GE Whiz

General Electric, one of the country's grand old companies, for many years had a reputation for infallibility.  No one is infallible, so it's not surprising that under CEO Jeffrey Immelt, who took over in 2001, and especially since the 2008 economic downturn, things have gone less well:  the stock price is way down, the dividend has been cut, and the SEC is looking into accounting irregularities.  Because of all this, Immelt's reputation is not quite what his predecessor's was, but GE is still a company to be reckoned with.  [Disclosure:  I've owned a dab of GE stock for years, but I don't think that has much bearing on what I want to say here], 

It's encouraging, under current economic circumstances (the company's, and the country's) that GE plans to develop two new product lines to be manufactured in the U.S.  

For decades, theorists have been telling us that it was OK that manufacturing was becoming less important in our economy, because "services" would take center stage instead.  And in Economic Restructuring I mentioned there are those who believe that the preponderance of services in our economy cushions the effects of a recession better than a manufactures-based economy would. 

Still, (and call me old-fashioned if you will), I've never found those arguments completely convincing.  It always seemed to me that it was wildly optimistic to assume that any edge we had in services could last for long; now we see many service jobs being exported.   At the same time, if we can't "make stuff," that is, produce at least some of our own goods, we consign ourselves to a future of second-tier status.  After all, is it better to make a shoe, or to shine shoes? 

OK, that's too simplistic.  But it's equally simplistic, and defeatist, to suppose that we can't compete in manufacturing, where the key to being competitive is to maintain a lead in technology, keep costs down, and constantly modernize.  All of these are things we have unfortunately failed to do in some sectors (e.g., automobiles); we've been too complacent.  I'm hopeful that GE's commitment to U.S. manufacturing in these two instances will not only succeed, but become a model for others. 

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Comments

[Joseph Lott]

Back in my consulting days, we had a rule of thumb called the "sheep in wolf clothing" that stated: if more than half your revenue came from one type of business, then that is really your main business. This came about because there were lots of software firms that made over half of their revenue providing consulting and professional services, not software. About 6 years ago, I kept getting requests from the consultants who supported manufacturing industry practice asking me to help them with their GE account calls. When I looked at GE's annual report for that year, I was surprised to see that more than half of GE's revenue came from it's financial services business (lease financing, payments processing, and credit/mortgage processing). Some of these areas were directly affected in 2006-2007 by the crisis in the financial markets. Since then, I think GE has shed some of that business, or cleaned up the parts that could be affected. My point is that I think many of GE's problems came from their financial services units instead of the manufacturing units. I think most of these big conglomerates like GE with many diverse lines of business are always going to have problems.

[Jhawk23]

Thanks for your comment; it's always good to hear from someone who has a special insight or first-hand knowledge of the topic. About 30 years ago (or was it 40?) conglomerates were all the rage in investing but they haven't been very popular since. As an investor, I was aware how many different arrows were in the company's quiver and was always amazed that the well-known Value Line service had GE listed in the "electrical equipment" industry. Only about six months ago did they finally move it to "Diversified." If GE can now make a contribution to restoring on-shore manufacturing, that's all to the good.