DES MOINES, Iowa — The keepers of the Dow Jones industrial average are not eager to boot General Motors Corp. off the index of 30 leading industrial firms, but that could change if the government gives billions of dollars to the troubled automaker.
The responsibility of choosing the components of the Dow falls to Robert Thomson, 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.
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.
Why kick GM out of the Dow? Its shares have fallen drastically, off 83 percent so far this 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 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 will stay in the Dow for now.
If the index committee pulls the plug on GM, it’s unlikely that GM’s share price would be significantly affected, 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 index-fund managers must sell shares and buy the replacement stock. Kay said few index funds tie their performance to the Dow.
