete. In this year, manufacturers write down the remaining book value of 

existing tooling and equipment, the value of which is affected by the amended energy 

conservation standards. This one time write down acts as a tax shield that mitigates decreases in 

cash flow from operations in the year of the write-down. In this year, there is also an increase in 

working capital that reduces cash flow from operations. A large increase in working capital can 

be attributed to more costly production components and materials, higher inventory carrying to 

sell more expensive products, and higher accounts receivable for more expensive products. 

Depending on these two competing factors, cash flow can either be positively or negatively 

affected in the year the standard takes effect.

In the years following the compliance date of the standard, the impact on cash flow 

depends on the operating revenue. Under the preservation of gross margin percentage markup 

scenario, more stringent TSLs typically have a positive impact on cash flows relative to the base 

case because in marking up more costly equipment, manufacturers are able to earner higher 

operating profit, which increases cash flow from operations. There is very little impact on cash 

flow from operations under the preservation of EBIT scenario because this scenario is calibrated 

to have the same earnings before interest and taxes in the standards case at each TSL as the base 

case as in the year after the standard takes effect. In this scenario production costs increase, but 

EBIT remains approximately equal to the base case, effectively decreasing profit margins as a 

percentage of revenue.

12-18
12.4.2 Commercial Clothes Washer Industry Financial Impacts

Table 12.4.1 and Table 12.4.2 provide the INPV estimates for the commercial clothes 

washer manufacturing industry. Figure 12.4.1 and Figure 12.4.2 present the annual net cash 

flows for the commercial clothes washer manufacturing industry for each of the markup 

scenarios.

Table 12.4.1 Manufacturer Impact Analysis for Commercial Clothes Washers –

Preservation of Gross Margin Percentage Markup Scenario

Base Case

Trial Standard Level

1 2 3 4

INPV (2013$ millions) 123.5 117.1 116.9 56 23.9

Change in INPV (2013$ millions) - (6.4) (6.6) (67.5) (99.6)

(%) - (5.20%) (5.30%) (54.60%) (80.70%)

*For tables in section 12.5, values in parenthesis indicate negative numbers.

Table 12.4.2 Manufacturer Impact Analysis for Commercial Clothes Washers –

Preservation of EBIT Markup Scenario

Base Case

Trial Standard Level

1 2 3 4

INPV (2013$ millions) 123.5 117.1 116.9 53 19.7

Change in INPV (2013$ millions) - (6.4) (6.6) (70.5) (103.8)

(%) - (5.2%) (5.3%) (57.1%) (84.1%)

*For tables in section 12.5, values in parenthesis indicate negative numbers.

12-19
Figure 12.4.1 Annual Industry Net Cash Flows for Commercial Clothes Washers 

(Preservation of Gross Margin Markup Scenario)

Figure 12.4.2 Annual Industry Net Cash Flows for Commercial Clothes Washers 

(Preservation of EBIT Markup Scenario)

12-20
12.5 IMPACTS ON THE LOW-VOLUME COMMERCIAL CLOTHES WASHER 

MANUFACTURER

One LVM of commercial clothes washers believes it will be disproportionately affected 

by any energy efficiency regulation in the commercial clothes washer industry. This business is 

concentrated in one specific market segment (commercial laundry) and is at least one order of 

magnitude smaller than its diversified competitors. Due to this combination of market 

concentration and size, the viability of this LVM could be at risk depending on the TSL chosen. 

Small and low-volume manufacturers typically pay higher prices for components because 

of smaller purchasing volumes while their large competitors receive volume discounts. Despite

the fact that the commercial clothes washer industry as a whole is a low-volume industry, larger 

manufacturers, with a significantly larger proportion of washer revenues derived from the sale of 

residential clothes washers, are able to purchase components in high quantities due to the 

similarities in commercial and residential clothes washer component parts. 

