General Electric Co. (GE) CEO Jeffrey Immelt resigned from the Federal Reserve Bank of New York’s board of directors, citing “increased demands” on his time.
Immelt, 55, stepped down effective March 9, the New York Fed said in a statement Thursday (April 28). He noted in his resignation letter to New York Fed President William C. Dudley that his other commitments include the President’s Council on Jobs and Competitiveness, which he has led since January. Immelt had served as a regional bank director since January 2006, Bloomberg reported.
“I was very surprised that he even accepted the job on Obama’s council because being CEO of a diversified conglomerate like GE is more than a full time job,” said Sung Won Sohn, an economics professor at California State University-Channel Islands and former chief economist at Wells Fargo & Co. “He is probably stretched too thin.”
Immelt’s decision is unrelated to plans by the Fed later this year to begin supervising GE Capital, the Fairfield, Conn.-based company’s finance unit, GE spokesman Gary Sheffer said.
“Jeff enjoyed his five years on the board of the New York Fed and learned a great deal,” GE said in a statement. “He decided to step down to allow the opportunity for others to serve and to free up time to focus on other responsibilities.”
‘Too Big to Fail’
The Fed is poised to gain responsibility for non-bank financial firms deemed “too big to fail,” including GE Capital. The Dodd-Frank Act, signed into law by President Barack Obama in July, gave the central bank expanded authority over systemically important financial firms.
Immelt was a Class B director at the New York Fed, representing “the public,” and selected by member banks, according to the New York Fed statement. Class A directors at the Reserve Bank represent the member banks.
“Clearly now the Fed is going to be regulating a financial services company like GE Capital and I don’t think he should be sitting on the New York Fed board” as a Class B director, said Sohn, who is also vice chairman of retailer Forever 21 Inc. “If GE Capital were to get into any kind of trouble, it would be the New York Fed that would have to deal with it so I don’t think it’s appropriate for him.”
The New York Fed in December revised rules for its board of directors to avert conflicts of interest. Under Dodd-Frank, the three Class A directors are prohibited from appointing the president and first vice presidents of regional banks.
The New York Fed also restricted banker board members from “playing any role in bank supervision matters,” or naming the “senior leadership” for the bank supervision group, leaving those matters to board members representing the public, according to a Dec. 22 statement.
The New York Fed has since renamed its bank oversight division the Financial Institution Supervision Group, in a nod to its expanded authority.
Is the electric car charging station of the future a motorhome?
It could be in some circumstances, speculated Luis Ramirez, CEO of the Industrial Solutions Group at General Electric. Ramirez recently met with some consumers and customer groups in Oregon, and some asked whether it would be possible to use the engine of an RV to charge an electric vehicle (EV), U.S. Solar Market Insight reported. RV drivers often tow cars behind them as they travel on down the road. Coming up with a charging system for RVs would help open a niche market. Technically, it’s not impossible.
Ramirez and other GE executives are in the middle of a road trip to promote products such as the WattStation charging station and to create awareness about some of the issues that will face companies when EVs begin to hit the road in large numbers. It wasn’t your usual Silicon Valley audience. Instead of investors and job seekers, most of the attendees were executives from parking lot companies, some AAA representatives and many electricians — in other words, the people that are actually going to make this happen.
Navistar International Corp. is taking part in the tour.
Theft and security could become a problem for public charging stations. “There is a lot of copper in a charging station. We do have to worry about security,” said Ramirez.
In Europe, security is less of a problem because charging stations will have cables; drivers will be required to carry their own connections. The U.S. took a different approach. It lightens the load in a car, but it creates a potentially attractive target for those out there intent on stealing wire, manhole covers and other metal objects during this current commodity boom.
Speaking of commodity metals, scientists in GE labs are also working on electric motors that don’t require rare earth metals and use nonmetallic heat sinks. This is a significant development because rare earth materials like neodymium oxide have zoomed from $20,000 a ton in 2009 to $165,000 a ton this month according to my own spot check today.
Direct current is going to take off, Ramirez added. While the grid delivers AC power, distributing and using DC power within microgrids, datacenters or office buildings could help conserve energy by reducing the number of conversions power must undergo before it gets used. The conversions occur because most electrical equipment — batteries, motors, computers — actually run on DC. In a typical data center, power might get converted five times before it can be used to run servers; in a DC data center, the conversions can be reduced to one. Fewer conversions, fewer losses.
