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General Motors: The Next Delisting from the Dow?

by: Kofi Bofah September 05, 2008 | about stocks: GM    

Kofi Bofah

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I am forecasting that General Motors (GM) will be the next American icon to be unceremoniously banished from The Dow Jones Industrial Average [DJIA]. The Dow is a benchmark of 30 stocks that serve as a gauge to the performance of the overall United States stock market. These equities are a "Who's Who" of American commerce, and include such industry heavyweights as: ExxonMobil (XOM), Procter & Gamble (PG), IBM (IBM), Microsoft (MSFT), Bank of America (BAC), and 3M (MMM).

Wall Street has applied valuations, or market capitalizations averaging $130 billion, for each Dow component stock. Excluding General Motors, the 29 remaining enterprises generated 2007 net incomes of $9.36 billion per issue. We shall contrast these statistics to General Motors. The Detroit automaker has been assigned a paltry market capitalization of $5.8 billion by investors and rang up a hideous $38.7 billion in 2007 losses. GM has not turned a profit since 2004, and is the sickening albatross of the Dow 30.

General Motors is a fallen star, presently characterized by management bungling and operational gaffes, rather than its former position as the world's top auto maker. The Detroit company bet the farm on sport utility vehicle production at the precipice of an oil spike, mismanaged employee pensions, and stubbornly clung to an unwieldy manufacturing model that is the antithesis of Toyota's (TM) 'just in time' [JIT] process that minimizes inventory and costs by assembling vehicles 'just in time' to be sold.

GM is descending along a similar course of these other sagging enterprises that were to be eliminated from the DJIA: Eastman Kodak (EK), Goodyear (GT), Westinghouse, Bethlehem, and U.S. Steel (X). These faltering organizations were to be replaced with flashier, sexier money makers such as Microsoft, Intel (INTC), Home Depot (HD), and Hewlett Packard (HPQ).

GM shall not be maintained as a Dow component upon the pretense of idolatry. Even the venerable Ma Bell was to be dumped from the benchmark. This is the very same American Telephone and Telegraph [AT&T] company that at one time operated as a monopoly dominating all communications traffic. AT&T (T) stock was a national champion, a "widow and orphan" stock that was the blue-ist of the blue chips. 'T' symbolized dividends, earnings quality, and steady growth.

Following the breakup of the company into the Bell Atlantic / Verizon (VZ), SBC, Bell South, and PacBell Baby Bells, Ma Bell stumbled into the Internet Era and could not remain relevant within the New Economy Model of telecom. Ironically, the AT&T name listed as a Dow component reappears courtesy of the SBC buyout of its former AT&T parent. SBC, already represented on The Dow as a component, maintained the AT&T name for branding purposes.

Similar to the demise of Ma Bell, General Motors is unable to keep pace with nimble competitors. Overseas automakers have grasped the demands of New Era vehicle branding. Honda (HMC), Nissan (NSANY.PK), Toyota (TM), and BMW all exploit the inevitable march of the consumer towards sleek design, reliability, and fuel efficiency. The global rejection of traditional American bombast and sporting muscle comes only as GM's ultimate demise.

Although the dismissal of General Motors from The Dow Jones Industrial Average will mark yet another embarrassing 'milestone' for Detroit and American manufacturing - there shall be no sacred cows in U.S. commerce, nor the DJIA. This is what makes America great.

Disclosure: none

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This article has 27 comments:

  •  
    Sep 05 04:02 AM
    what do you think may replace GM if it does get delisted from the Dow?
    Reply
  •  
    Sep 05 05:17 AM
    The demise of GM has nothing to do with lack of sleek design, reliability, or fuel efficiency. In fact, other than a dip in 2007, their sales have been consistently increasing over the past ten years. The reason they can't turn this growth in revenue into bottom line profit is that they've lost the ability to reign in the unions. A look at their expenses will show you that the company is no longer run for the benefit of shareholders, but for the benefit of its workers.

    The problem isn't the fact that GM spends more on employee healthcare than on steel, or that a GM welder makes three times as much as his Hyundai counterpart. It's the fact that if the Hyundai welder doesn't do his job satisfactorily, he'll be replaced; if the GM welder starts slacking, management will be forced to bring in an additional welder to get the job done, while the slacker sits and watches. And during layoffs, the employees taking the offered package are the ones who know they can find a job elsewhere; those enjoying their on-the-job-retirement will stay there until GM is closed.

