Extreme Expansion

GE Capital: Target Companies Wanted

General Electric CEO Immelt Sees Improving Earnings, Cash Performance In 2010
GE's financial subsidiary, already a market leader in receivables management, has big plans for Germany.
  • Why it matters

    Why it matters

    GE Capital’s aggressive expansion strategy in Germany, if successful, could push traditional banks out of the equipment leasing market and steal market share in corporate financing.

  • Facts

    Facts

    • GE Capital has 740 employees in Germany and is a leader in factoring, a common method of financing for companies and equipment leasing.
    • The company has plans to grow in Germany by targeting small and medium-sized companies – the “Mittelstand.”
    • Unlike some other company financing arms like that of Siemens, GE Capital is more independent and has to earn its own profits.
  • Audio

    Audio

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Facing a lack of credit demand, the U.S. financial services company GE Capital has pulled back on its consumer loans business worldwide. And yet, the opposite seems to be true in Europe’s largest economy.

The subsidiary of General Electric plans to aggressively expand in Germany, hoping to taking advantage of the still shoddy reputation of many traditional banks in the aftermath of the 2008 financial crisis. It is targeting an increase in lending to the vaunted “Mittelstand,” the name given to small and medium-sized firms that form the backbone of Germany’s economy.

In an exclusive interview, Joachim Secker, the head GE Capital in Germany, said the financial firm is pushing hard to grow its business.

“I would like to buy for all three of our divisions,” Mr Secker told Handelsblatt. “We are hungry for assets.”

Figures at GE Capital have already been favorable in 2014, according to Mr. Secker, but the company wants to grow even further. It has a few strategies in place to beat its main competitor: traditional banks.

Mr. Secker said GE will not win this fight by underbidding its competitors. Like most financial firms these days, it too is struggling to make a solid profit in the current low interest rate environment.

“Everyone is feeling the pressure with margins. It is difficult to set yourself apart from the competition by price only,” Mr. Secker said.

This is why GE Capital, which is mainly competing with banks on commercial lending and leasing, has set out to win customers with better service instead. Using the motto “Access GE”, the company hopes to better advise customers with technical questions and connects customers with its in-house industry experts.

“There is a good place for us in financing Mittelstand companies.”

Joachim Secker, Head of the finance divison at GE Capital Germany

GE Capital Germany has 740 employees with its headquarters in Mainz, close to Germany’s financial center, Frankfurt.

Even amid the tough economic environment, the company’s equipment leasing and Mittelstand financing business divisions are doing well. The segment remains profitable, according to Mr. Secker. In fact, profits are showing “good double-digit growth” this year. This is not necessarily a given, since low interest rates have also affected those looking to finance Germ,any’s Mittelstand.

The company is also showing success in its factoring segment, a popular form of cash management involving receivables. With  a share of 30 percent, GE Capital is already the market leader in Germany for accounts receivables. Fleet services at GE Capital are also on a growth course that has been “better than planned” this year, Mr. Secker said. GE Capital has a fleet of 50,000 vehicles in Germany that it leases out to companies.

Given its recent profit boost, GE Capital is self-confident when looking at expanding its business around financing German Mittelstand firms.

“There is a good place for us in financing Mittelstand companies,” Mr. Secker said.

As a remnant of the financial crisis, Mittelstand companies in Germany still deeply distrust traditional banks. Foreign banks in particular were criticized for exiting the German market too quickly when times got tough, leaving many smaller companies in the lurch.

GE Capital is trying to position itself as a more honest alternative on the market, hoping to capitalize on this distrust. The U.S. firm does not try and sell other products at the same time as it sells a leasing contract. “We don’t bother customers with interest rate and cross currency swaps,” Mr. Secker explained.

However, Mr. Secker warned it will be a long journey to become an all-round financial consultant, especially in complex strategy questions such as how to do business in China, or deal with E.U.-subsidies.

Compared to Siemens, which has a similar financial services arm, GE Capital is more independent and has to earn its own margins. It has to legitimize its existence to its parent company GE.

Things are very different at Siemens. Its financial services subsidiary, SFS, never dared to venture into a business such as consumer loans. Instead, SFS has used its balance sheet strength to finance Siemens’ own projects and products.

 

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Axel Höpner is the bureau chief at Handelsblatt in Munich. To contact the author: hoepner@handelsblatt.com

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