GM to be disqualified from Dow Jones? Who will replace it?

As the General Motors was given a time until June 1 to prove it can successfully restructure it is facing the disqualification from the Dow Jones Index, according to the recent article by Forbes. The journal notes that the question is not “if” the company will be ousted from the Dow Jones industrial average, the question is “when” it will happen.

As it is known the GM has filed plans with the SEC that include a 1-for-100 reverse stock split and a 50.0% equity stake for the U.S. government in return for forgiveness on $10.0 billion in loans.

"It's sure looking like the endgame for GM [in the index]," said John Prestbo, editor and executive director of Dow Jones Indexes. He notes that either outcome of the company’s struggle to stay afloat would mean expulsion from the index. GM’s history in the list of thirty biggest stocks that traces back to 1925 is coming to an end.

Thus, the next reasonable question is what company would take GM’s place in the list of blue-chip stocks. The comment of Prestbo contained some prompts. "We don't look at sector comparisons like manufacturing or services," Prestbo said, "we consider industry groups. For the Dow's purposes, GM is classified under consumer goods."

According to the speculation proposed by Chuck Carlson, contributing editor of the Dow Theory Forecasts newsletter and author of Winning With The Dow's Losers, the Dow will unlikely go with another automaker. He points to Apple as an interesting possibility. 

Adding the iPod-maker to the Dow would increase the index's technology exposure, "but with a consumer bent," Carlson said. Apple clearly has the healthy market cap and stock price to justify its inclusion.