    When a company loses the ability to retain productive employees and replace the ones who don't perform, it's only a matter of time before they go under. If not for outsourcing, both GM and Ford would have had to shut down years ago.

    The only piece of good news here is that due to the whacky price-weighting method used to calculate the DJIA, GM has only a 0.78% weight in the index.
    Reply
  •  
    Sep 05 07:51 AM
    Who cares if GM is de-listed? If the Dow Jones people want to de-list one of the 5 biggest companies in the country, I doubt that GM will care or do anything different than they are doing now.

    This article has no relevance.
    Reply
  •  
    Sep 05 08:03 AM
    good to recall that of stocks delisted from DOW average, many do better later.
    dd
    Reply
  •  
    Sep 05 09:05 AM
    The auto industry is going through a period of profound change, and this has posed major challenges for carmakers based in the U.S. -- and elsewhere. GM has made a number of significant moves to reposition itself for sustained success. (Please visit our investor site for details.) New GM cars and crossovers are doing very well in a very tough market. And we are rebuilding our leadership position in advanced technology. None of this is easy, and none of it is cheap. But hold the obits. We are here to stay.
    Reply
  •  
    Sep 05 09:06 AM
    For many years brand loyalty, amongst automotive consumers, was so strong that even though there were two other competitors in the field, you were virtually guaranteed that 90% of your customers would return when they needed a new car. In that environment, US auto manufacturers were almost a monopoly. Eventually the company gained a monopoly mindset.

    American consumers began to change. They were more sophisticated and were more apt to choose a brand for its value than because their father chose that brand 50 years ago. This occured in the latter part of the 1960s but didn't really show itself until the jump in oil prices in the 1970s, when smaller imported cars had more percieved value because of their greater fuel economy.

    Unfortunately, the monopoly mindset is not easy to change. Having worked for AT&T supporting General Motors, I was agast at the similarity of their management styles. The multiple levels of management with each inhibited to make dcisions without checking the level above; the inability of a person at one management level to consult with someone of another management level; the inabilit to bring on new projects that would save costs becasue the bean counters needed to examine every particle of dust on the contract - this was maddening.

    AT&T was only able to start turning the corner after it hit bottom and was purchased by SBC. When will GM find its bottom? When will the UAW realize that it has killed the goose that laid the golden egg?

    Perhaps we should allow all three US manufacturers to declare bankruptcy at the same time. This would allow each to redefine itself separately from its past, renegotiate onerous labor contracts and give them the bottom they truly need. Then they can develop a 12 step plan to lead themselves off the bottom.

    Will they all climb out of this morass? Probably not. There is good evidence that a consolidation is necessary. Will Toyota buy Chrysler for the Jeep and Dodge Truck brands? Will Tata come in and buy Ford or GM? The answer is probably closer at hand than we would like to believe.

    The days of the US auto maker are over. Those that survive will be those who treat the US market similarly to the international market. Should we be sad? No. What doesn't kill us makes us stronger - but sometimes we get killed.
    Reply
  •  
    Sep 05 10:04 AM
    GM won't be delisted from the dow just like the Federal Gov't won't let them go bankrupt.
    Reply
  •  
    Sep 05 10:37 AM
    You may not like the performace of the company (nobody does) but it is still the world's largest seller of automobiles.
    Reply
  •  
    Sep 05 11:01 AM
    people did not buy japanese cars because they liked the japanese.they bought quality,design & price.the u.s. car guys could have done it.anybody remember how the printers union in nyc committed suicide.now watch as the boeing workers wreck their own co.globalization has changed everything & these people cant see it.
    Reply
  •  
    Sep 05 11:06 AM
    A recent report by the Congressional Research Service ("Globalization, Worker Insecurity, and Policy Approaches," updated July 31, 2008) noted the results of the decades-long drive to increase the exploitation of American workers.

    Sorry. GM is still a great indicator of how the overall U.S. economy is doing:

    www.fas.org/sgp/crs/mi...

