Plenty of investors have been calling for General Motors Corporation (NYSE: GM) to be removed from the Dow Jones Industrial Average (DJIA) as the automaker hovers on the brink of bankruptcy. But, like it or not, GM's rock-bottom share price isn't justification enough to oust the stock. GM still represents a major chunk of our industrial economy.
However, GM's nationalization would more than justify its removal from the Dow. After all, that's why American International Group (NYSE: AIG) got the boot last fall -- once the government took a controlling stake in the insurance giant, Dow Jones wasted no time adjusting its blue-chip lineup.
So, following news that the Obama administration asked GM CEO Rick Wagoner to step down, is it time to reevaluate the car company's place in the Dow? Well . . . maybe. John Prestbo, editor and executive director of Dow Jones Indexes, told Geoffrey Rogow of Dow Jones Newswires that the White House's removal of one executive isn't an offense on par with nationalization.
"This is definitely a move toward greater government control over GM; the question is, does it cross the line between some control and absolute ultimate control?" explained the hyperbolic Prestbo.
While Prestbo won't give too many clues, a recent shakeup to the Global Dow benchmark might offer a glimpse into the DJIA's future. Both GM and its fellow Dow 30 underperformer, Citigroup (NYSE: C), were booted from the Global Dow late Friday. The adjustment was made outside the bounds of the usual annual index review, due to "extraordinary market conditions worldwide," said Prestbo.
Elizabeth Harrow is an analyst and financial writer in the research department at Schaeffer's Investment Research. She is featured in the video series Schaeffer's Daily Q&A on SchaeffersResearch.com.
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Reader Comments (Page 1 of 1)
4-01-2009 @ 6:04AM
Matt said...
If you booted every company that the USA has underwritten would McDonalds and Wal-Mart be the only ones left. Welcome to the "New America" forged by George Bush and is losers.
4-03-2009 @ 3:32PM
Duke said...
Yess GM should be taken from the Dow. GM is brike and will not turn a profit for quit some time. The reports of the Dow are lower because of GM's lack of profit making.