Back in December, Ramirez oversaw the $520 million acquisition of Lineage Power Holdings , which makes equipment for efficient AC-DC and DC-DC conversions. Other companies in this space include Validus DC Systems and Nextek Power Systems.
“With the right conversion architecture, you can bring efficiency to the 92-95% level,” he said, “DC architectures also use a lot less metal.”
One potential application: mining operations. Many remote mines have been completely automated with robotic trucks hauling dirt from deep inside the earth. Crushing rocks in mining operations alone accounts for 7% of the world’s energy consumption, he said. Switching to DC could help bring that number down.
One area, however, where DC will need some work is in high-speed charging stations. High-speed, or Level 3, charging is far faster than conventional charging and it relies on DC power. High speed charging, however, can accelerate the aging process in batteries. Research in this area is ongoing.
Consumers will likely have to drive the EV market, said Clarence Dunn, CEO of GE Fleet. (GE Fleet oversees its own fleet of 30,000 cars but also finances and manages fleets for others.) While fleet owners are interested in going electric, the price will have to come down through volume manufacturing before many fleet owners budge. And the only way to build volume will be with the consumer market.
Car companies are going to have to pay particular attention to the needs of the fleet buyers. Plug-in hybrids, particularly those retrofitted hybrids with lots of batteries in the trunk, are a difficult sell to companies with sales fleets. The trunk takes up the space the reps need for sample cases and other equipment.
GE, which wants to electrify half of its fleet by 2015, has to plan accordingly, as well. The average GE sales representative drives 85 miles a day. Ergo, a fully electric vehicle may not work for them, although a series hybrid like the Chevy Volt might be sufficient. Similarly, many in GE Health drive vans: not a great combo yet for batteries.
So far, pharmaceutical companies appear to be the first movers when it comes to electrifying fleets.
Battery swapping, the secondary market for batteries and other issues are hurdles the car industry and financing industry are going to have to overcome. “I do not want to finance a battery. That does not work for me,” Dunn said, or at least it doesn’t yet. If car companies can begin to prove that a battery will have an active life in a car for five years and that utilities will in fact buy partially depleted batteries for grid storage, bring on the documents.
The demographics of EV buyers do present some problems for utilities, said Matt Lecar, who oversees smart grid strategy at GE Energy. In California, a lot of the early buyers will live in Berkeley and San Francisco, where the grid is old and the power capacity for individual houses is somewhat low.
“I am sure if PG&E had their druthers, Fresno and Bakersfield would be the early adopters,” he said, because homes there already have mondo circuits to handle air conditioning capacity.
Broward County, Fla., RV dealer GiGi Stetler has drawn inquiries from hundreds of distressed RV dealers and appears to be making some progress with her lawsuits against financial institutions, claiming overcharges on the interest dealers have had to pay for floorplanning.
Stetler is the owner of RV Sales Broward in West Palm Beach and Davie. Her lawsuits against major RV lenders claim that they’ve unfairly charged dealers interest on inventory, long before dealers’ inventory arrived on their lot. Stettler is not mentioning the lenders’ names.
Like many other RV dealers, Stetler says, “I was getting invoiced for units 10, 20 and 30 days before I ever received them. And, very often, when you get the unit, it needs extra work before you can sell it. So you’re also forced to pay interest until it’s even ready to sell.”
Stetler cited one motorhome “that came in leaking. I was stuck with it, and paid $32,000 in interest before it was finally returned to the factory. The factory sent somebody down here three times to fix it. They finally agreed to take it back, but never reimbursed me the $32,000 in interest.”
Time lags between ordering and receiving units are normal. A manufacturer typically requires several days to complete a unit and turn it over to a delivery company that, depending on how busy it is, may require up to 30 days to deliver that unit to the dealer’s lot.
Stetler says dealers are fully aware of the time lags in getting units, but that the ambiguity of key contract language makes it impossible for dealers to accurately account for such delays in calculating interest. According to dealer security agreements, interest begins on the invoice date. “But nobody has been able to define ‘invoice date,'” Stetler says. “Nobody knows whether it’s shipping date, ordering date, building date. It’s whatever they feel like putting on invoice. That’s the problem.”
