Determining Future Prices For Clothes Washer U.S.DepartmentofEnergy

fC~l^^^\M^ ashers ^^ W Workshop Office of Energy Efficiency Clothes Washers and Renewable Energy

July 23, 1997 1000 Independence Avenue, SW

Washington, DC 20585

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93
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Clothes Washer Workshop: Price Forecasts

Introduction

1VI Prices are used in the following analyses

- Life-cycle cost analysis (Retail Prices)

-Manufacturer impact analysis (Manufacturer Prices)

A/ Relationship between retail and manufacturer prices

- Average distributor mark-up?

- Same relative uncertainty range?

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Clothes Washer Workshop: Price Forecasts

Different approaches could be used to determine retail prices.

1/ Survey of existing market prices

4/ Expert Forecasts

v/~ Various mark-ups over variable costs/manufacturing costs

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Clothes Washer Workshop: Price Forecasts

A survey of existing retail prices could help estimate future prices

and validate mark-up assumptions.

DOE has initiated a market assessment of the clothes washer

industry. Current pricing of existing models will be researched.

VI What data sources exist?

Vi What factors may limit the usefulness - Products not in market, or in low quantities - Efficiency features bundled with non-efficiency features

- Change in efficiency descriptor

- Standards may commoditize features and thus alter pricing

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Clothes Washer Workshop: Price Forecasts

Expert Forecasts

V. Manufacturer cost data sheets include a column labeled "Estimated

increase in retail price". Format could be modified to include a

range or other features.

[-. DOE will consider any additional forecasts received in comments.

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Cioihes Wvasher Wvorkshop: Price Forecasts

Different Mark-ups have been used in past analyses.

Source Manufacturer Retail Total Mark-up Mark-up Mark-up

Consumer Products Efficiency

Standards-1 9821 1.3 7 1.70 2.33

Energy Conservation Standards for

Consumer Products--1990 TSD2 1.37 1.4 6 2.00

1991 AHAM report-Impact of 1 , 1.534 1.475

H-Axis Standards 1.003, 4 1.475

Market Survey5 1.33

Market Survey 6 - 1.35

Vertical analysis of SEC 10-K

financial statements 1.42

1 1982 Engineering Analysis Document for Consumer Products Efficiency Standards. Markup over total manufacturing cost.

2 1990 TSD and DOE's comments on the Mark-ups for the final rule. (pg. 22256, Federal Register/ Vol.56, No. 93/ Tuesday, May 14, 1991/ Rules and Regulations.) Mark-up over long-term variable cost.

3 Scenario 1: Simple pass-through of incremental variable costs. Report prepared by ADL.

4 Scenario 2: Level required to maintain current (1991) industry value. 5 Based on retail prices obtained from market survey conducted by Dealerscope Merchandizing, and manufacturer sales price information extrapolated from manufacturer shipments and revenues from the 1996 AHAM Fact Book.

6 Based on retail prices obtained from ELCAP market surveys, and information extrapolated from manufacturer shipments and revenues from the CIR, code 36330.31. 6
Clothes Washer Workshop: Price Forecasts

Based on past analysis the Department is seeking comment on a

2-step mark-up strategy that incorporates different cost pass-through

assumptions.

.·- : " Manufacturing Cost

Manufacturer Mark-up Range

[ 1.00 to 1.42 ]

i Manufacturer Price :

Retail Mark-up Range

[ 1.30 to 1.475 ]

- !ru' ' | expe a s 'Retail Price

The mark-ups would be expressed as probability distributions.

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Clothes Washer Workshop: Price Forecasts

Illustrative probability distributions for Mark-ups.

Manufacturer Markup

Manufacturer Mark-up

Minimum mark-up 1.00

Likeliest mark-up 1.21

Maximum mark-up 1.42

1.00 1.21 1.42

Retailer Markup

Retail Mark-up

Minimum mark-up -1.30

Likeliest mark-up 1.39

~- e~LMaximum mark-up 1.48

1.30 1.39 1.48

Forecast: Total Markup

1,000 Trials Frequency Chart 0 Outliers Proba y dn .031 31 Probability distribution for

Total Mark-up -- - - - - - - - - - - - - - .o . . . . . . ... .. . ... 23,25

.0* 2 3 ; -- - . l . . . -1235 (from variable manufacturing

.0,6 .. s J9...... . |I l..-.. .. .. .... , I5.5 | cost to retail price)

& 1 ~~~~~~.008~,,. . ..

1.30 1.50 1.70 190 2.10

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Clothes Washer Workshop: Price Forecasts

Summary

Consistent with the process rule, prices will be described within an

uncertainty range.

The Department will use all the approaches previously described to

bound the uncertainty.

The mark-up approach will use various assumptions about cost passthrough.

4/ The price forecasts will be reported as probability distributions and

used as input to the Manufacturer Impact and Life-Cycle-Cost

analyses.

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