Should DOW JONES BOOT GM ?

[andy82471]

http://money.cnn.com/2005/12/21/news/fortune500/gm.
Link might not work so I cut and post the story. sorry

Another sobering article about GM's financial problem. It seems like some analysts are speculating about removing GM from the respected DOW JONES stock index. How bad would that be for GM ?


NEW YORK (CNNMoney.com) - Does General Motors still belong in the exclusive Dow club?

The troubled automaker, whose stock has lost more than 50 percent in value this year, has cost the Dow about 160 points. Without GM, the index would be up more than 2 percent; instead, it's up less than 1 percent.

GM's percentage decline is more than twice that of the second biggest loser, Verizon Communications (Research).

And GM's market capitalization has fallen to about $11 billion, less than half that of the next smallest Dow stock, Alcoa (Research). GM, with plans to sell its credit unit, GMAC, is set to be even smaller.

GM (Research) has been plagued by declining sales and market share and a downgrade in its bonds to junk status. Though GM officials have downplayed the risk of bankruptcy, Standard & Poor's is on record saying the prospect is not far-fetched.

Wednesday the stock fell to another 18-year low of $19.30 before rebounding slightly.

The Dow components are selected by the editors of the Wall Street Journal, which won't comment on speculation about future changes in the index. But Rich Moroney, editor of Dow Theory Forecasts, said that while the paper doesn't make moves frequently or lightly, removing GM is a possibility.

"They've kicked companies out just because it's at financial risk," said Moroney. "In the early years it was a case of a company that was going to zero (stock value) and they don't want that. It does seem premature to do it now."

Other big losers on the Dow
The Dow was created in 1896 to give a snapshot of the nation's key industries and companies outside of transportation -- it is meant to be a bellwether for the economy not a roster of the nation's best-performing stocks.

GM has been a member of the benchmark blue chip stock index continually since 1925, through dozens of component changes and hits to its stock price that came with oil shocks, labor woes and recessions.

Even a 50 percent drop in stock value doesn't warrant expulsion. In 2002, two of the then newest components of the index, Intel and Home Depot each lost more than half their value.

"I'm not one of the editors of the Wall Street Journal, but I want to use the Dow as a market leading indicator, and for that you want a group of highly influential stocks, even when the news is bad," said Jeffrey Hirsch, editor of The Stock Trader's Almanac. "GM still represents a good part of the auto industry."

In addition, the threat of bankruptcy alone doesn't necessarily lead to action. The Dow Transportation Index didn't announce a decision to drop Delta Air Lines and Northwest Airlines until Sept. 14, the day both airlines filed for bankruptcy, even though both filings were telegraphed to markets well in advance.

The Dow industrial average has had at least one component in bankruptcy -- Texaco in 1987, when an $11 billion court verdict against it prompted it to file for protection as a defensive strategy. Texaco stock continued to trade throughout its reorganization, though, and its stock did far better that year than GM has done this year.

There is also a question of what would replace GM if it was dropped from the index. The only other major U.S. automaker, Ford Motor Co. (Research), is struggling with many of the same problems as GM.

But Moroney said maybe its time that the Dow no longer has an auto stock, even if auto sales represent about 20 percent of total U.S. retail sales.

"If you look at the market caps of GM and Ford, it's not a very significant sector," he said. "In terms of the stock market, it's nowhere near as important as it once was. I personally think it's worth watching, but I don't think it's a stretch to have an index that would not include autos."

Moroney said he doesn't believe that one of the major overseas automakers, such as DaimlerChrysler (Research) or Toyota Motor (Research), should be added to the index, which has never had a foreign stock. "I think it would muddy the waters too much for what the Dow is trying to represent," he said.

But German-based DaimlerChrysler has most of its operations and revenue in its North American operations. And Hirsch said he'd be much more comfortable with an overseas automaker in the Dow than an auto-free Dow.

"It is coming,' he said of the idea of a foreign Dow component. "This whole globalization situation is making that more and more likely."

He said he doubts that GM would be replaced as long as it is still the world's leading automaker, but Toyota could claim that title from GM as soon as 2006.

"That would be the time to replace it, not before," said Hirsch.

For a look at whether GM stock has been battered enough to make it a good investment, click here. Edited December 21, 2005 by andy82471

[turbo200]

damn, more bad news.

[FUTURE_OF_GM]

No big surprise...

They'll drop GM, just like they turned against them 3 years ago.

Toyota is where the money is and it's where America's loyalty and lust will be placed. As always, money talks.

"It is coming,' he said of the idea of a foreign Dow component. "This whole globalization situation is making that more and more likely."

A.K.A. Thanks to globalization, America is losing more and more of it's industry and power. Yet, we and the feds are too naive to address the problem or talk about it candidly and in a straight forward manner.

[-Camaro-]

Oh, it would be up a whole 2%... Wow! We must do this right now!! Maybe it'll be good though? Once they hit rock bottom, maybe they'll try to turn around? Right now they're not doing much... Edited December 21, 2005 by -Camaro-

[lakefire]

No big surprise...

They'll drop GM, just like they turned against them 3 years ago.

Toyota is where the money is and it's where America's loyalty and lust will be placed. As always, money talks.
A.K.A. Thanks to globalization, America is losing more and more of it's industry and power. Yet, we and the feds are too naive to address the problem or talk about it candidly and in a straight forward manner.

[post="62058"]<{POST_SNAPBACK}>[/post]

People turn against GM because they have been sucking. If they were awesome then people wouldn't turn against them. I love GM like the rest of y'all, but give it a break. There isn't a huge conspiracy against GM. It's as simple as when GM makes more "valuable" products they will do better.