DOE used the annual reports from both the LVM and its larger diversified competitors to 

analyze the extent to which impacts on the LVM may be disproportionate. In its 2009 10-K, the

LVM’s major competitor, whose products offerings are “primarily for home use,” reported 

laundry segment revenues of approximately one-third its total annual revenues. Component parts 

that are typically used across both residential and commercial clothes washers include outer 

sheet metal, doors and lid hardware, wash basket clothes container, outer plastic wash tub, 

suspension hardware, drain pump, motor and transmission assembly. DOE estimated LVM 

segment revenues and shipments from publically available sources (see Table 12.6.1). In contrast 

to the larger commercial clothes washer manufacturers, the LVM’s washer revenues are mainly 

generated from commercial washers; residential clothes washers only account for an estimated 

12 percent of the LVM’s washer revenues and an estimated 2 percent of total annual...

Because design options associated with TSL1 and TSL2 for both equipment classes relate to 

control changes and different cycle options rather than material changes to the equipment itself, 

DOE assumes that lack of bulk purchasing power would only disadvantage the LVM relative to 

its major competitor if the max-tech level is chosen.

Table 12.6.1 DOE Estimates of LVM Segment Revenues and Shipments

2012 

Revenues 

($MM)

% of 

Washer 

Revenues

% of 

Total 

Revenues

Shipment 

Volume by 

Sales Channel

% of 

Washer 

Shipments

Commercial Top-Loader $59 62% 12% 60,762 68%

Front-Loader $25 26% 5% 13,662 15%

Residential Top-Loader $10 11% 2% 14,267 16%

Front-Loader $1 1% 0% 633 1%

All Washers $95 100% 19% 89,324 100%

In addition to component costs, conversion costs associated with product development 

and new manufacturing capital are likely to be disproportionately burdensome for the 

12-21
commercial clothes washer LVM. DOE assumes for all manufacturers that the same line would 

be used to build both residential and commercial clothes washers for a given washer type. 

Hence, the upfront capital and product conversion costs associated with standards compliance, as 

well as depreciation costs are spread over the entire production volume, not just production 

volumes of commercial equipment. Although commercial clothes washer shipment volumes are 

comparable between the LVM and its larger competitor, the LVM’s overall clothes washer 

production volume is at least two orders of magnitude smaller than its major competitor.

Accordingly, the opportunity for the LVM to recoup upfront investments in product development 

is substantially smaller than its competitor. Similarly, depreciated manufacturing capital can only 

be spread across a disproportionately lower volume of shipments, contributing to higher per-unit 

production costs.

During an interview, the LVM indicated that it could not manufacture top-loading or 

front-loading washers at the proposed max-tech level with its existing manufacturing capital and 

platform constraints. If DOE were to set the standard at the max-tech level, the LVM believes 

that a “green field” design for front-loaders would likely be required. Similarly, for top-loaders, 

the LVM asserts that it does not have the technology to reach the max-tech level, and it would be 

forced to adapt its business model, possibly ceasing production of commercial clothes washers

altogether, sourcing from abroad, shifting production abroad, or some combination thereof. All 

of these changes could have nontrivial impacts on manufacturing capacity and employment in 

the commercial clothes washer industry. Due to its relative concentration in the top-loading 

commercial washer segment, if the LVM no longer offers top-loading washers, it would likely 

cease commercial clothes washer production altogether. DOE estimates that, currently, the 

LVM’s top-loading washers account for more than half of the company’s commercial clothes 

washer revenues and more than two-thirds of its commercial clothes washer shipments. To shift 

all top-loading commercial clothes washers to front-loading washers at current production 

volumes would require substantial investments that the company may not be able to justify. In 

addition, within its residential and commercial washer segments, the LVM derives an estimated 

88 percent of its clothes washer revenue from commercial clothes washers, so its sales in the 

residential clothes washer market would be too low to justify continuing any top-loading clothes 

washer manufacturing.