    "While productivity growth or output per worker rose by 71% from 1980 to 2005, the real compensation of non-supervisory workers comprising 80% of the work force grew by 4%. The gap in the manufacturing sector was even greater: productivity rose 131%, while compensation of non-supervisors grew only 7%."
    Reply
  •  
    Sep 05 11:13 AM
    GM deserves scorn for killing the Electric car, and even now, lying about it. GM still won't let volunteer engineers restore museum- and school- owned gutted and disabled EV1. GM continues to make the same mistakes.
    Reply
  •  
    Sep 05 11:43 AM
    The EV-1 wasn't commercially viable, due to the limitations of the available batteries. (Note that other electric cars of that generation were also taken off the market.) Parts for the EV-1 were mostly hand-built, so there was no way to leave the vehicles in circulation. But much of what GM learned from the EV-1 is going into the Chevy Volt. Now that batteries have advanced, the electric vehicle once again makes sense.
    Reply
  •  
    Sep 05 12:46 PM
    Unlike the U.S., Asian and European countries are committed to supporting their auto industries and ensuring their success. When (not if) GM returns to profitability and strength, it will do so in spite of the Federal Government and media bashers, not because of them.
    Reply
  •  
    Sep 05 12:58 PM
    while GM might should be dropped, I am thinking that HD and maybe MSFT will also go. And BOFA should also be considered for being dropped. None of the car companies have been doing well, they have all had sales going down, with few exceptions. Mostly that was the change in their market, consumers decided that MPG was among (if the not the) most important feature of any vehicle. And none of them really saw that coming as fast as it did. and maybe this just the beginning as car sales continue to drop, not just driven by gas prices so much, but the decline in the ability of the consumer to actually buy their products. the last great ATM (the house) has been closed, so they are left with the meager incomes.
    Reply
  •  
    Sep 05 01:33 PM
    Not so fast. Plug-in hybrid development on the Volt is getting into full swing, and this time the suits at GM are serious. They've been laying the groundwork for what looks to be like a potential marketing monsoon. The Volt may be featured in the next Transformers movie. (If you want to sell a car - put it in the movies.)

    Video interview with Chevy Volt developer Frank Weber at:

    www.hybrid-car-show.co...
    Reply
  •  
    Sep 05 01:46 PM
    not sure of GM should be delisted. and if they are, why wouldn't the banks also be subject ti be delisting? or MSFT and definitely HD. GM (and the other car companies) have all lost sales, so its not just a Detroit problem. And will it may have been triggered by gas prices, I suspect even if they were ease a lot, the decline would continue as the underlying problem is the consumer is strapped, and longer has that handy dandy ATM (their house) and so is now restricted to their meager incomes, which haven't kept up with inflation. Which will probably lead to deflation. and further erosion in the standard of living.until we match the rest of the world. or the lowest common denominator
    Reply
  •  
    Sep 05 03:12 PM
    General Motors stock is effectively worth $0. The fact that the stock trades with any value at all is due to a belief that the company will skirt bankruptcy.

    I would argue that Alcoa generates more income from the automotive sector than General Motors.

    How about a transport?

    UPS, FedEx, or Burlington Northern Santa Fe would all be viable replacements.

    ConocoPhillips is strong in terms of market cap and performance; but that would overweight energy with Chevron and Exxon. Likewise with Cisco and Apple [HP / IBM / MSFT / INTC] for technology. Also, Berkshire Hathaway has a relatively small float and will always be nixed.

    I think that the call should go down to Fed Ex or UPS. There is little overlap here. The overlap is slight with Boeing [UPS is essentially an airline].
    Reply
  •  
    Sep 05 03:13 PM
    Oops, I am a little new to this. I commented earlier:

    General Motors stock is effectively worth $0. The fact that the stock trades with any value at all is due to a belief that the company will skirt bankruptcy.

    I would argue that Alcoa generates more income from the automotive sector than General Motors.

    How about a transport?

    UPS, FedEx, or Burlington Northern Santa Fe would all be viable replacements.

    ConocoPhillips is strong in terms of market cap and performance; but that would overweight energy with Chevron and Exxon. Likewise with Cisco and Apple [HP / IBM / MSFT / INTC] for technology. Also, Berkshire Hathaway has a relatively small float and will always be nixed.

