CNN Money Editor-at-Large Paul R Monica reckons GM is so Dow, I mean down, on its luck that it should be delisted from the Dow Jones Industrial Average. By Monica’s math, GM has a market cap of less than $2 billion, and its stock price has been treading water near $3. “Normally, when a blue-chip company sinks to such depths of despair,” writes Monica, “it gets tossed from the S&P 500. But not only is GM still a member of that index, it remains a component of the granddaddy of market barometers: the venerable Dow Jones Industrial average.” He reveals that Dow executive director John Prestbo is keeping a close eye on the General and any sign of a bankruptcy in the offing. “A company operating under bankruptcy protection is not on a level playing field,” says Prestbo. “What we try to do is make sure every company in the Dow is operating under the same kind of marketplace.”
And though he acknowledges that the Dow doesn’t and shouldn’t take major changes to its listing lightly, Monica argues convincingly that the time has already come to “stop the madness.” The criteria for listing on the DJIA are as follows: “There are no pre-determined criteria except that components should be established U.S. companies that are leaders in their industries. For the sake of continuity, composition changes are rare, and generally occur only after corporate acquisitions or other dramatic shifts in a component’s core business.” Clearly this has taken place, but the real issue seems to be that there are no American automakers ready to take GM’s place on the index. Though Monica recommends listing Toyota in GM’s place, the Dow won’t consider listing a foreign company. “We would justify no autos on the basis that the market currently does not offer a viable U.S. auto investment option,” says Prestbo. “The Dow’s main job is to reflect the U.S. markets and the U.S. economy.”
What this really means is that we’re now a nation of financial manipulators, not a nation of makers.
How sad. Soon all of the haircuts will be done and all of the lawns mowed. Then what?
Oops, duplicate comment
Why, we take in each other’s laundry, much like the proverbial western town of lore.
It is true, time for GM to vacate the spot. With 2B capitalization, they barely belong on S&P 500, much less DOW. The sad part that there is no white knight to spend 2B and restructure that monster into efficient machine.
Ford sold 20% of Mazda for slightly over half a billion, which implies cap of Mazda is slightly north of 2.5B. Mazda (tiniest auto company in Japan) has higher capitalization then GM! If there is public toilet in Detroit it should be named Rick Wagoner House of pancakes!
http://www.thestreet.com/_yahoo/newsanalysis/automakers/10448155.html?cm_ven=YAHOO&cm_cat=FREE&cm_ite=NA
Bottom line: If GM gets a government bailout, they are out of the Dow.
“No, I’m not reading a blog for gay guys. Why do you ask?”
Listing Toyota in GM’s place would be brilliant. There would be no better way to dramatically increase the equity stake of American citizens in Toyota, an automaker that actually isn’t being driven into the ground by massive debt, parasitic dealers and unreasonable UAW contracts.
The diamonds exchange traded fund and a number of indexed mutual funds would have to buy huge chunks of Toyota.
The Japanese would shit a brick, but hey, if they want to put restrictions on the flow of capital then we can put restrictions on the flow of cars.
Indeed, forcing all those index funds to buy up Toyota stock would drive the Yen through the ceiling.
AFAIK index funds follow the S&P and not the DOW.
Buying 10% of Toyota wouldn’t lead in itself to a higher Yen. The market cap of Toyota is to small for that.
I think placing Toyota in the Dow isn’t as radical as it sounds. The companies American Depository Receipts (ADRs) trade on the NYSE, and of course the company has scads of employees here, designs and sells certain models exclusively in the U.S., etc.
I thought having Microsoft join the Dow was somewhat radical in that Microsoft is not a NYSE listed stock as it has elected to remain at home on the tech-laden NASDAQ. At least TM is on the NYSE.