will the Dow, drop GM. this week ???

[Dolphin]

GM still a part of the Dow, at least for now
Tuesday December 16, 7:45 pm ET
Dow Jones industrial average keeps GM listing for now; await government action

DES MOINES, Iowa (AP) -- The keepers of the Dow Jones industrial average are not eager to boot General Motors Corp. off the index of 30 leading industrial corporations, but that could change if the government gives billions of dollars to the troubled auto maker.

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On Tuesday President Bush's spokeswoman, Dana Perino, said the administration was still working on details of a possible bailout for the automakers and wants to hear more from all those involved.

The responsibility of choosing the components of the Dow falls to Robert Thomson, The Wall Street Journal managing editor, who frequently consults with other senior editors at the newspaper and with John Prestbo, editor and executive director of Dow Jones Indexes.

Prestbo, who has helped pick the Dow stocks for nearly two decades, is the chairman of the Dow Jones index oversight committee.

He said the extent to which the government chooses to bail out auto makers could determine whether GM, which has been in the Dow since 1925, stays or is replaced.

"We're watching very carefully what the government does and the way in which the government does it," Prestbo said.

GM could follow the course of insurer American International Group Inc., which was removed as a Dow component in September, after the U.S. government agreed to provide an $85 billion emergency loan.

Prestbo said the "80 percent nationalization" of the company changed the index committee's perspective.

"We felt that put AIG in a different ballpark than the rest of the companies and that didn't work as part of the industrial average any more," he said.

Driven to the brink of collapse from its exposure to subprime mortgages, shares of AIG had lost some 96 percent of their value, falling from just over $57 at the beginning of the year to $2.05 by mid-September when it was replaced by Kraft Foods Inc. AIG has yet to regain its footing, shares closed at $1.74 on Tuesday.

Kraft hit its 52-week high -- $34.97 -- the day after it was added to the Dow. Shares have since fallen, closing at $26.74 on Tuesday.

Why kick GM out of the Dow?

Its shares have fallen drastically, off 83 percent so far year, closing at $4.08 on Tuesday.

The decline of the auto industry is clearly reflected in the steep drop in GM's market capitalization. Valued at more than $50 billion back in 2000, the company is now worth just a fraction -- $2.6 billion.

Despite those factors, Prestbo said GM still has a big footprint in the U.S. economy and it will stay in the Dow for now.

If the index committee chooses to pull the plug on GM, it's unlikely that GM's share price would be significantly impacted said Bradley Kay, a Morningstar analyst.

Normally when a stock is removed from a major market index, it can trigger mass sales. That's because managers of index funds must sell shares and purchase the replacement stock. Kay said there are few index funds that directly tie their performance to the Dow, so there will be little forced selling if GM is removed.

"We tend to see that far more with the S&P 500 when things are added and subtracted," he said. "Because there's so much more money chasing it, those sort of forced buys and sells produce a much bigger effect."

But getting ousted from Dow would just be another dent in its corporate reputation. IHS Global Insight analyst George Magliano agrees that getting knocked out can leave a bad impression for investors initially, and would just be another issue for management to try to overcome.

As a practical matter, dropping General Motors will not change the index much because it represents only about 0.38 percent of the Dow, Kay said. That's because the Dow is a price-weighted index, meaning it is only affected by changes in the stock price of listed companies. Other indexes may be affected by stock price and the number of company shares outstanding.

The Dow basically reflects the average of the stock prices of the 30 companies in the index. However, a mathematical computation is done to adjust for dividend payments, stock splits and other corporate actions to ensure the continuity of the average.

The bigger impact would likely come from the company selected to replace GM, if and when the time comes. If the Dow adds a company that has a much higher stock price, for example something trading around $70 per share, that company will suddenly represent perhaps 5 or 6 percent of the index.

The other issue facing the Dow if it drops GM is who'll replace it. Certainly, no U.S. automaker is likely stable enough to take GM's place, Kay said. Toyota can't replace GM because the index has traditionally listed only U.S.-based companies.

What's more, a heavy manufacturer that represents a large portion of the economy and the consumer durable segment is hard to come up with, Kay said.

Ultimately Prestbo said every effort is made to keep the Dow's listings consistent and changes aren't made lightly.

The most recent change before September was in February, when the Dow removed Altria Group Inc. and Honeywell International Inc. and placed Bank of America Corp. and Chevron Corp. in the index. At the time, Dow Jones said the financial industry did not have enough representation on the index and the oil and gas industry was growing in importance globally.

Prestbo said there is no formal criteria for inclusion on the index although lots of numbers are reviewed.

He takes issue with critics who have said the Dow is not representative of the broader U.S. market because it's only 30 stocks.

"I disagree because they're the right 30," he said. "We work very hard to make sure that the companies we select are representative of not only of their own industry, where they have to be a leader, but they have a prominence and economic significance above and beyond that."

Investors will have to take a wait and see approach to see what happens with the auto industry. In the end, if GM ends up being removed from the Dow, that should be less of a concern to investors than all the missteps by GM management that led to that action.

[$parechange]

So they are talking about giving $8 billion to a company that is now worth $2.6 billion? Why don't the American people pool the money and buy it out right. We are paying for it anyway? I say let Toyota or Nissan or any other PROFITABLE company buy it. If we do give them bail out funds, nothing will change. You still have the same decision makers that are in place now. The unions will still have control to pay the lazy bastards that sit around all day and do nothing. Not counting the folks that are collecting GM retirement (corporate welfare). This is a waste of my money. How about all of us who have paid SS all our lives and they want to cut what we have earned, I say bail out our SS and give me back what I have paid in. That's my 2 cents for today.

[Dolphin]

That is the point, the Bond Holders are willing to walk away from this LIABILITY ? The Liabilities to the Dealer Network and UAW Make this a Liability rather than an Investment for ANYONE , except us sorry Citizens is we bail them out

[E_]

Well it took the bankrupt claim to boot them