    I think that the call should go down to Fed Ex or UPS. There is little overlap here. The overlap is slight with Boeing [UPS is essentially an airline].
    Reply
  •  
    Sep 05 03:24 PM
    The writing was on the wall when even Kerkorian bailed and dumped the stock...
    Reply
  •  
    Sep 05 03:59 PM
    I'll make a further prediction.
    GM will be removed from the S and P 500 next year.
    That will affect stock price.
    Reply
  •  
    Sep 05 04:22 PM
    Attn America: You cannot export your technology to a country with 1 billion people working at low wages and expect to compete with USA wage levels. The demise of America being a world leader began when CEO's decided to protect their own jobs by building factories overseas. No company can compete against low cost labor once you show them "how" to make a product. I have consulted Worldwide and can assure you all that the laborers in foreign countries are dedicated, intelligent, creative, and will beat "Joe SixPack" every day in a global economy competition. The only way to delay the inevitable is to keep your technology here, control the machinery and technology here and demand "more" science, math and physics training in schools and universities.
    Reply
  •  
    Sep 05 04:42 PM
    Who the heck believes in so-called financial "experts" anymore? This de-listing assertion isn't new news. Wall Street guys have been venting about it since at least 2005. Remember when Fortune/Forbes had the sensationalized cover story on "The End of GM"? That was what - two, three years ago? GM was supposed to be dead by now according to "financial experts". Or how about the book "The End of Detroit"? Same assertions. Sure is taking GM a long time to die......

    Or maybe the experts aren't really so expert. I mean how can anybody seriously believe them anymore? Bankers have had more government bailouts than anybody lately. These are the same experts that gave us the mortgage disaster, the internet bubble, etc, etc.

    And now these same guys say GM is a relic because, uh, let's see, last year they had the highest sales in their history, this year they will sell the second most vehicles in the world, their leaders negotiated a historic labor agreement with the unions which will save billions, the global corporation is profitable in every market except one, and they've spent more to develop alternative fuels than anyone else in the world....and a so-called "expert" claims that this makes GM a hopelessly out of touch, doomed corporation.

    Uh-huh. And I should trust his advice and buy stock in Bear-Sterns - no, wait, I mean, Fannie Mae - oops, nope, uh, Freddie Mac, no that doesn't work either, I mean, Citibank, nope, they lots tons of money too and tried to lie about it, Bank of America? same story...hmmmm, are there any solvent financial institutions left anymore? Any financial guys who know what they're doing?
    Reply
  •  
    Sep 05 07:13 PM
    Politics on Wall Street is playing a game. GM is America's answer to Japan's Toyota in the Global Auto Market. You kill GM and you kill America's chance to compete in the Global Auto Market. You have to remember Toyota sells itself as American but all the profits from their sales returns to Japan.
    As far as bashing the UAW for the culperts. I suggest you blame some very unfair trade agreements, uncontolled Health Care Costs and irreresponsible government leadership for unfair Trade Competition in OUR ECONOMY.
    GM adds more to America's economy than many other Foreign or American Companies.
    As far as the Quality arguement. I'll put GM, Ford and Chrysler up against any Foreign competitior and win. These Icons helped build America along with a Quality American Workforce. The Foreign Competition didn't contribute to the building of America.
    Stockholders are due their return but the American worker deserves a fair shake for making those returns after all American's are stockholders and workers.

    Reply
  •  
    Sep 05 07:16 PM
    Tom Wilkenson:

    Good luck with your new website...it's sorely needed to separate fact from fantasy, innuendo, and misinformation (accidental or intentional).
    Reply
  •  
    Sep 05 10:39 PM
    GM has screwed over it's salaried employees for years. GM screws salaried employees with take-a- ways and bowing to the unions. GM is moving more and more of its production overseas but is critical of Asian car makers. Asian car makere listen to the public and make what they want. Why does it take GM over 3 years to bring the Camaro back. Poor Management! All of the other car manufactures have thier new sports cars out. GM will follow the way of the PT Cruiser with their HHR. GM is typically a couple years to late to market and the resultant car isn't really worth the wait.

    There are rebadged Korean Dawoo cars GM sells but thats OK. Kia and Hyundai have better quality then GM according to recent benchmarks. Toyota still leads in Quality. Its about time GM is left to it's own demise and taken off the DOW.
    Reply
  •  
    Sep 06 09:37 AM
    The idea of "union" has come and gone. Anybody who has ever been a member of one (and especially those who still ARE) absolutely agree that "unions cruch the marginal worker"... based in majority on the fact that they's got seniority. Owen's comment (Sept. 5, 5:17 a.m.) hit the nail on the head: "if the Hyundai welder doesn't do his job satisfactorily, he'll be replaced; if the GM welder starts slacking, management will be forced to bring in an additional welder to get the job done, while the slacker sits and watches."
    Reply
  •  
    Sep 09 04:16 PM
    Interesting article in the Wall Street Journal yesterday. It seems as if the Big Three are also lobbying Washington for a bailout, to the tune of a $50 Billion loan. De-list GM from the DJIA. The company is a shell of its former self. A Dow component should actually represent a blue chip stock, not junk.
    Reply
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