Business Breakdowns General Electric: Lessons from the Rise and Fall - [Business Breakdowns, EP. 74]
Sep 15, 2022
In this engaging discussion, Josh Aguilar, a GE Analyst at Morningstar with deep expertise in capital allocation, unpacks General Electric's dramatic transformation. He highlights the company's ascent under leadership like Jack Welch and its challenges today, emphasizing the shift toward aviation and healthcare. The conversation also reflects on critical lessons from GE’s evolution as a conglomerate, illuminating how past strategies can inform future business practices. Insights into innovation and resourcefulness further enrich this exploration of one of history's most notable companies.
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GE's Transformation
- GE's peak market cap in 2000 was nearly $600 billion, but today it's a fraction, at roughly $74 billion in revenue.
- The company dramatically shifted from diverse holdings in media, finance, and appliances to a focus on aviation, healthcare, and energy.
Cultural & Capital Allocation Issues
- GE's decline stemmed from short-term focused culture and poor capital allocation, particularly reliance on GE Capital.
- Welch used GE Capital for earnings management, masking industrial weakness, and creating long-term issues.
GE Capital's Leverage and 2008 Crisis
- GE Capital, unregulated like a bank, used leverage and a AAA credit rating for cheaper wholesale funding.
- During the 2008 crisis, short-term loans dried up, leaving GE reliant on government and Berkshire Hathaway.