In terms of access to the capital required to cover the conversion costs associated with 

reaching the max-tech levels, the LVM would likely be forced to take on additional debt, 

whereas its larger competitors would be better equipped to fund purchases with existing cash 

flow from operations. Additionally, since the recession of 2007 and 2008, small business lending 

has dropped substantially due to a combination of tightened lending standards, increasing 

collateral requirements and reduced focus on small business credit markets. Thus, the LVM 

generally has access to disproportionately lesser capital than its larger competitors.

In summary, DOE recognizes that depending on the TSL selected, amended energy 

conservation standards may have disproportionate impacts on the LVM relative to its larger 

diversified competitors. In this industry, larger manufacturers may have a competitive advantage 

compared to the LVM due to their production volumes, focus on the residential market, and

ability to access capital and to purchase component parts at a discount. 

12-22
12.6 OTHER IMPACTS

12.6.1 Employment

For commercial clothes washers, DOE used the GRIM to estimate the domestic labor 

expenditures and number of domestic production workers in the base case and at each TSL from 

2014 to 2047. DOE used statistical data from the most recent U.S Census Bureau’s 2012

Economic Census (EC), the results of the engineering analysis, and interviews with 

manufacturers to determine the inputs necessary to calculate industry-wide labor expenditures 

and domestic employment levels. Labor expenditures for the manufacture of a product are a 

function of the labor intensity of the product, the sales volume, and an assumption that wages in 

real terms remain constant.

In the GRIM, DOE used the labor content of each product and the manufacturing 

production costs from the engineering analysis to estimate the annual labor expenditures in the 

commercial clothes washer industry. DOE used census data and interviews with manufacturers 

to estimate the portion of the total labor expenditures that is attributable to domestic labor.

The production worker estimates in this section only cover workers up to the linesupervisor level who are directly involved in fabricating and assembling a product within an 

Original Equipment Manufacturer (OEM) facility. Workers performing services that are closely 

associated with production operations, such as material handling with a forklift, are also included 

as production labor. DOE’s estimates account only for production workers who manufacture the 

specific products covered by this rulemaking.

The employment impacts shown in Table 12.6.1 represent the potential production 

employment that could result following amended energy conservation standards. The upper end 

of the results in this table estimates the total potential increase in the number of production 

workers after amended energy conservation standards. To calculate the total potential increase, 

DOE assumed that manufacturers continue to produce the same scope of covered products in 

domestic production facilities and domestic production is not shifted to lower-labor-cost 

countries. Because there is a risk of manufacturers evaluating sourcing decisions in response to 

amended energy conservation standards, the lower end of the range of employment results in 

Table 12.6.1 includes the estimated total number of U.S. production workers in the industry who 

could lose their jobs if all existing production were moved outside of the United States. 

While the results present a range of employment impacts following the compliance date 

of amended energy conservation standards, the discussion below also includes a qualitative 

evaluation of the likelihood of negative domestic production employment impacts at the various 

TSLs.

Using the GRIM, DOE forecasts the domestic labor expenditure for commercial clothes 

washer production labor in 2018 will fall approximately within the range of $12.0 to $13.1 

million, depending on the TSL chosen. Using the $20.08 hourly wage rate including fringe 

benefits and 1,988 production hours per year per employee found in the 2012 EC, DOE estimates 

there will be 301 to 328 domestic production workers involved in the manufacturing of

commercial clothes washers in 2018, the year in which amended standards would go into effect 

12-23
for TSL 1, TSL 2, TSL 3, and TSL 4. In addition, DOE estimates that 217 to 236 non-production 

employees in the United States will support commercial clothes washer production.f

Approximately 83 percent of commercial clothes washers sold in the United States are 

manufactured domestically. The employment tab of the commercial clothes washer GRIM 

contains more detailed information on the annual domestic employment impacts.

Table 12.6.1 illustrates the range of potential impacts of amended energy conservation 

standards on domestic production employment levels at each TSL for the commercial clothes 

washer market.

