Lessons: Maytag's Blues

In Newton, Iowa, Maytag's home since 1893, news that the troubled appliance maker would be sold has stirred up a host of emotions. "It's a fear of the unknown, and there's plenty of unknowns around here these days," says resident Jim McCleary. Maytag is weighing bids from Whirlpool and a private-equity firm, Ripplewood Holdings. Meanwhile, many of the 2,800 Maytag employees in Newton--18% of the population--are worried that they will lose their jobs. Others are sad to watch the Maytag legacy go on the block. Mary Ergenbright's father was a Maytag clerk for 30 years, and her son-in-law is a Maytag vice president. "A new company would probably bring in new executives, and he'll be out of a job," she says.

Few here are shocked. Maytag's profits have been shrinking for three years, and the company posted a $9 million loss last year. "I just had a gut feeling that at some point my time would come up," says Terry Pickett, who spent 17 years at Maytag as a tooling designer. Before he was laid off in April 2004, he had begun to look elsewhere for his future; he will finish his degree in civil engineering next spring. The town has been preparing as well. Since 2002, Newton has poured $130 million into parks, a 40,000-seat racetrack and small-business incentives. If Newton can bounce back, surely Maytag can too. To do so, it will have to correct its flat-footed mistakes. Here's what it will take.

FAST-TRACK NEW PRODUCTS

Yes, Maytag's competitors in Asia can take advantage of cheaper labor costs, but LG's and Samsung's real advantage is quality: $1,000 washing machines compete with the best ones from GE and Whirlpool. "They're really competing on products, not price," says Eric Bosshard, an analyst at FTN Midwest. Maytag has been slow to keep up; its last new front-loading washer debuted in 1997. Until those new product lines are ready, Maytag can't take advantage of lower costs at its newer, more efficient plants in South Carolina and Mexico, which make them. To stay afloat, it has outsourced some production overseas and kept older factories in the Midwest running below capacity.

GIVE CONSUMERS WHAT THEY WANT

Bells and whistles aren't enough. "People will pay for products they understand the benefits to," says Peter Greene, an analyst with the NPD Group. The most successful new products are "consumer driven, not engineering driven," he says. Their benefits are obvious: whisper-quiet dishwashers or space-saving stackable washer-dryers rather than just machines with more powerful motors. That trend affects every consumer product, he says. Look at MP3 players. Before the iPod, they competed on how much memory they had. Apple figured out that the experience of the gadget mattered more and killed the category.

BUCK UP THE BRAND