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Erik Sine

General Electric Pursues Pot of Government Stimulus Gold

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General Electric Pursues Pot of Government Stimulus Gold

By ELIZABETH WILLIAMSON and PAUL GLADER

Wall Street Journal

The financial crisis hasn't been kind to General Electric Co. Its stock has lost almost half its value, the government has stepped in to prop up its enormous financial arm, and sales have slumped in core industrial businesses.

But Chief Executive Jeffrey Immelt now has his eye on a huge new pool of potential revenue: Uncle Sam's stimulus dollars. Mr. Immelt, a registered Republican, quips about the shift in thinking in the nation's corner offices: "We're all Democrats now."

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GE has high hopes for the strategy. It says that over the next three years or so it could bring in as much as $192 billion from projects funded by governments around the globe, such as electric-grid modernization, renewable-energy generation and health-care technology upgrades.

The company is just starting to see a payoff. Last month, for example, President Barack Obama announced $3.4 billion in government-stimulus grants for power-grid projects. About one-third of the recipients are GE customers. GE expects them to use a good chunk of that money to buy its equipment.

The government has taken on a giant role in the U.S. economy over the past year, penetrating further into the private sector than anytime since the 1930s. Some companies are treating the government's growing reach -- and ample purse -- as a giant opportunity, and are tailoring their strategies accordingly. For GE, once a symbol of boom-time capitalism, the changed landscape has left it trawling for government dollars on four continents.

"The government has moved in next door, and it ain't leaving," Mr. Immelt said at the International Economic Forum of the Americas in Montreal in June. "You could fight it if you want, but society wants change. And government is not going away."

A close look at GE's campaign to harvest stimulus money shows Mr. Immelt to be its driving force. The 53-year-old executive supported the presidential campaign of Sen. John McCain, yet scored an invitation onto the President's Economic Recovery Advisory Board, led by former Federal Reserve Chairman Paul Volcker. Inside GE, he pushed his managers hard to devise plans for capturing government money.

As part of that effort, GE has promoted policy proposals such as a government-backed power-grid modernization, and pressed the government to increase the size of stimulus grants for that purpose. It also has helped customers design projects and apply for government money, with the expectation that those customers will then buy GE equipment.

The initiative comes as a sluggish global economy is weighing on GE's core industrial businesses. Pursuing government contracts has become a centerpiece of its strategy around the globe. The company estimates $2 trillion in global infrastructure spending will get under way in coming years. It has announced a flurry of energy deals with foreign governments from Iraq to China.

"I think we will do better than most on the stimulus," Mr. Immelt told analysts in April. He declined to elaborate on the effort for this article.

The strategy is not without risks, say two GE executives who have been critical of the plan. Government policy could change. Stimulus projects could roll out more slowly than GE expects and generate less revenue than forecast. GE could fail to win competitions to supply hardware and services to companies and public entities that receive stimulus dollars.

GE isn't in agreement with the Obama administration on some proposals. Its GE Capital financial unit, which contributed nearly half of its earnings in recent years, received government backing for its debt when the credit markets seized up last fall. Now GE is lobbying against proposals that would separate GE Capital or its industrial-loan company from the parent company. More regulation on its finance division seems inevitable. The company also is opposed to health-care proposals that would result in $40 billion in fees on health-care device makers such as GE.

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GE, whose businesses range from washing machines and lights bulbs to aircraft engines, wind turbines and nuclear reactors, has long done business with the U.S. government.

Over the years, the company has been associated with Republican politics. President Ronald Reagan, voice of GE ads and host of the GE Theater television show from 1954 to 1962, said the views he encountered at GE helped transform him into a free-market conservative. Former CEO Jack Welch, who handpicked Mr. Immelt to succeed him, was a prominent supporter of several Republican presidential candidates. Nancy Dorn, the current head of GE's government-relations office in Washington, served in the administrations of Mr. Reagan and both Mr. Bushes.

Mr. Immelt's push to corral federal money began even before Mr. Obama took office. In December, with the economy in a skid, Mr. Immelt was under fire from shareholders. Advisers to Ecomagination, the company's green-technology-development initiative, gathered at GE's boardroom in midtown Manhattan. Among other things, the group discussed how an Obama stimulus plan might shape the nation's energy future.

Mr. Immelt concluded that the company needed to capitalize on the surge in government spending. According to two people present at the meeting, Mr. Immelt told the group that business people needed to support the Democrats' stimulus package.

By January, Mr. Immelt had become a leading corporate voice in favor of the $787 billion stimulus bill, supporting it in op-ed pieces and speeches. Reporters who called the Obama administration for information on renewable-energy provisions in the legislation were directed to GE.