[cmattson]

This isn't bad news - and it doesn't really affect GM any. The Dow Jones Industrial Index is a collection of stocks (weighted). Nobody knows the exact holding / formula. You can speculate that it includes the biggies from a variety of sectors - and that it probably does include GM. What this means is that the Dow Jones Index will be calc'ed with the numbers from some other stock (that would replace GM's spot in the formula).

[Member55]

How credible would DOW JONES be if they keep only the stocks that are doing good. Delisting will only happen(maybe) if GM files for bankruptcy. Edited December 22, 2005 by Member55

[Member55]

This isn't bad news - and it doesn't really affect GM any. 

[post="62135"]<{POST_SNAPBACK}>[/post]

The only bad thing would be the fact that Mutual funds who strictly invest in DOW 30 would have to sell GM stock.

[Polish_Kris]

People turn against GM because they have been sucking.  If they were awesome then people wouldn't turn against them.  I love GM like the rest of y'all, but give it a break.  There isn't a huge conspiracy against GM.  It's as simple as when GM makes more "valuable" products they will do better.

[post="62123"]<{POST_SNAPBACK}>[/post]

Exactly!!! Edited December 22, 2005 by Polish_Kris

[zbad1]

How credible would DOW JONES be if they keep only the stocks that are doing good. Delisting will only happen(maybe) if GM files for bankruptcy.

[post="62268"]<{POST_SNAPBACK}>[/post]

Exactly correct.

[FUTURE_OF_GM]

People turn against GM because they have been sucking. If they were awesome then people wouldn't turn against them. I love GM like the rest of y'all, but give it a break. There isn't a huge conspiracy against GM. It's as simple as when GM makes more "valuable" products they will do better.

I have never ONCE said anything about a conspiracy against GM... That is always an assumption that is made by people against me here (Not literally against me, just with differing opinions)

What I believe is that the media has developed a certain attitude about GM and Detroit over the years. It's called a schema (A mental shortcut that associates one GROUP of people or in this case auto companies with a certain action. a.k.a. making crappy cars) Schemas are often faulty and associated with prejudice or discrimination but are based on past experiences or knowledge.

Therefore, because Detroit put out trash for so many years, that is what the media (and the consumer) has, in a way, come to expect from them. So, as a result, whether conscious or subconcious a faulty bias or discrimination exists simply because GM and Detroit in general ARE producing excellent cars now, yet not getting a fair shake because this schema does not allow these people to evaluate the cars honestly on their merits. They automatically assume that Detroit cars are BAD and perpetuate that through print and communication.

This is happening en mass simply because GM and Ford made bad cars for SO many years and convinced SO many people that this faulty schema is indeed correct.

The reason I am so avid about pointing it out is because it is a great injustice and it is destroying 2 of our biggest and proudest companies. Ground that once lost, will never be gained again. If it were justified, then fine, but the new GM and Ford vehicles do not deserve this bias/prejudice and automatic write off.

See, I'm not crazy (Well, maybe a little--but we call that 'different')

:)

[Polish_Kris]

I have never ONCE said anything about a conspiracy against GM... That is always an assumption that is made by people against me here (Not literally against me, just with differing opinions)

What I believe is that the media has developed a certain attitude about GM and Detroit over the years. It's called a schema (A mental shortcut that associates one GROUP of people or in this case auto companies with a certain action. a.k.a. making crappy cars) Schemas are often faulty and associated with prejudice or discrimination but are based on past experiences or knowledge.

Therefore, because Detroit put out trash for so many years, that is what the media (and the consumer) has, in a way, come to expect from them. So, as a result, whether conscious or subconcious a faulty bias or discrimination exists simply because GM and Detroit in general ARE producing excellent cars now, yet not getting a fair shake because this schema does not allow these people to evaluate the cars honestly on their merits. They automatically assume that Detroit cars are BAD and perpetuate that through print and communication.

This is happening en mass simply because GM and Ford made bad cars for SO many years and convinced SO many people that this faulty schema is indeed correct.

The reason I am so avid about pointing it out is because it is a great injustice and it is destroying 2 of our biggest and proudest companies. Ground that once lost, will never be gained again. If it were justified, then fine, but the new GM and Ford vehicles do not deserve this bias/prejudice and automatic write off.

See, I'm not crazy (Well, maybe a little--but we call that 'different')

:)

[post="62755"]<{POST_SNAPBACK}>[/post]

So.... in other words, you believe there is a conspiracy against the domestic by the media, to bring them down :ph34r:

[FUTURE_OF_GM]

I believe the bias is mostly subconcious and a result of negative exposure to domestic vehicles. The process is an inability to correctly judge merits in a fair manner simply because your own perconceived notions cloud that judgement.

Look at it in a racial context; If a person connotates Islam with the events of September 11th, then that person has formed a schema that all of Islam is bad based soley on one negative experience. Therefore that negativity or prejudice will show through in every aspect of their life pertaining to or alluding to Islam. Even negative stimuli in general could evoke hostility toward this group if the person is extremely devout in their views. So, if this person is to write an article about Islam, then it would be hard for them to be completely fair and expose all of the merits of the religion. The article would most likely be based on that persons negative view, the negativity of the religion in comparison or the negative aspects of the religion in general.

Therefore; just as it would be difficult for ME to write a fair Toyota review. It's probably just as difficult for Dan Neil to write a fair G6 review.