Table 12.6.1 Potential Changes in the Total Number of Domestic Commercial Clothes 

Washer Production Workers in 2018

Baseline TSL 1 TSL 2 TSL 3 TSL 4

Total Number of Domestic Production 

Workers in 2018 

(without changes in production locations)

301 301 301 327 328

Potential Changes in Domestic 

Production Workers in 2018* - 0 -

(301)

0 -

(301)

26 -

(301)

27 -

(301)

 *DOE presents a range of potential employment impacts. Numbers in parentheses indicate negative numbers.

Figure 12.6.1 below shows total annual domestic employment levels for each TSL 

calculated by the GRIM.

f As defined in the 2012 EC, production workers number include “workers (up through the line-supervisor 

level) engaged in fabricating, processing, assembling, inspecting, receiving, storing, handling, packing, 

warehousing, shipping (but not delivering), maintenance, repair, janitorial and guard services, product 

development, auxiliary production for plant's own use (e.g., power plant), recordkeeping, and other services 

closely associated with these production operations at the establishment covered by the report. Employees 

above the working-supervisor level are excluded from this item.” Non-production workers are defined as 

“employees of the manufacturing establishment including those engaged in factory supervision above the linesupervisor level. It includes sales (including driver-salespersons), sales delivery (highway truck drivers and 

their helpers), advertising, credit, collection, installation and servicing of own products, clerical and routine 

office functions, executive, purchasing, financing, legal, personnel (including cafeteria, medical, etc.), 

professional, and technical employees. Also included are employees on the payroll of the manufacturing 

establishment engaged in the construction of major additions or alterations utilized as a separate work force.” 

12-24

 
Figure 12.6.1 Commercial Clothes Washer Domestic Production Employment by Year

Due to the fact that production employment expenditures are assumed to be a fixed 

percentage of COGS and the MPCs typically increase with more efficient products, labor tracks 

the increased prices in the GRIM. As efficiency of washers increases, so does the complexity of 

the machines, generally requiring more labor to produce. As previously discussed, for TSL 1, 

there is no change in MPCs from the base case, and, for TSL 2, there is a small increase in MPCs 

for front-loaders offset by a shift in shipments from front-loaders to top-loaders. As a result, 

DOE expects that there would be no employment impacts among domestic commercial clothes 

washer manufacturers for TSL 1 and TSL 2. For TSL 3 and TSL 4, the GRIM predicts an 

increase in domestic employment following amended standards based on the increase in 

complexity and relative price of the equipment. 

Approximately 83 percent of commercial clothes washers are currently produced 

domestically. In the commercial clothes washer industry, 100 percent of top-loaders are 

manufactured domestically, while a much larger share of front-loaders are produced abroad. The 

actual impacts on domestic employment after standards would be different than estimated if any 

U.S. manufacturer decided to shift remaining U.S. production to lower cost countries. The 

proposed standard could result in losing all 301 production workers if all U.S. manufacturers 

source standards-compliant washers or shift U.S. production abroad. However, feedback from 

manufacturers during final rule interviews supports the notion that top-loading commercial 

clothes washers will continue to be produced domestically following amended energy 

conservation standards, unless the max-tech level is chosen.

12.6.2 Production Capacity

According to the majority of commercial clothes washer manufacturers, new energy 

conservation standards could potentially impact manufacturers’ production capacity depending 

on the efficiency level required. For TSL 1 and TSL 2, the most significant conversion costs are 

the research and development, testing, and certification of products with more-efficient 

12-25
components, which does not affect production line capacity. Thus, DOE believes manufacturers 

will be able to maintain manufacturing capacity levels and continue to meet market demand 

under new energy conservation standards as long as manufacturers continue to offer top-loading 

and front-loading washers. 

