GE Rethinks Its Right-of-Way and Is Exiting Retail Finance
July 27, 2014
This recent article by Mark DeCambre on his Quartz blog highlights how General Elextric is moving to use their legitimate right-of-way in financing infrastructure andselling off areas wherer they do not have true right-of-way. GE Finance is about business, not consumers.
In 2008, one day we woke up and discovered General Electric was a a lot more like a bank than we thought. During the housing boom GE's finance arm had grown rapidly by expanding from the core busness of financing business infrastructure and service contract deals into consumerfinance. The stock price drop exposed their risky move into retail finance.
General Electric is one of the few comapnies that has a robust innovation portfolio. Their core business is infrastructure. This is what we refert to as their product. Under Jack Welch they smartly expanded into services. They understood that an airplane engine is only valuable when it is on a plane and flying. So, they added long-term service contracts and started measuring time from when the plane was taken out of service until the time the plane was put back into service. They optimized the system to take out all unnecessary costs and sold these contracts in addition to the engine.
Airplane engines are expensive, but a long-term service contract is even more expensive. This leads GE to a third pillar of their company, GE Finance. These huge deals need financing. GE has a right-of-way with their knowledge of how large comapnies and national governments make infrastructure investments. So, their "experience" business is financing the deals.
Where GE goes wrong is when the finance business becomes an end in itself. This is the move to financing homes. GE doesn't have the experience to do this themself even though it looks attractive. This move to spin off the retail finance business is smart. It moves GE back into balance with three synergystic parts: Infrastructure, Service Contracts, Financing Deals.