Is financial activities superseeding real production in big companies?

[neonlight]

It seems that every company wants to get into financial services. Many manufacturing firms are making most of their profits from financial activities rather than their core manufacturing businesses since it's easier to package some complicated financial products, than to build read usable goods.

Is this the future trend, and what does it spell for good ol manufacturing companies?

[Bloop Bloop]

I think focussing business operations on things that are abstract, complex and fascinating, like automation/financial services/etc, can often be a good thing. Opportunities for growth, profit and finding a useful niche abound.

The old manufacturing-based economy was slow, lumbering, and not nearly as agile nor as profitable for investors as the new brand of firms.

[marty998]

Yes you see this with retailers... any business that sells you goods on credit - pay in instalments etc etc, the whole car industry makes its money fro the "financialisation" of the sale of cars.

Coupled with companies "optimising" their debt and equity mix to boost returns (in the absence of revenue growth), and yes, there is a dollar to be made in financialising (if that's a word) a product or income stream.

Your tech companies are going one better and instead of providing ad-hoc services and sales when a customer requires, they simply sign them up to open ended recurring monthly payments. In doing this you turn lumpy sales into regular, predictable cashflows.

Great for businesses, not so much for the forgetful or lazy consumer.

[neonlight]

Yes you see this with retailers... any business that sells you goods on credit - pay in instalments etc etc, the whole car industry makes its money fro the "financialisation" of the sale of cars.

Coupled with companies "optimising" their debt and equity mix to boost returns (in the absence of revenue growth), and yes, there is a dollar to be made in financialising (if that's a word) a product or income stream.

Your tech companies are going one better and instead of providing ad-hoc services and sales when a customer requires, they simply sign them up to open ended recurring monthly payments. In doing this you turn lumpy sales into regular, predictable cashflows.

Great for businesses, not so much for the forgetful or lazy consumer.

funny you said that, cos I just read in a book that "in 2004, 80% of profits of GM came from it's financial arm". I guess a big part is from financialisation of car sales.

[Seadog]

Yes you see this with retailers... any business that sells you goods on credit - pay in instalments etc etc, the whole car industry makes its money fro the "financialisation" of the sale of cars.

Coupled with companies "optimising" their debt and equity mix to boost returns (in the absence of revenue growth), and yes, there is a dollar to be made in financialising (if that's a word) a product or income stream.

Your tech companies are going one better and instead of providing ad-hoc services and sales when a customer requires, they simply sign them up to open ended recurring monthly payments. In doing this you turn lumpy sales into regular, predictable cashflows.

Great for businesses, not so much for the forgetful or lazy consumer.

funny you said that, cos I just read in a book that "in 2004, 80% of profits of GM came from it's financial arm". I guess a big part is from financialisation of car sales.

Small world, as I was just about to cite this exact company at the exact time frame. During late 2004, I worked at a GM plant for a school work term, and during the emails we'd get about how the company was doing in the broadest of sense, and I was amazed that were it not for the finance arm, they would have been tits up years before. This was just before things got really bad requiring a big bailout, but even my semi educated mid university mind found it truly astonishing that they could shutter dozens of plants, and lay off hundreds of thousands of people world wide who were actually making useful, valuable things, then essentially just run a big bank that lent money to people to buy cars from other factories, and be way better off.

Conversely, a friend was an accountant at a local watering hole, and told me that essentially all their profit came from high margin lottery terminals and $5/withdrawal cash machines. Food and drink basically just covered expenses, staff, and rent.

Guess you can't change human nature. Delayed gratification has consistently been one of humanities weak points, and if you're one of the lucky few who has the wherewithal to not succumb, you can end up very well off.

[Goldielocks]

The retailer I worked for also made a lot of profit from selling gift cards, and from selling off property (capital gains) and leasing the sites back, structured deals.     Lots of focus on shorter term profits because of the way CEO bonuses worked, and financial profits in one way or another were the target over growing the core business.

[neonlight]

Yes you see this with retailers... any business that sells you goods on credit - pay in instalments etc etc, the whole car industry makes its money fro the "financialisation" of the sale of cars.

Coupled with companies "optimising" their debt and equity mix to boost returns (in the absence of revenue growth), and yes, there is a dollar to be made in financialising (if that's a word) a product or income stream.

Your tech companies are going one better and instead of providing ad-hoc services and sales when a customer requires, they simply sign them up to open ended recurring monthly payments. In doing this you turn lumpy sales into regular, predictable cashflows.

Great for businesses, not so much for the forgetful or lazy consumer.

funny you said that, cos I just read in a book that "in 2004, 80% of profits of GM came from it's financial arm". I guess a big part is from financialisation of car sales.

