When Does GM Get Kicked Out of the DJIA?
Let's start a pool: At what point in the future will General Motors (GM) ignominiously join Eastman Kodak (EK), Woolworth and others and get tossed out of he Dow Jones Industrials?
And, who will replace them?
I am betting this happens within 5 years, and perhaps even within 3.
As to the replacement, I might have said Google (GOOG) -- but I assume the DJ Editors learned their lesson top ticking Microsoft (MSFT) and Intel (INTC).
Instead, my bet will be Cisco (CSCO).
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What say ye?
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(Ignore the $38B write down -- thats primarily a tax issue):
GM Will Book $39 Billion Charge Write-Down of Tax Credits
Indicates That Profits Won't Come in Near Term
JOHN D. STOLL
WSJ, November 7, 2007; Page A3
http://online.wsj.com/article/SB119438884709884385.html
Wednesday, November 07, 2007 | 08:00 AM | Permalink
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Barry--
As far as the writedown being primarily a tax matter, I'm going to differ with you. In line with your post yesterday about the banks/brokers and they're "fictitious" earnings, GM's total earnings since 1993 are a little over $40 billion. This writedown essentially means they've been profitless for a very long time, and if you look at what's happened to their balance sheet over that period--well, it ain't pretty.
This is also a recognition that there are no earnings forthcoming for them in the forseeable future. Accounting rules require that you can't hold deferred tax assets on your books indefinitely if you have no reasonable expectation of ever producing profits against which to apply them. That's what's going on here, and I'm sure this decision was forced on management by the auditors.
Rgds.
PS You don't think Baidu or Alibaba replaces them in the Dow? How about PetroChina?
Posted by: Scott Frew | Nov 7, 2007 8:14:16 AM
correction: their fictitious earnings
Posted by: Scott Frew | Nov 7, 2007 8:16:08 AM
Help me out here.
Deferred tax asset ==> amount of taxes they wouldn't have to pay if they earned future income. After the DTA write-down, shareholder equity is $(41.8) billion. How does this company even remain in business?! There's no way future business prospects are so good to eventually this short-fall AND provide a reasonable return to it's investors.
What am I missing?!
Posted by: W.Edwards | Nov 7, 2007 8:19:40 AM
Barry - it's almost to early to be that flippant. But also sad but true. Cisco is a great candidate. Think back to the end of the 90s - the poster children were Schwab, Dell, Cisco and WMT representing exemplars for their industries in business performance. Dell's in deep dodo and denial, WMT is struggling with acceptance of a broken bizzmod that needs adaptation and innovation. Schwab went thru a huge near-death experience and a bottoms-up re-think and Cisco used to be about plumbing and redid it's target markets, it's products from "just" routers and the way it runs itself. They're a darn good candidate.
Broader review and context/discussion here:
http://tinyurl.com/39wlh7
But as the last few major announcements (Time-Warner, MER, Citi) point out this issue of how you run a business well is going to come front and center IMHO. Another round of breakups ain't gonna cut it - instead each line of business will have to perform and then work together or get spun.
My version of a blueprint for thinking Buffett-like on the problem is: Think Like an Owner: http://tinyurl.com/33flfg.
Hopefully not to far off topic because I think it's central.
Sadly - I've worked with GM and had friends who were execs. Smart folks who knew and know they've got major problems but can't fight their way out of the bureaucratic straight jackets.
Posted by: dblwyo | Nov 7, 2007 8:27:55 AM
AAPL - has same issue as GOOG though. CSCO's a solid choice, builder of the internet infrastructure itself, so no argument there.
Posted by: worth | Nov 7, 2007 8:33:58 AM
My company Cummins. :)
Posted by: rjrj | Nov 7, 2007 8:36:00 AM
I'm taking the under: two years.
The replacement will most likely be a basket of hedonically adjusted corporations.
Posted by: Winston Munn | Nov 7, 2007 8:36:36 AM
Toyota. heh heh.
Posted by: Andy | Nov 7, 2007 8:54:25 AM
Cisco, Pancho, what makes the difference? DJIA has long outlived its usefulness.
