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What Happened to General Electric?

This week, General Electric was officially removed from the Dow Jones Industrial Average, a leading measure of stock prices for major American businesses.

GE was replaced by Walgreens Boots Alliance, a company that operates healthcare businesses, including Walgreens drug stores.

Based on stocks, the five most valuable American businesses are all technology companies. They are Alphabet, which owns Google, Amazon, Apple, Facebook and Microsoft.

Big name companies like General Electric no longer have the power or influence they once did. Instead, technology, finance and health care businesses lead the United States economy.

GE was the last original member of the Dow Jones industrials. The company was formed in 1892 when the businesses of inventor Thomas Edison joined with a competing company. The famous banker J.P. Morgan financed the deal.

In its early years, shares of GE stock were like those of a current-day high-tech¹ company. The Dow – an industrial index – was influenced heavily by the growth industries of the day, such as railroads, copper², oil and sugar.

For a century, General Electric was at the center of American capitalism³. Its chief executive officer, Jack⁴ Welch, was well-known, both across the country and worldwide. At times, GE was the most valuable American company by market value.

So what happened?

General Electric has had a difficult time since its stock price rose to an all-time high in May 2000. This led to a three for one stock split. Investors⁵ were given three shares of stock for each one they owned.

Over the past year, GE shares have fallen 55 percent while the Dow Jones Industrial Average rose 15 percent. This broke a major rule of the Dow: A company’s stock should not be worth less than 10% of the highest price stock in the index.

The Dow industrials is a price-weighted index, which means higher priced stocks have a greater influence on its direction.

“The low price of GE shares means the company has a weight in the index of less than one-half of one percentage point,” said David Blitzer, chairman of the index committee at S & P Dow Jones Indices. “Walgreens Boots Alliance’s share price is higher, and it will contribute more meaningfully to the index.”

But as financial reporter Allan Sloan explained in The Washington Post, GE could have stayed in the Dow through a reverse stock split. Its stock price would have gone to $130. While its market value would be exactly the same, the company would have increased its influence in the Dow.

But being pushed out of the Dow was low on General Electric’s lists of concerns.

GE has been coming apart since the Great Recession 10 years ago. The weak economic conditions showed that the company was heavily dependent on its finance business, GE Capital.

Writing in The Wall Street Journal, reporter Andy Kessler wrote “GE was basically a giant hedge fund—a bet on its finance unit, which contributed half of GE’s profits.”

At the end of 2001, Jeffrey Immelt became the company’s chief executive. Under his leadership, the value of GE Capital grew to more than $500 billion. The business expanded through a combination of loans, leasing agreements, equity⁶ finance and insurance products.

But when the recession hit, GE had to take $3 billion from Warren Buffett to meet its short-term debts.

“GE have been unwinding this hedge fund ever since,” wrote Kessler.

John Flannery became the company’s CEO in the summer of 2017.

Last autumn, he warned that GE’s power-generation business was hurting. The company cut its dividend⁷ for only the second time since the Great Depression. In January, GE surprised investors by taking a big charge and setting aside $15 billion to pay for debts held by GE Capital, the company’s financial services business. In January 2018, GE announced a $10 billion loss. It also announced plans to sell off $20 billion more in equipment and other assets.

GE investors chase profits instead of earnings⁸ and for a long time the company showed profits, right up until it didn’t.

I’m Susan Shand.

Words in This Story

stock – n. a share of the value of a company which can be bought, sold, or traded as an investment

original – adj. existing first or at the beginning

index – n. a number that indicates changes in the level of something (such as a stock market) when it rises or falls

executive – n. a person who manages or directs other people in a company or organization

contribute – v. to give (something, such as money, goods, or time) to help a person, group, cause, or organization

reverse – adj. opposite to what is usual

hedge fund – n. a group of investors who take financial risks together in order to try to earn a lot of money

dividend – n. an amount of a company's profits that the company pays to people who own stock in the company

1 high-tech   

adj.高科技的

参考例句：

• The economy is in the upswing which makes high-tech services in more demand too.经济在蓬勃发展，这就使对高科技服务的需求量也在加大。
• The quest of a cure for disease with high-tech has never ceased. 人们希望运用高科技治疗疾病的追求从未停止过。

2 copper   

n.铜；铜币；铜器；adj.铜(制)的；(紫)铜色的

参考例句：

• The students are asked to prove the purity of copper.要求学生们检验铜的纯度。
• Copper is a good medium for the conduction of heat and electricity.铜是热和电的良导体。

3 capitalism   

n.资本主义

参考例句：

• The essence of his argument is that capitalism cannot succeed.他的论点的核心是资本主义不能成功。
• Capitalism began to develop in Russia in the 19th century.十九世纪资本主义在俄国开始发展。

4 jack   

n.插座，千斤顶，男人；v.抬起，提醒，扛举；n.（Jake）杰克

参考例句：

• I am looking for the headphone jack.我正在找寻头戴式耳机插孔。
• He lifted the car with a jack to change the flat tyre.他用千斤顶把车顶起来换下瘪轮胎。

5 investors   

n.投资者，出资者( investor的名词复数 )

参考例句：

• a con man who bilked investors out of millions of dollars 诈取投资者几百万元的骗子
• a cash bonanza for investors 投资者的赚钱机会

6 equity   

n.公正，公平，（无固定利息的）股票

参考例句：

• They shared the work of the house with equity.他们公平地分担家务。
• To capture his equity,Murphy must either sell or refinance.要获得资产净值，墨菲必须出售或者重新融资。

7 dividend   

n.红利，股息；回报，效益

参考例句：

• The company was forced to pass its dividend.该公司被迫到期不分红。
• The first quarter dividend has been increased by nearly 4 per cent.第一季度的股息增长了近 4%。

8 earnings   

n.工资收人；利润，利益，所得

参考例句：

• That old man lives on the earnings of his daughter.那个老人靠他女儿的收入维持生活。
• Last year there was a 20% decrease in his earnings.去年他的收入减少了20%。