However, a very high efficiency standard for top-loading clothes washers (associated 

with TSLs 3 and 4) could cause certain manufacturers to abandon further domestic production of 

top-loading clothes washers after the effective date, and choose instead to cease production of 

commercial clothes washers altogether, which could possibly lead to a permanently lower 

production capacity within the commercial clothes washer industry.

12.6.3 Cumulative Regulatory Burden 

While any one regulation may not impose a significant burden on manufacturers, the 

combined effects of several impending regulations may have serious consequences for some 

manufacturers, groups of manufacturers, or an entire industry. Regulatory burdens can prompt 

companies to exit the market or reduce their equipment offerings, potentially reducing 

competition. Smaller companies in particular can be affected by regulatory costs since these 

companies have lower sales volumes over which they can amortize the costs of meeting new 

regulations. Assessing the impact of a single regulation may overlook this cumulative regulatory 

burden. A proposed standard is not economically justified if it contributes to an unacceptable 

level of cumulative regulatory burden.

For the cumulative regulatory burden analysis, DOE looks at other significant productspecific regulations that will take effect 3 years before or after the 2018 compliance date of the 

amended energy conservation standards for commercial clothes washers. In addition to amended 

energy conservation regulations, several other Federal regulations apply to commercial clothes 

washers. While this analysis focuses on the impacts on manufacturers born of other Federal 

requirements, DOE also has described a number of other non-Federal regulations in section 

12.6.3.2 because it recognizes that these regulations also impact the equipment covered by this 

rulemaking. 

12.6.3.1 DOE Regulations for Other Products Produced by Commercial Clothes 

Washer Manufacturers

Companies that produce a wide range of regulated products and equipment may face

more capital and product development expenditures than competitors with a narrower scope of 

products and equipment. The majority of commercial clothes washer manufacturers also produce

other appliances and commercial refrigeration equipment. In addition to the amended energy 

conservation standards for commercial clothes washers, these manufacturers contend with 

several other Federal regulations and pending regulations that apply to other products and 

equipment. DOE recognizes that each regulation can significantly affect a manufacturer’s 

financial operations. Multiple regulations affecting the same manufacturer can quickly strain 

manufacturers’ profits and possibly cause an exit from the market. Table 12.6.2 lists the other 

DOE energy conservation standards that could also affect manufacturers of commercial clothes 

washers in the 3 years leading up to and after the compliance date of amended energy 

conservation standards for this equipment. 

12-26
Table 12.6.2 Other DOE and Federal Actions Affecting the Commercial Clothes Washer

Industry

Regulation

Approximate 

Compliance 

Date*

Number of Impacted 

Companies 

Estimated Total Industry 

Conversion Costs

Residential Clothes Washers 2015 & 2018 4 $418.5 M

Residential Clothes Dryers 2015 4 $95.4 M

Microwave Ovens 2016 4 $43.1 M

Miscellaneous Refrigeration 2018 3 N/A†

Dehumidifiers 2019 4 $81.3 M

*The dates listed are an approximation. The exact dates are pending final DOE action.

† For energy conservation standards for rulemakings awaiting DOE final action, DOE does not have a finalized 

estimated total industry conversion cost. 

12.6.3.2 Other Regulations That Could Impact Commercial Clothes Washer

Manufacturers

While the cumulative regulatory burden focuses on the impacts on manufacturers of other 

Federal requirements, in this section DOE has described a number of other regulations below 

that could also impact the commercial clothes washers covered by this rulemaking.

Other Federal Standards

One manufacturer expressed concerns about the conflict minerals directive included in 

the Dodd-Frank Act of 2010 (H.R. 4173, section 1502)g

. When promulgated, this rule will 

require that U.S. companies report and make public available their use of certain minerals from 

the Democratic Republic of the Congo and adjoining countries. This may require manufacturers 

to make investments in new tracking systems to ensure visibility throughout their supply chain.

