General Electric: Back to Actually Making Things

General Electric, I'm happy to say (since my brother's job, pension, and health benefits depend on it), seems to have learned its lesson from our recent economic woes:

Perhaps no company outside of the banking sector was hit as hard by the financial crisis as G.E., certainly none that seemed healthy before the economic tailspin. Its big finance arm, GE Capital, long a cash machine that bolstered the mother ship’s bottom line, became an albatross, threatening to pull down the entire enterprise. G.E. cut its dividend for the first time since the Great Depression, lost its triple-A credit rating and hastily arranged a $3 billion investment from the billionaire Warren E. Buffett.

Having skirted disaster, G.E. is recovering gradually these days. Its finance unit is on the mend, with the size of its debts and troubled loans trending downward. Mind you, middling recoveries are a relative matter at G.E. After all, the company remains a colossus on track to deliver profits of more than $10 billion on sales of about $150 billion this year. But investors are used to getting more from G.E., which earned $22 billion on revenue of $173 billion in 2007.

So G.E. has revamped its strategy in the wake of the financial crisis. Its heritage of industrial innovation reaches back to Thomas Edison and the incandescent light bulb, and with that legacy in mind, G.E. is going back to basics. The company, Mr. Immelt insists, must rely more on making physical products and less on financial engineering — a path that, he insists, is also necessary for the American economy as a whole.

Mr. Immelt candidly admits that G.E. was seduced by GE Capital’s financial promise — the lure of rapid-fire money-making unencumbered by the long-range planning, costs and headaches that go into producing heavy-duty material goods. Other industrial corporations were enthralled with finance, of course, but none as much as G.E., which became the nation’s largest nonbank financial company.

Today, the financial unit is becoming smaller and focusing on fields where G.E. believes it has a competitive advantage. Those specialty areas include industries in which G.E. has a strong manufacturing presence, like power generation, aviation and health-care equipment, and lending to midsize industrial companies. Unless a deal is in a business where G.E. has distinctive skills, Mr. Immelt says he won’t let GE Capital dive in.

“We’re not going to do it, whether there are supernormal returns or not,” he says.

He’s most animated talking about heavyweight products that take patience and piles of cash to develop, weigh tons and last for years — next-generation jet engines, power turbines, locomotives, nuclear plants, water-treatment systems, medical-imaging equipment, solar panels and windmills. Mr. Immelt notes, for example, that the cost of a good-sized solar-panel plant, about $70 million, is more than twice the total investment in Google in the six years before it went public in 2004.

Technology-based manufacturing of all sorts, Mr. Immelt says, has to be a central part of reinvigorating the economy. In speeches and position papers, Mr. Immelt, a member of the White House’s Economic Recovery Advisory Board, has called for doubling manufacturing employment in America, to 20 percent of the work force, which he concedes is an “aspirational” goal.

Making progress, he adds, will require significantly improving the nation’s prowess as an exporter. G.E., by the way, happens to be America’s second-largest exporter, after Boeing. So Mr. Immelt’s views about what changes would benefit the economy would probably help G.E. as well.

“Many bought into the idea that America could go from a technology-based, export-oriented powerhouse to a services-led, consumption-based economy — and somehow still expect to prosper,” Mr. Immelt said in a typical speech last year before the Detroit Economic Club. “That idea was flat wrong.” He added: “Our economy tilted instead toward the quicker profits of financial services.”

Mr. Immelt is backing his words with actions — plans announced over the last 18 months include the creation of more than 4,000 jobs in manufacturing production and research in the United States. They include new factory jobs in Kentucky, Ohio, New York, Alabama and Mississippi, for making products including energy-thrifty washers and dryers, fluorescent light bulbs, sodium batteries, environmental coatings and jet engines. And the company is opening a research center in Michigan for advanced manufacturing technologies.

Good for Jeffrey Immelt!  This is clearly one of the primary ways back to prosperity for America.