As the bill worked its way through Congress, GE lobbyists pressed for grants, tax cuts or rebates aimed at businesses GE is engaged in, including provisions worth more than $80 billion for energy projects, appliances, health-care information systems and wind farms. GE would have to compete with rivals for a share of these grants.

When the stimulus package was rolled out, Mr. Immelt instructed executives leading the company's major business units "to put together swat teams to get stimulus money, and [identify] who to fire if they don't get the money," says a person who heard him issue the instructions.

In February, a few days after President Obama signed the stimulus plan, GE lawyers, lobbyists and executives crowded into a conference room at GE's Washington office to figure out how to parlay billions of dollars in spending provisions into GE contracts. Staffers from coal, renewable-energy, health-care and other business units broke into small groups to figure out "how to help companies" -- its customers, in particular -- "get those funds," according to one person who attended.

The group put together a colorful two-page fact sheet about how the stimulus plan works, then printed hundreds of copies for GE salespeople to distribute to customers, including local governments and power companies. The fact sheet said GE would be involved with setting national standards and energy-transmission policy. The sheet also said that GE could help regional utilities and governments win federal stimulus money earmarked for making the power grids more efficient.

Separately, Mr. Immelt got an invitation to serve on the President's Economic Recovery Advisory Board, which would afford him access to the president's economic inner circle. The bipartisan board is composed of industrial, finance and union leaders, and Mr. Immelt has become one of the administration's advisers on jump-starting manufacturing and creating jobs.

"We think he is an important voice...we talk about energy being a place where America can produce jobs in the manufacturing space," says White House Chief of Staff Rahm Emanuel. "He has those interests, and they match ours. But we didn't come to them because of him."

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At the board's first public meeting in May, Mr. Immelt and fellow board member John Doerr, a Silicon Valley venture capitalist and prominent Democrat, led a discussion of the advantages to business of a proposal to make companies pay for greenhouse-gas emissions. The board voted to adopt that position.

"This was an early example of a group of business leaders willing to say that a clean-energy policy that put a price on carbon could create major opportunities for the economy if done right," says Austan Goolsbee, staff director and chief economist on the recovery board. A so-called cap-and-trade bill will likely not be considered by Congress until early next year.

One plank of the stimulus bill provides for energy grants for the development of "smart grids" -- sophisticated transmission systems in which power consumption and demand is carefully monitored to conserve energy. GE says it, along with others, urged the Department of Energy to increase its maximum energy grant 10-fold, to $200 million. Then GE helped some 100 customers, mostly power providers such as Florida Power & Light, to apply for money.

GE General Counsel Brackett Denniston III says the company frequently provides expertise to governments and clients, and that its assistance on government-grant applications does not ensure its clients will win the resulting contracts.

GE makes a wide array of equipment that its customers can use in conjunction with smart grids. GE sells appliances, for example, designed to make use of power at quiet times of day or night, when rates could be cheaper.

Of the 100 smart-grid grant recipients Mr. Obama announced last month, one-third were GE clients. GE declines to say what portion of the $3.4 billion in government money went to its customers. Its executives have told analysts that GE stands to reap up to $500 million in contracts from every smart-grid project built in a city with a population of more than one million.

GE has said that the state of Florida and partners plan to invest $800 million by 2014 to upgrade its power grid, and that the bulk of the equipment would come from GE. "If we can do this in Miami, we ought to be able to do this in 100 more large cities across the country," Steve Fludder, vice president of GE's Ecomagination green-technology initiative, told analysts at a conference in May.

GE has said that its goal is to increase its Ecomagination revenues to $25 billion by 2010, from $18 billion in 2008. Ecomagination products accounted for about 17% of revenues of GE's industrial businesses, Mr. Fludder said.

GE spent $7.55 million lobbying in the second quarter, a 34% increase from the year-earlier period and more than any other single company, according to federal data compiled by the Center for Responsive Politics.

GE does not disclose how much revenue it has gleaned from the government stimulus program. So far, the returns appear to have been modest, relative to GE's $182.5 billion of revenue in 2008. Nine months after Mr. Obama signed the stimulus bill, about half the federal money has been allocated. Most of it went to initiatives like individual tax cuts and aid to states, which don't directly benefit GE's businesses.

Mr. Immelt said last month that GE won't see a bigger impact on its revenues from stimulus spending until the current quarter, at the earliest. "We have a couple billion dollars of orders already into it," he said. "That's not just the U.S. It's China and other countries."

The effort could be hampered if Congress or the administration, anxious about rising unemployment and a growing deficit, decides to cut back on stimulus programs or redirect money toward job-creating measures less beneficial to GE, such as employer-tax credits.

GE shares have rallied in November on signs that troubles in the company's finance unit could be easing. But some analysts question the company's projections for added revenue from stimulus projects.

