In 1932, General Electric recognized the need to help its dealers survive the Great Depression and have cash to finance their floor planning and consumer credit, so they created the General Electric Credit Corporation. GECC continued in this role until the 1960's, when Fred Borch created his "growth council" to identify new ways for the company to diversify and get off the $5 billion revenue plateau, that resulted from the Great Electrical Conspiracy...the price fixing scandal.
One of the recommendations of the Growth Council was to focus on FINANCIAL SERVICES, which included moving into other financial sectors. The head of this task force was Ticker Klock, a GE financial executive. Borch selected Klock to expand the scope of GE Credit and he moved the company into other financial services, including commercial financing and "private label" credit cards.
During the Jones era, GE recognized that financial large commercial projects was both a MEANS to enhancing revenues and an END to make more money. For instance, GE was able to sell more jet engines if it financed the the aircraft and then provided operating leases to airlines. The same was true of locomotives and so GE Credit became a key element in GE's marketing strategies.
When Jack Welch became CEO he selected two of his key staff from GECC. One was Dennis Dannerman who became CFO and other Larry Bossidy as his Vice Chairman. Dennis and Larry convinced Jack to increase the size, importance and scope of GE Credit and make it GE Capital. Welch appointed Gary Wendt to head of this organization and gave him a license to grow. Under Wendt, GE Capital increased in size and importance to GE and served as a means of managing earnings. GE Capital had a competitive advantage because it could borrow under its parent's AAA credit rating and have a strong competitive advantage.
This combination of a Financial Services subsidiary and a strong manufacturing portfolio, enabled GE to provide predictable and positive earnings growth.
Unfortunately, nothing lasts forever. Today GE Capital has become a liability and not an asset and so GE has witnessed a loss in confidence and a rapidly declining stock price. Immelt has vowed to reduce the size and importance of GE Capital. He announced he was restructuring the organization and it would become a smaller contributor to GE's bottom line. However, he also announced he would use the same successful JET Enging financing strategy to enable GE to grow its solar and wind generation businesses.
I have always believed that GE Capital should be a "means" to help the manufacturing businesses to grow and not a END of its own, in shore, I think it is appropriate to move back to what its role was in the past and not be a financial services company.
Bill Rothschild, author of the ONLY objective, comprehensive and insightful assessment of GE's 127 years and even predicted the current problem....THE SECRET TO GE's SUCCESS and GE Watcher blog (www.strategyleader.com)
One of the recommendations of the Growth Council was to focus on FINANCIAL SERVICES, which included moving into other financial sectors. The head of this task force was Ticker Klock, a GE financial executive. Borch selected Klock to expand the scope of GE Credit and he moved the company into other financial services, including commercial financing and "private label" credit cards.
During the Jones era, GE recognized that financial large commercial projects was both a MEANS to enhancing revenues and an END to make more money. For instance, GE was able to sell more jet engines if it financed the the aircraft and then provided operating leases to airlines. The same was true of locomotives and so GE Credit became a key element in GE's marketing strategies.
When Jack Welch became CEO he selected two of his key staff from GECC. One was Dennis Dannerman who became CFO and other Larry Bossidy as his Vice Chairman. Dennis and Larry convinced Jack to increase the size, importance and scope of GE Credit and make it GE Capital. Welch appointed Gary Wendt to head of this organization and gave him a license to grow. Under Wendt, GE Capital increased in size and importance to GE and served as a means of managing earnings. GE Capital had a competitive advantage because it could borrow under its parent's AAA credit rating and have a strong competitive advantage.
This combination of a Financial Services subsidiary and a strong manufacturing portfolio, enabled GE to provide predictable and positive earnings growth.
Unfortunately, nothing lasts forever. Today GE Capital has become a liability and not an asset and so GE has witnessed a loss in confidence and a rapidly declining stock price. Immelt has vowed to reduce the size and importance of GE Capital. He announced he was restructuring the organization and it would become a smaller contributor to GE's bottom line. However, he also announced he would use the same successful JET Enging financing strategy to enable GE to grow its solar and wind generation businesses.
I have always believed that GE Capital should be a "means" to help the manufacturing businesses to grow and not a END of its own, in shore, I think it is appropriate to move back to what its role was in the past and not be a financial services company.
Bill Rothschild, author of the ONLY objective, comprehensive and insightful assessment of GE's 127 years and even predicted the current problem....THE SECRET TO GE's SUCCESS and GE Watcher blog (www.strategyleader.com)
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