General Electric Co. has formally announced that it's looking to spin off GE Capital Corp., selling as much as 20 percent of the company in an initial public offering. The move has been expected for a while, but now it’s official, and it raises some interesting questions about the direction of the economy.
Business writers used to joke that General Motors Co. was a bank with a side business in cars, and something similar could be said about a lot of businesses -- from those that focus on appliances (GE) to retailers (Target Corp.). As the market for goods has gotten more fiercely competitive, a lot of businesses have relied on the less transparent business of financing to make up the lost margin. Over time, these divisions have often expanded beyond simply providing auto loans or store credit cards and become full-fledged financial firms.
What does it mean that GE now wants to get out of that business? It’s still pretty insanely profitable; selling the unit means knocking about a third off GE's annual income statement. But GE doesn’t think that’s the future of the firm. Which leaves us with a question: Are we shifting back toward an economy in which firms can rely less on opaque financial transactions and more on making stuff?