AS CAPITAL CONTINUED to grow, the old-line industrial conglomerate in which Jeff Immelt and his lieutenants had come of age was changing. Such change was a GE tradition, in many ways. Jack Welch had impatiently cashed GE out of industrial businesses as he tired of them, especially those that represented the big bets of a previous generation of leadership. He had moved quickly upon taking over as CEO to get out of its massive mining operations, which included a major footprint in Australia as well as exploration rights across the American West. Welch saw little advantage for the company in resource extraction plays. He had become similarly fed up with some businesses that were getting commoditized, like the small appliances unit. In the 1980s and ’90s, it was no fun, and not good business, to try to keep up with the Japanese selling clock radios and toasters.
Immelt was doing a similar round of examinations of the GE portfolio. With an eye toward the swift-moving globalization that was opening up supply chains across oceans and upending manufacturing businesses, he was especially wary of GE product lines that became commoditized, as the small appliances had been. Where he thought investment in overhauling the product offerings could boost earnings, Immelt made new investments, chasing after the market for new products like compact fluorescent lightbulbs and the zone-line air conditioning units the company sold to hotels.
Immelt was skeptical about those industrial units whose salespeople competed the hardest on unit price. The best jet engines in the world could be sold at a million-dollar loss; the incredible expense of designing, building, selling, and installing the engines became worthwhile when the second and third maintenance overhauls of those engines came due a decade or so later. Then they gushed out pure profit, just as a power turbine did. But that wasn’t how the washing machine business had ever worked. And now it was under assault from increasingly attractive and low-cost machines from new manufacturing powerhouses like South Korea, and facing a consumer class with whom GE’s old promises of durability and familiarity went nowhere.
In a culture in which people were accustomed to tossing more treasured devices like phones and computers after just a few years, no one expected to get a full generation of use out of a dryer anymore. Neither did they find national loyalty to be a compelling reason to buy an American washing machine if a Samsung machine sold for 20 percent less. Channeling the cold-bloodedness for which Welch had been renowned, Immelt wanted no part of a business that relied on outmoded expectations. The company quietly began looking around for buyers for the massive Appliance Park business in Louisville, the factory complex in which GE had supplied, and helped to create, the post–World War II American middle-class home.
Some other pieces of the portfolio were more quickly disposed of. Immelt sold specialty materials assets in Europe, the silicones business, and the advanced materials business to the Apollo Group, a private equity firm, for $3.8 billion. In the announcement, GE vice chairman Lloyd Trotter said that the deal would help the GE industrial businesses achieve “faster growth and higher returns.”
An even more storied piece of the conglomerate came next.
Plastics—the training ground for Welch, Immelt, Bornstein, and countless others—was also sold. Formed in 1930 and central to the prosperity of Pittsfield, Massachusetts, the division had changed the world with the invention of Lexan. Its plastic pellets were turned into products all over the world. It made the plastic cases for Apple’s famous iMac G3, the multicolored desktop computer that had heralded the triumphant return of Steve Jobs as CEO.
Immelt, true to form, had poured money into marketing at Plastics in an attempt to make Lexan and other products into household names. The Plastics marketing team wanted consumers to identify its product lines, much as Intel had succeeded in teaching the broader public about its computer chips by using “Intel Inside” stickers as a sign of quality.
In an early intracompany experiment with the internet, GE set up a site it called “Polymerland,” which sounds more like an ill-fated amusement park designed by chemical engineers. The site was intended to facilitate business-to-business sales of the plastics needed to produce goods like appliances and power equipment.
It hadn’t made enough of a difference. And the dwindling margins were not going to be propped up by even the best internet-era buzzwords and product stickers. Oil prices in particular strained the cost of the raw materials needed in the Plastics division. Knowing the score, Immelt cut it loose. GE Plastics was sold to Saudi Basic Industries for $11.6 billion.
Immelt said that the sale would aid GE’s “faster-growing, higher-returning set of businesses capable of delivering sustained performance.” Of course, the cash would also be used to repurchase lots of GE shares.
Amid the mad deal-making and growing dependence on financial services, Immelt constantly pledged to investors that GE knew what it was doing. He assured them that the solid blue-chip company of the twentieth century was as dependable as ever, but was now blazing an innovative new path to lead the way for other companies of the future.
Risk was being well managed. In his 2006 letter to investors, Immelt boasted that GE managed more than $560 billion in financial assets “with losses less than the industry average.” He praised the oversight of Capital’s monthly board meetings, which included a memo written by the chief risk officer, Jim Colica, giving his views on every deal. Immelt said that he also spent an “hour alone” with Colica “to review each deal through his eyes.”
Yet the internal detractors remained. Others described a GE culture so different from Immelt’s public pronouncements that they questioned whether he really understood how Capital worked. One thing was certain: GE regularly leaned on the group to make sure that profits stayed steady.