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In Depth April 2, 2009, 5:00PM EST

GE's Jeffrey Immelt: All Boxed In

No matter what the CEO does to try to save his company, it has lost its aura of greatness

By Jena McGregor

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Immelt wants to shift GE's focus to infrastructure,media, and health care Michael Gillette

On the day before President Barack Obama's inauguration, Jeffrey R. Immelt tried to give General Electric (GE) investors his own brand of hope. With the world going through a fundamental reset, the GE chairman and CEO told MSNBC viewers: "We've got to come out of this a brand-new company."

That vision has since gotten lost amid the day-to-day concerns that have come to haunt GE. In recent months Immelt has been buffeted by complaints over the company's struggling GE Capital unit and by slowing growth in some of its industrial operations, leaving him with little choice but to play defense. Instead of rolling out radical new solutions to GE's problems, Immelt has been bogged down in dealing with finance issues. Instead of announcing bold new acquisitions, he has cut the dividend to help preserve cash. Instead of selling off underperforming units to strengthen operations, Immelt has had to hold on to things he doesn't want.

In short, Immelt has a long way to go before he creates a brand-new GE.

The question is what Immelt, 53, can do from here. With the expectations of shareholders and analysts now so low, this would seem like the perfect opportunity for the embattled CEO to reshape the conglomerate for the future. If any company can fight its way back to greatness, surely it's GE, which booked $18 billion in profits last year and is sitting on a $48 billion cash hoard. As Sanford C. Bernstein analyst Steven Winoker says: "You want to believe that if GE is as well-managed as it always has had the reputation for being, then now is the time that it should be taking advantage of distressed pricing on strategic assets."

HEMMED IN

But a closer look at GE's predicament reveals that Immelt's options are quite limited. While he has raised $15 billion in fresh capital, slashed costs, and diversified GE Capital's funding in recent months, the economic climate makes it difficult for him to do much more. He's focused on building businesses in areas like green energy and infrastructure that could benefit from stimulus money. That builds on a strategy forged years ago. If he wanted to take dramatic steps to transform GE's portfolio—and there are scant signs he does—he simply can't. "He's totally hemmed in," says Boston University School of Management professor N. Venkat Venkatraman.

Many CEOs staring down today's problems are asking themselves the famous questions that Peter Drucker once posed to Immelt's predecessor, Jack Welch: "If you weren't already in this business, would you enter it today?" And if the answer is no, "what are you going to do about it?" GE's current chief might have lots to offer on the first question. On the second, his choices are few.

Start with GE Capital, the finance arm with $637 billion on its balance sheet and long-standing businesses from aircraft leasing to equipment financing. In recent years it bet big in businesses such as commercial real estate and consumer loans in Eastern Europe. As economies flail and real estate values teeter, shareholders have grown increasingly nervous about GE's exposure to losses. "I don't think investors want to sit through another cycle with GE Capital," says JPMorgan Chase (JPM) analyst C. Stephen Tusa. "They would rather own a pure global infrastructure play." Immelt wants to reduce the unit's impact. Last year he announced he would sell the $29 billion credit-card business, which issues store-brand cards for retailers like Gap and J.C. Penney, but no buyers appeared. Although profitable in 2008, the segment faces rising delinquencies and credit costs as unemployment grows.

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