Posted by: Ross | Nov 7, 2007 9:01:33 AM
"What's good for General Motors, is good for America".
Posted by: Old Ari | Nov 7, 2007 9:05:21 AM
A tranch of CDOs?
Posted by: Isaac | Nov 7, 2007 9:06:37 AM
They'll be thrown out at the next available opportunity, and it'll be backdated three years :-P
Posted by: Justin Clark | Nov 7, 2007 9:08:32 AM
GM will be out within 6 months...and Petro China will replace it with a market cap of a GAZILLION dollars. Everytime one of the execs of Petro China has a bowel movement the market will swing 50% up and down.
Posted by: Kp | Nov 7, 2007 9:31:22 AM
early 2010...Cmon CSCO -- deliver today baby!!
Posted by: UrbanDigs | Nov 7, 2007 9:49:34 AM
With hyperinflation on tap, I'd say the best candidate to replace GM would be just about any solid gold mining stock.
Posted by: Pool Shark | Nov 7, 2007 10:25:04 AM
The money quote from the article:
""It doesn't have any impact at all," he said. "I would encourage people not to overreact in a negative way to it."
I bet....only in this market will we get someone who tries to spin a loss of $39b
Ciao
MS
Posted by: michael schumacher | Nov 7, 2007 10:28:30 AM
I reckon 3 years because they move really really slowly.
Separately, if we are going to ignore the 38B writedown now, shouldn't we also reconsider their balance sheet for those past years when it showed 48B in its assets when they weren't there. And then the views we formed THEN about the solvency, and general view of its valuation of the company need to be revisited no ? And when they are revisited and any forward looking calculations we were making then to give us a view of a fair price TODAY have to be revisited too surely ?
-K
Posted by: sk | Nov 7, 2007 11:05:39 AM
...and when we see real estate values reach levels where the current inventory actually sells, the REAL number is gonna be ???
Posted by: Bob A | Nov 7, 2007 11:07:43 AM
the best part of it, for me, is watching the snake known as Tracinda (Kerkorian) see the stock stay in a range WELL ABOVE where he sold it off. I recall the day he sold it (this is via hindsight) he put out a PR saying he was "interested in acquiring more shares"...which we know now was complete bullshit as his filings showed he was selling his stake the VERY SAME DAY.
That was when the stock was at 28-29.....
Has GM's outlook improved since then???? with today's news a resounding answer of No Way in Hell is apropos.
Gotta Love that.
The next "issue" is coming soon to a bond insurer near you........
Ciao
MS
Posted by: michael schumacher | Nov 7, 2007 11:19:08 AM
When will it be renamed Rupert's Industrial Index?
NWS will replace GM.
Posted by: Groty | Nov 7, 2007 11:29:13 AM
I agree with Groty.....had'nt thought of that one..
Ciao
MS
Posted by: michael schumacher | Nov 7, 2007 11:50:00 AM
Before you get too excited, let's remember who sells the No. 1 brands in Brazil and China. Hint: It ain't Toyota.
Posted by: Ted Craig | Nov 7, 2007 1:54:30 PM
my vote is for amazon
Posted by: FatMary | Nov 7, 2007 4:26:00 PM
I'm with you on CSCO and I have the massive after-hours losses to back it up.
Posted by: DC | Nov 7, 2007 10:08:13 PM
"And, who will replace them?"
Infospace.
According to founder Naveen Jain, back in 2000, it was destined to become the first trillion dollar market-cap company.
He was off by about a trillion dollars....
Posted by: Larry Nusbaum | Nov 8, 2007 7:41:03 PM
A possible replacement for GM, that would keep a company with a similar industrial "theme" might be Johnson Controls.
JCI is an OEM for automotive interiors for a large number of car companies, one of the biggest battery manufacturers, and is major player in building systems (electrical through ventilation, etc). A successful modern industrial company.
Increasing global, large number of employees; with a market cap of around $24 billion and widely held. It would be as good a substitute fit as any, if the Dow wants to broadly represent a variety of economic sectors.
Posted by: Anon | Nov 11, 2007 4:41:23 PM