Small world, as I was just about to cite this exact company at the exact time frame. During late 2004, I worked at a GM plant for a school work term, and during the emails we'd get about how the company was doing in the broadest of sense, and I was amazed that were it not for the finance arm, they would have been tits up years before. This was just before things got really bad requiring a big bailout, but even my semi educated mid university mind found it truly astonishing that they could shutter dozens of plants, and lay off hundreds of thousands of people world wide who were actually making useful, valuable things, then essentially just run a big bank that lent money to people to buy cars from other factories, and be way better off.

Conversely, a friend was an accountant at a local watering hole, and told me that essentially all their profit came from high margin lottery terminals and $5/withdrawal cash machines. Food and drink basically just covered expenses, staff, and rent.

Guess you can't change human nature. Delayed gratification has consistently been one of humanities weak points, and if you're one of the lucky few who has the wherewithal to not succumb, you can end up very well off.

Yea, small world indeed.

Again from this same book it says "By 2003 45% of GE's profit came from GE Capital". Different big companies, same situation.

I wonder if good old manufacturing is dead.

[neonlight]

The retailer I worked for also made a lot of profit from selling gift cards, and from selling off property (capital gains) and leasing the sites back, structured deals.     Lots of focus on shorter term profits because of the way CEO bonuses worked, and financial profits in one way or another were the target over growing the core business.

They say that luxury hotel's real business model is property. Kempinski gets to have a land at a heavy discount because they bring luxury to the area. I suspect they have to commit to the place for X years (decades?), and then sell the land.

[marty998]

Conversely, a friend was an accountant at a local watering hole, and told me that essentially all their profit came from high margin lottery terminals and $5/withdrawal cash machines. Food and drink basically just covered expenses, staff, and rent.

Down here every pub/hotel is kept going by poker machine profits. The food, beer, entertainment is all loss making. Gamblers keep everyone in business.

Unfortunately, it's the lowest socioeconomic quintile of households that loses the most to these machines. Whether that's because poor people gamble, or gambling makes you poor I'm not sure makes a difference.

[jeff191]

It makes absolute sense if you are looking to maximize return on capital. With the constant shrinking of margins due to overseas competition, there may be better opportunities outside of manufacturing even if that was how a business had made all of their money up to now.

I used to work for a large private company that was primarily in manufacturing as well as petrochemicals. They had a minimum return that they expected capital to generate and they didn't have too many restrictions. So if a subsidiary wanted to upgrade their plant or expand, they would be competing against the investment group that may have been pitching to buy a company or invest in a startup. Having a financial services arm is along those same lines - how to generate the best return for the company and/or shareholders.

[Mike in NH]

Yes you see this with retailers... any business that sells you goods on credit - pay in instalments etc etc, the whole car industry makes its money fro the "financialisation" of the sale of cars.

Coupled with companies "optimising" their debt and equity mix to boost returns (in the absence of revenue growth), and yes, there is a dollar to be made in financialising (if that's a word) a product or income stream.

Your tech companies are going one better and instead of providing ad-hoc services and sales when a customer requires, they simply sign them up to open ended recurring monthly payments. In doing this you turn lumpy sales into regular, predictable cashflows.

Great for businesses, not so much for the forgetful or lazy consumer.

funny you said that, cos I just read in a book that "in 2004, 80% of profits of GM came from it's financial arm". I guess a big part is from financialisation of car sales.

Small world, as I was just about to cite this exact company at the exact time frame. During late 2004, I worked at a GM plant for a school work term, and during the emails we'd get about how the company was doing in the broadest of sense, and I was amazed that were it not for the finance arm, they would have been tits up years before. This was just before things got really bad requiring a big bailout, but even my semi educated mid university mind found it truly astonishing that they could shutter dozens of plants, and lay off hundreds of thousands of people world wide who were actually making useful, valuable things, then essentially just run a big bank that lent money to people to buy cars from other factories, and be way better off.

Conversely, a friend was an accountant at a local watering hole, and told me that essentially all their profit came from high margin lottery terminals and $5/withdrawal cash machines. Food and drink basically just covered expenses, staff, and rent.

Guess you can't change human nature. Delayed gratification has consistently been one of humanities weak points, and if you're one of the lucky few who has the wherewithal to not succumb, you can end up very well off.

Yea, small world indeed.

Again from this same book it says "By 2003 45% of GE's profit came from GE Capital". Different big companies, same situation.

I wonder if good old manufacturing is dead.

You wouldn't happen to be reading Bullshit Jobs by David Graeber would you OP?

[neonlight]

You wouldn't happen to be reading Bullshit Jobs by David Graeber would you OP?

23 Things They Don't Tell You About Capitalism by Ha-Joon Chang