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Tags: GE | appliance | consumer | corporate

Why GE Is Abandoning Your Kitchen

By    |   Thursday, 11 September 2014 08:05 AM

General Electric Co. is selling its appliances unit to Sweden's Electrolux AB. As an electrical-appliance hobbyist, I can't help but feel a little wistful.

I understand why it's doing it. GE entered the appliance business as a way to sell more electricity; the first toaster actually plugged straight into a light socket. The company has always been split between the part that manufactures dynamos and electric train engines for big companies and the part that manufactures demand for more dynamos.

The consumer-facing side seems to make pretty good appliances. My eight-year-old GE gas stove does a splendid job. But GE no longer needs to gin up extra demand for electric power. A vast array of companies now specializes in manufacturing devices that will run your electric bill into the stratosphere and keep it there.

GE's consumer business has a very different orientation than its corporate business does. For example: Sell a stove to a consumer, and you've gotten all the money you're ever going to get out of the transaction; any further interaction generally means expensive warranty repairs.

Corporate contracts, on the other hand, deliver ongoing revenue streams for maintenance and support. Covering two such different groups with one brand can be a tricky marketing feat. Finding management talent who can oversee them is also potentially challenging.

Meanwhile, the economy has moved away from conglomeration. Housing a lot of different businesses under one roof has a certain appeal: You're not so vulnerable to a downturn in one market, and you can share overhead. But the disadvantages tend to outweigh the benefits. More divisions mean more infighting for resources.

Managing that infighting, and coordinating everything else between them, requires a larger and larger bureaucratic apparatus, because every time you add another node to a network, you don't just add to its complexity, you multiply it. When the tax reforms of the 1980s took away the tax benefits of building managerial empires, this inexorable logic started ripping apart the old conglomerates. So this move was probably inevitable. It's only surprising that it didn't happen sooner.

No matter how much better it will be for the children, however, there's always something sad about a divorce. General Electric was one of the pioneers that brought us the modern kitchen. Now it's walking out the back door and bidding us good luck with our new partner.

Megan McArdle is a Bloomberg View columnist who writes on economics, business and public policy.

© Copyright 2021 Bloomberg L.P. All Rights Reserved.


Finance
General Electric Co. is selling its appliances unit to Sweden's Electrolux AB. As an electrical-appliance hobbyist, I can't help but feel a little wistful.
GE, appliance, consumer, corporate
406
2014-05-11
Thursday, 11 September 2014 08:05 AM
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