Should Ford replace GM in the Dow?

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Shares of Ford Motor, while still well below their 52-week high, have bounced back sharply in the past few months on hopes Ford will not need government aid. The same can't be said for GM, as investors fear it will join Chrysler in bankruptcy.

NEW YORK (CNNMoney.com) -- General Motors has been a member of the Dow Jones industrial average for nearly 84 years. But it's likely only a matter of time before the company is kicked out.

And if that's the case, its Big Three rival Ford Motor might be a possible candidate to replace it.

The decision is up to the editors at the Wall Street Journal, but it does just seem to be a matter of when -- not if -- GM will get the boot: GM's stock, at a little more than a buck a share, was trading at a more than 75-year low Wednesday morning..

There's more to it than the stock price, too.

John Prestbo, editor and executive director of Dow Jones Indexes, said in an interview with me Wednesday that if GM files for bankruptcy or if the government takes control of the company, there would be no choice but to remove it.

Both could happen in the next few weeks. GM must reach agreements with creditors and unions by the end of the month to restructure or it will be forced by the Obama administration to enter bankruptcy protection as Chrysler LLC did.

GM CEO Fritz Henderson has said repeatedly in the past few weeks that bankruptcy is "probable." And as part of the company's latest restructuring plan, the Treasury Department would wind up with more than 50% of shares in a new GM.

"We're closely monitoring the situation. We are very much aware of the march of events surrounding GM," Prestbo said.

What company should replace GM (GM, Fortune 500)? There are some tough issues for Prestbo and his group. It was one thing to replace AIG with Kraft Foods last year. There were four other financial firms in the Dow at the time so there wasn't a real need to find another insurer.

But getting rid of GM would mean that unless Ford (F, Fortune 500) was chosen to replace it, there would be no U.S. automaker in the index. And despite the industry's many woes, the auto industry is still an important source of jobs.

Yes, there are many broader market barometers out there like the S&P 500 and Nasdaq. But the Dow is still the one with the most history behind it and is viewed by many as the benchmark for the U.S. economy.

So people should not glibly dismiss the Dow as irrelevant. Figuring out who could or should replace GM is an important question.

I used to think that Ford would have no chance to replace GM, and that instead, the Dow should go global and consider adding the U.S. listed shares of Toyota Motor (TM).

Prestbo would not comment on whether Ford was being discussed as a possible replacement for GM but he did reiterate that the Dow Jones industrial average would continue to be home to only U.S.-based companies.

Now, I'm not sure that Ford should be completely ruled out.

For one, the company has been able to avoid federal bailouts for now. And if the economy really is starting to make a turn for the better, it's reasonable to think Ford will remain the only Big Three auto company to survive without government assistance.

"It's sad that this once iconic American company and largest industrial company in the world may be removed from the Dow," said author and business historian John Steele Gordon about GM. "But Ford at least isn't taking government money."

In addition, even though Ford's market value is relatively tiny when compared to many other Dow components, it wouldn't be the smallest. Ford has a market value of about $13.6 billion, while aluminum producer Alcoa has a market value of just under $9 billion. (GM, sadly, has become a mere small cap stock, with a market value of only $630 million.)

What's more, Ford had annual revenue of $135 billion in 2008. Only six Dow components, including GM, reported higher sales last year.

Still, there is a case to be made that replacing GM with Ford is not a good idea.

Back in November, Prestbo told me that he could justify not having the auto industry represented in the Dow if "the market currently does not offer a viable U.S. auto investment option." He reiterated that Wednesday.

And even though Ford's stock is up nearly 300% since November, it's not entirely clear if Ford should make the cut. After all, the stock has merely moved from about $1.25 to a little under $5.

If GM joins Chrysler in bankruptcy, Ford could be affected. Any disruption to the auto supplier industry that results from a GM Chapter 11 filing could hurt Ford.

What's more, it's possible that a slimmed down GM and Fiat-Chrysler alliance may actually enjoy some competitive advantages over Ford down the road. And it's not as if Ford is exactly healthy now. It lost $1.4 billion in the first quarter and is expected to post an annual loss of $6.3 billion this year.

When I wrote about a possible need to remove Citigroup and Bank of America from the Dow in January, finding other suitable companies shouldn't be too hard. PepsiCo (PEP, Fortune 500) fits the bill if you're looking for another blue chip brand-name consumer company. Tech giants Apple (AAPL, Fortune 500) and Cisco Systems (CSCO, Fortune 500) could make sense, as would oil firm ConocoPhillips (COP, Fortune 500).

But make no mistake. GM's days in the Dow are numbered. That means the people managing the Dow have the unenviable task of needing to soon decide whether or not they think the U.S. auto industry still matters enough to be included.