State Energy Conservation and Environmental Standards

Manufacturers indicated that state-level regulations, especially in California, contribute to 

overall cumulative regulatory burden. These regulations include state energy efficiency 

standards, for example, proposed standards for commercial clothes dryers in California. Other 

state-level regulations that may impact commercial clothes washer manufacturers include 

product and packaging, and extended producer responsibility regulations. Additionally, 

manufacturers expressed concerns over future compliance costs associated with green chemistry 

laws and chemical bans, such as those initiated and proposed as part of the California Green 

Chemistry Initiative.

h

International Energy Conservation Standards

g http://www.sec.gov/rules/proposed/2010/34-63547fr.pdf. h http://www.mofo.com/green-chemistry/

12-27

 
During the interview process, one manufacturer cited international electromagnetic 

compatibility (EMC) standards as a contributor to cumulative regulatory burden. Such standards 

serve to standardize the EMC performance in terms of emissions and radio interference of 

various electrical products, including household appliances. i

12.7 CONCLUSION

The following section summarizes the scenarios DOE believes are most likely to capture 

the range of impacts on commercial clothes washer manufacturers at each TSL in the standards 

case. While these scenarios bound the range of the most plausible impacts on manufacturers, 

some circumstances could cause manufacturers to experience impacts outside this range.

12.7.1 Commercial Clothes Washers

At TSL 1, DOE estimates the impact on INPV for manufacturers of CCWs to be $6.4 

million, or a decrease in INPV of 5.2 percent under either markup scenario. At this TSL, industry 

free cash flow is estimated to decrease by approximately 30.7 percent to $6.2 million, compared 

to the base-case value of $8.9 million in the year before the compliance date (2017). 

TSL 1 represents an improvement in MEFJ2 (as determined using appendix J2) from the 

baseline level of 1.65 to 1.80 (ft3/kWh/cycle) for front-loading equipment and an improvement 

in MEFJ2 from the baseline level of 1.15 to 1.35 (ft3/kWh/cycle) for top-loading equipment. The 

identical results for the two markup scenarios at TSL 1 occur because for both equipment 

classes, the baseline MPCs and the MPCs at TSL 1 are the same. For front-loading equipment, 

this is because the 1.8 MEFJ2 (as determined using appendix J2) products (on which the EL 1 

standard is based) are the lowest efficiency front-loading equipment available on the market. As 

such, TSL 1 would have no impact on the front-loading market. Similarly, the design options 

associated with EL 1 for top-loading equipment relate to control changes and different cycle 

options, rather than material changes to the equipment itself. While there are product conversion 

costs associated with the research and development needed to make these changes, there are no 

changes in the per unit production costs. Given these conditions, the impacts on INPV at TSL 1 

can be attributed solely to the $9.9 million in product conversion costs for top-loading 

equipment. 

At TSL 2, DOE estimates the impact on INPV for manufacturers of CCWs to be $6.6 

million, or a decrease in INPV of 5.3 percent under either markup scenario. At this TSL, industry 

free cash flow is estimated to decrease by approximately 31.7 percent to $6.1 million, compared 

to the base-case value of $8.9 million in the year before the compliance date (2017). 

TSL 2 represents an improvement in MEFJ2 from the baseline level of 1.65 to 2.00 

(ft3/kWh/cycle) for front-loading equipment and an improvement in MEFJ2 from the baseline 

level of 1.15 to 1.35 (ft3/kWh/cycle) for top-loading equipment. Much like TSL 1, the identical 

results for the two markup scenarios at TSL 2 occur because the baseline MPCs and the MPCs at 

i

http://en.wikipedia.org/wiki/List_of_EMC_directives

12-28

 
TSL 2 are very close for front-loading equipment, and the same for top-loading equipment. For 

front-loading equipment, this is because the 2.0 MEFJ2 EL (as determined using appendix J2) 

requires only minor changes to baseline equipment needed to enable slightly faster spin speeds. 

The standard level for top-loading equipment at TSL 2 is the same at TSL 1, and again relates to 

control changes and different cycle options, rather than material changes to the equipment. 