"We remain very skeptical on the stimulus, overall," says Scott Davis, an analyst at Morgan Stanley. He says GE's estimates of what it could reap from the stimulus programs is "way too high." Mr. Davis and other analysts at Morgan Stanley say they expect only $30 billion of the stimulus plan's $275 billion infrastructure spending to flow this year.

Asked last month if its government-contracting estimates were too optimistic, Mr. Immelt replied: "We'll see. We'll keep the target out there."

Write to Elizabeth Williamson at elizabeth.williamson@wsj.com and Paul Glader at paul.glader@wsj.com

Printed in The Wall Street Journal, page A18

How GE's green lobbying is killing U.S. factory jobs

By: Timothy P. Carney

Examiner Columnist

August 28, 2009

WINCHESTER, VA--“Government did us in,” says Dwayne Madigan, whose job will terminate when General Electric closes its factory next July.

Madigan makes a product that will soon be illegal to sell in the U.S. - a regular incandescent bulb. Two years ago, his employer, GE, lobbied in favor of the law that will outlaw the bulbs.

Madigan’s colleagues, waiting for their evening shift to begin, all know that GE is replacing the incandescents for now with compact fluorescents bulbs, which GE manufactures in China.

Last month, GE announced it will close the Winchester Bulb Plant 80 miles west of D.C. As a result, 200 men and women will lose their jobs. GE is also shuttering incandescent factories in Ohio and Kentucky, axing another 200 jobs.

GE blamed environmental regulations for the closing. The first paragraph of the company’s July 23 press release explained:

“A variety of energy regulations that establish lighting efficiency standards are being implemented in the U.S. and other countries, in some cases this year, and will soon make the familiar lighting products produced at the Winchester Plant obsolete.”

The U.S. legislation in question was a provision in the 2007 energy bill that required all bulbs sold in the U.S.—beginning in 2012 for some wattages—to meet high efficiency standards.

Given the steady death of U.S. manufacturing, this factory was going to close sooner or later, anyway. Workers tell me they were happy when they heard in June that the factory was staying open at least through mid-2011—a plan GE abandoned the next month.

But the light bulb law is clearly the main driver in closing this factory. After all, the product they make here will be contraband by 2014.

“That was the nail in the coffin,” Madigan says.

These men, waiting in the shade in front of the employees’ entrance to the plant on a hot afternoon, all know another pertinent fact about the light-bulb law that is killing their jobs: GE lobbied in favor of it.

Why did GE, founded by Thomas Edison, support a bill that killed the traditional incandescent light bulb?

The company said in 2007 it wanted to make sure it was working under a single federal efficiency standard, rather than a patchwork of state regulations. GE also touts its compact fluorescents as one of the green products in its “eco-magination” initiative.

The workers don’t buy the green arguments, pointing to the mercury gas that’s in the fluorescents. “It’s illegal to dump mercury in the river, but not in the landfill,” two of them say in unison—it’s become a dark joke at the factory.

Robert Pifer, who will also be laid off in July if he doesn’t find a new job by then, has an explanation for GE’s support of the light-bulb law and its shift to the more expensive fluorescents. “Are they not just trying to force-feed people stuff they don’t want to buy?”

So, GE gets environmentalist brownie points for selling “clean” light bulbs, and they also get to charge more for their bulbs. But there’s another advantage—they save on labor with fluorescents, because they make the fluorescents in China.

Not only are wages lower there, but so are the regulatory burdens, both environmental and labor. The Times of London recently reported, “Large numbers of Chinese workers have been poisoned by mercury, which forms part of the compact fluorescent lightbulbs.”

CFLs, however, are probably not the light bulb of the future. Right before it started lobbying for a federal light bulb law, GE announced that it would start making high-efficiency incandescent by 2010. GE doesn’t say where it will manufacturer its high-efficiency incandescent bulb, but all signs suggest it won’t be here in Winchester.

GE spokesman Peter O’Toole responded by pointing out GE has relocated its manufacturing of Hybrid Electric Heat Pump Water Heaters to Kentucky, from China. They promise 400 new “green-collar” jobs, offsetting the loss of the light-bulb jobs—but not in Winchester.

I ask the men what they plan to do when the factory closes down. Some say they’ll retire. Others can only shrug their shoulders. Pifer says he’ll just have to take a job at less than half of what he currently makes.

“I live paycheck to paycheck,” Pifer tells me. He has a son, and he owns a house nearby, he says. “So what am I going to do when I’m earning $11 an hour?”

These men are the victims of the green revolution—a revolution their employer is leading.


You have enemies? Good. That means you've stood up for something, sometime in your life. - Winston Churchill

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You have enemies? Good. That means you've stood up for something, sometime in your life. - Winston Churchill

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