CNN Money's editor at large, Paul LaMonica, thinks GM should be kicked out of the Dow Jones Industrial Average. He argues that GM's poor performance, their plans to ditch HUMMER and the current 0% financing offer are all indicators that GM is in trouble. (If I were a cynic, I'd ask where he was when GM dumped Oldsmobile and had their "anyone with a pulse" financing deals.) What does LaMonica suggest to replace GM in the Dow? It "can still have an automotive component… GM is continuing to lose share to Japanese rivals Toyota (TM) and Honda (HMC). While the editors at the [Wall Street] Journal have maintained that the DJIA is only for American companies, I think that's a view whose time has passed." He concludes GM's just one of several companies "that are just not as relevant as they used to be, such as Sears, Eastman Kodak and U.S. Steel… GM's time has come." Ok — enough is enough. What took you (and everyone else) so long to figure this out?
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If GM get kicked out of the Dow Jones, this will be significant for 2 reasons:
1. This will send a shockwave amongst investors and no-one will want to touch GM the same way no-one wanted Chrysler with a ten foot pole. If GM’s liquidity is a problem now, wait until investors are actively selling their stock in the General.
2. This will send a shockwave amongst the board of directors. How exactly does one spin the fact that GM has been kicked out of the Dow Jones, so that they can still give a vote of confidence to Rabid Rick and his senile management without annoying the shareholders (what’s left of them) too much?
This will just be another nail in GM’s coffin. But as far as the Board of Directors, Rabid Rick and his bunch of overpaid, clueless, know-jack-about-cars-or-the-market managers are concerned, they have no intention of being IN the casket, when it is buried……
It seems like this idea isn’t very well thought out. To me, now is a perfect time for GM to be in the Dow Jones Industrial Average. The Dow is meant to be an indicator of the state of America’s industrial stocks (by including the largest and most influential companies); having GM bring the average down helps to show that things in the industrial economy are not going well right now.
An average that was rigged to included only the most successful companies would not be much of an indicator of anything.
The press, both regular news and the financial side, being late to the party to point out GM’s problems and shortcomings, seem to be piling on. Maybe it just seems that way since there used to be no mainstream news about it… that being said, this is very extreme given gas could go down, a pre-bankruptcy gov’t bail out could potentially happen, and lows, even when flirting with bankruptcy, are normal and cyclical. Business isn’t really my thing, but given GM directly and indirectly supports 1 million workers in the USA, 7 billion in capitalization seems very low with that fact in mind. I don’t know how accurate 1 million is, but I have read it in more than a few places.
the Dow is supposed to be an index of AMERICAN INDUSTRIAL companies.
GM’s struggles is a good barometer of AMERICAN INDUSTRIAL companies in general – we’ve sold off our manufacturing base to the lowest bidder, and that will come back to haunt us in many ways.
The DOW is kind of a scam anyways – they tend to drop more poorly performing companies over time, so it is really kind of fixed.
It happens all the time that successfull companies bump out companies doing poorly in the S&P500. The Dow is the same way but with fewer companies. I think it might finally force the board of bystanders to be more responsible. If it doesn’t happen now it will eventually happen when they go ch11
I asked about them being taken off the Dow Jones in a post several days ago. I read this last night and agree with all of it, they don’t belong on there. And the impact that could have to GM could be huge, the cracks will finally show to everyone who hasn’t been paying attention or that has been in denial, something that GM can’t hide or spin in any way.
I would bet that the Nikkei dosn’t include American companies either. The’re all a “home town” indicator.
They do belong, baggage and all. It’s our economic indicator and nothing is more indicative of teh failing economy than the Auto industry.
As goes the fuel, so goes our economy.
Bailing out GM would give a whole new meaning to fire sale. That bailout bucket is just riddled with holes.
If GM’s liquidity is a problem now, wait until investors are actively selling their stock in the General.
How is that? The stocks were already sold and GM has (or had) the cash from that sale. The price of the stock doesn’t impact GM’s liquidity. It will impact them if they attempt to float more stock in the future. In that case, they won’t be able to raise much capital.
It is just like the used car market. Once GM sells you a car, you the owner and not GM takes the bath on the resale.
I am surprised it hasn’t been mentioned here, but GM is down a further 8-9% this morning, in the mid-$11/share price area, apparently due to a Goldman Sachs downgrade…
GM stock now trading at ~$11.80 per share!!!
GM’s liquidity gets directly affected by downward pressure on the stock because if everyone is convinced they’re going down they won’t be able to borrow money at anything other than usurious rates.
Plus, if the stock has no value, there’s no point to having a stock offering to raise money, either.
There is no doubt that GM will need to borrow more money to make it to 2010-2011, but where is it going to come from?
Goldman Saks has just down graded GM Stock as reported on CNBC at Noon today June 26th! Nice eh
The Dow Jones Industrial Average is most certainly not restricted to “industrial” companies anymore — just ask Disney, Verizon, Micrsoft, Bank of America, JPMorgan Chase, Citigroup, Home Depot, Wal Mart, etc.
However, stocks are not removed from indexes merely because their prices tank or because their prospects are dim.
For good or for ill (namely, ill) GM squarely belongs in the DJIA for now. You can’t wish away a company that makes $180 billion revenue just because the stock sucks. GM is an American company with more sales than all but maybe 4 or 5 corporations in the United States and it has 6 to 7 TIMES the revenues of a couple Dow components. It’s ludicrous to try to ignore that.
And no, you cannot put a foreign company in the Dow Jones index — the whole POINT of the index is to represent the stock performance of leading U.S. companies. I’ll look at the Nikkei if I want to see how Japanese companies are doing.
I second MattVA and others. GM is a great barometer of what ails a big fraction of the US and Canadian Manufacturing industry, and it should be part of the equation. When the bell finally tolls, and the books are written, it will be i suspect a bit like Gibbons Decline and Fall of the Roman Empire. Greed, Union waste, Short term thinking, etc. it is wall streets fault too. The emphasis on short term profits, completely ignores the long term – like lets prepare for a high priced fuel future. lets think it all through, etc. No The execs, the union, the Wall street research, everything in this country was and is completely at odds with long term planning. The Russians at least had a 5 year plan. Does GM and the UAW /CAW as a team have one? not likely.
Its just common sense what Toyota etc have done. Our problem is that common sense was distorted by all sorts a wierd (by normal standards) rules.
The USA is not going to be what it was. After the war, everybody elses manufacturing was destroyed, and bad habits like this could foment. Now its the other way around, our core livelihood is being destroyed. and we are the architect of it. When UAW/CAW members go to walmart to buy all those foreign made products, they are part of the problem too.
Animals, governments, empires, and corporations are born, live for awhile, and then die.
If the Dow didn’t remove dying businesses would it’s average eventually register 0?
Actually the U.S. is doing quite well business wise according to “The Post American World” by Zakaria, we just have to learn to share the world with others.
Goldman Sachs has been accused of many things, but being stupid is not one of them. GS is thought to be the smartest money on Wall Street.