Because there are no substantive changes to MPCs for either equipment class, much as in TSL 1, 

nearly all of the impacts on INPV at TSL 2 can be attributed to the $10.2 million in product 

conversion costs.

At TSL 3, DOE estimates impacts on INPV for manufacturers of CCWs to range from -

$67.5 million to -$70.5 million, or a decrease in INPV of 54.6 percent to 57.1 percent. At this 

TSL, industry free cash flow is estimated to decrease by over 356 percent to -$22.8 million, 

compared to the base-case value of $8.9 million in the year before the compliance date (2017).

TSL 3 represents an improvement in MEFJ2 from the baseline level of 1.65 to 2.00 

(ft3/kWh/cycle) for equipment class 1 and an improvement in MEFJ2 from the baseline level of 

1.15 to 1.55 (ft3/kWh/cycle) for equipment class 2. Unlike TSL 1 and TSL 2, the efficiency level 

specified at TSL 3 would require substantial redesigns of products in equipment class 2. The 

design options proposed at efficiency level 2 for top-loading units include increased tub capacity, 

hung suspension, low-profile (non-traditional) agitator design, and improved motor and 

transmission efficiency – all of which require major platform overhauls and significant changes 

to manufacturing capital. These design options do not contribute to substantially different 

MPCs, but the conversion costs associated with product development and testing, as well as the 

investments in manufacturing capital including retooling of tubs and agitators significantly 

impact the INPV. Additionally, the significant increase in industry aggregate product and capital 

conversion costs due to the shift to max tech efficiency level for top-loaders is explained by that 

fact that a larger proportion of top-loading units would require upgrades. As estimated in the 

shipments analysis, approximately 90% of top-loading units currently on the market are below 

EL 2 (by contrast, approximately 70% of current top-loading units are below EL 1).

At TSL 4, DOE estimates impacts on INPV for manufacturers of CCWs to range from -

$99.6 million to -$103.8 million, or a decrease in INPV of 80.7 percent to 84.1 percent. At this 

TSL, industry free cash flow is estimated to decrease by over 516 percent to -$37.2 million, 

compared to the base-case value of $8.9 million in the year before the compliance date (2017). 

 

TSL 4 represents an improvement in MEFJ2 from the baseline level of 1.65 to 2.20 

(ft3/kWh/cycle) for equipment class 1 and an improvement in MEFJ2 from the baseline level of 

1.15 to 1.55 (ft3/kWh/cycle) for equipment class 2. The efficiency level specified at TSL 4 

would require substantial redesigns of products in both equipment classes. For front-loading 

units, the design options associated with efficiency level 3 include increased capacity and 

switching to direct drive motors. For top-loading units, the design options proposed at efficiency 

level 2 include increased tub capacity, hung suspension, low-profile (non-traditional) agitator 

design, and improved motor and transmission efficiency. All of these upgrades require major 

platform overhauls and significant changes to manufacturing capital. These design options do 

not contribute to substantially different MPCs, but the conversion costs associated with product 

development and testing, as well as the investments in manufacturing capital including retooling 

12-29
of tubs and agitators significantly impact the INPV.

12-30
REFERENCES

1 U.S. Department of Energy. Compliance Certification Database. Last accessed September 3, 

 2013. Available online at: http://www.regulations.doe.gov/certification-data/.

2 California Energy Commission. Appliance Efficiency Database. Last accessed September 3, 

 2013. Available online at: http://www.appliances.energy.ca.gov/.

3 ENERGY STAR. Commercial Clothes Washers. Last accessed September 11, 2013. 

Available online at : 

http://www.energystar.gov/index.cfm?fuseaction=find_a_product.showProductGroup&pgw_

code=CCW.

4 McKinsey & Company, Inc. Valuation: Measuring and Managing the Value of

Companies, 3rd Edition, Copeland, Koller, Murrin. New York: John Wiley & Sons, 2000.

12-31