One dealer, who requested anonymity, said it was up to the dealership to reconcile the monthly bank statement to its inventory. “If you’re hit with an interest statement on a unit that you never got until 30 days later, you have to be proactive and tell the lender ‘you can’t bill us until this hits the ground,'” he points out, while noting the variances in dealer and lender practices in the industry.
But Stetler says she did catch it on the very first statement. She says she started protesting unfair floorplanning practices, beginning in August 2005 and continually got the runaround when seeking reimbursement, with manufacturers and lenders each telling her to talk to the other.
Stetler adds that, in 2007, when she finally threatened to switch lenders, a representative of her financing institution agreed to change her plan. “What we agreed on saved me $25,000 a month in interest. Over a period of two years, it (the previous plan) had cost me $600,000 in overcharges. They told me to chalk it up to the cost of doing business, and said I was one of only four dealers they’d made these concessions to.”
Currently, Stetler is operating without benefit of floorplanning, having lost her two lenders. She operates by paying cash for units at auctions, a few at a time, and from consignments and rentals. Floorplanning normal inventory would be self-defeating, anyway, she adds: “When my floorplanning was pulled, I was losing deals like crazy because the very financial institutions I was doing business with were selling $90 million worth of inventory through the auctions, which they were buying back (from distressed or failed dealers) for $50,000 and $60,000 less than I could sell them for.”
Stetler says discussions are taking place with lenders in her suits. She’s seeking a refund of all the interest overcharges to every dealer, and says whatever concessions she obtains will apply to even those dealers who have gone out of business. She adds that she’s fully aware of – and prepared for – a long, drawn-out legal battle due to the enormity of the stakes, potentially billions of dollars.
Based on dealer responses, many others share her views. Stetler says she’s gotten 480 e-mails and over 100 phone calls from dealers since initiating her lawsuits, “97% of them in the same boat I’m in. They’ve had time floor checkers doing inventory and found units they were being charged for before they arrived from the factory.”
The issue of when dealers begin paying floorplan interest has been ongoing, as Phil Ingrassia, vice president of communications for the Recreation Vehicle Dealers Association (RVDA), Fairfax, Va., points out. So too, have “a number of issues with regard to the contracts that dealers have with lenders.”
RVDA Legal Council Brock Landry recently reviewed several dealer financing agreements and also noted several RV dealers who said they had negotiated acceptable agreements with their lenders
Overall, says Landry, dealer agreements “run the gamut from extremely one-sided, unreasonable agreements putting all of the risk with the dealer to those that are somewhat more reasonable (although as with most financing agreements, the balance is usually in favor of the finance company). I would urge all RV dealers to have these agreements reviewed carefully by their counsel.”
There are a number of provisions found in these agreements which could have “harsh and unfair results for the dealer,” he adds, citing the following examples:
- Some of the agreements permit the finance company to sign the dealer’s name on any document it deems necessary to fulfill the objectives of the agreement.
- Another agreement allows the financing to be placed back with the dealer if the manufacturer does not perform its obligations.
- Some agreements require the dealer to warrant that the purchaser is of legal age and has other qualifications rather than using its best efforts to determine this.
- Some provisions regarding dealers repossessing the units are also very harsh.
“I hope these examples will highlight the need for careful review of the contracts and a full assessment of the contractual obligations that the dealers are undertaking when they enter into these arrangements. The fine print can lead to some real problems,” Landry concludes.
General Electric Co. expects its GE Capital finance unit to be profitable in 2009, the U.S. conglomerate’s chief financial officer said on Thursday.
“We expected GE Capital to be profitable in the first quarter and we expect GE Capital to be profitable in 2009,” CFO Keith Sherin told investors in New York.
He said that the company had run extensive stress tests on GE Capital’s portfolio and found that even in its worst-case scenario GE would not see itself needing to raise capital.
GE Capital, which has businesses ranging from investing in commercial real estate to financing sales of heavy equipment made by the U.S. conglomerate, last year recorded profit of about $8.6 billion, about 33 percent of the GE total.