The Dow will replace it with drugstore chain Walgreen Boots Alliance, a company the managers of the Dow index say represents growing aspects of the economy.

GE, founded by Thomas Edison in 1892,  was one of the original members of the Dow.

Why this is a big deal

When the Dow was created in 1896, GE was the most valuable company on the index.

GE’s stock has fallen by more than half since June 2017, according to reports, and its decline over the past decade or so has culminated in the decision by S&P Dow Jones Indices, which manages the index, to give it the boot.

“General Electric was an original member of the DJIA in 1896 and a member continuously since 1907,” David Blitzer, managing director and chairman of the index committee at S&P Dow Jones Indices said in a press release. “Since then the U.S. economy has changed: consumer, finance, healthcare, and technology companies are more prominent today and…with [Walgreens] addition, the DJIA will be more representative of the consumer and health care sectors of the U.S. economy.”

Read more: Social media company Twitter recently joined the S&P 500, replacing agricultural chemical company Monsanto.

What you need to know:

• Walgreens is replacing GE on the Dow
• GE has been a member of the Dow continuously since 1907.
• Managers of the Dow index chose to eliminate GE’s, whose share price has dropped considerably over the past 18 years–including 55% over the past calendar year.
• GE’s value peaked in 2000 with a market capitalization of almost $594 billion, making it one of the most valuable companies in America at the time.
• The index will add Walgreens as the consumer staples and health care sectors have increased in importance to the economy.

Dinosaurs go extinct

GE has struggled to stay relevant in an evolving economy. For many years, manufacturing (of several types, including electric appliances, airplane engines, and even computers) was GE’s bread and butter. But the industry has been in a tailspin, domestically, since the financial crisis in 2008.

The company’s stock was a staple in many investors’ portfolios over the years, as a blue-chip stock with dependable dividends.

Other companies that have dropped from the Dow

The Dow has evolved over the years, and GE was the last company founded in the 19th-century company listed on the index. But the Dow’s makeup has changed more than 50 times since its inception. Many other famous companies have lost their iconic status on the Dow over the years, and have been removed from the index as their businesses have suffered in one way or another.

These include:

• Sears (removed in 1999)
• Citigroup (removed in 2009)
• General Motors (removed in 2009)
• Bank of America (removed in 2013)
• AT&T (removed in 2015)

Key Terms:

Index: A collection of stocks or bonds that takes the measure of a market.

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The move follows a push by domestic manufacturers of both products to get U.S. trade officials to impose taxes on imports, as a way to protect them from international competitors.

Late last year, Whirlpool and GE Appliances asked for a 50% tax on washers from overseas competitors including Samsung and LG, both based in South Korea, which they accused of dumping cheap products in the U.S. Similarly, solar panel manufacturers Suniva and SolarWind had petitioned for tariffs, primarily on Chinese solar components.

China is the largest manufacturer of solar components in the world, and its prices are generally far cheaper than those for American products. American manufacturers of solar products have said a flood of imports from China has hampered their ability to manufacture.

The tariffs will add up to 50% on imported washers and parts, and up to 30% on solar components, according to the Office of the U.S. Trade Representative, the federal agency responsible for setting trade policy.

What’s a tariff?

A tariff, sometimes called a duty,  is a tax typically imposed by one nation on another’s imports. (In some cases, they can be levied on exports.) The tariff is generally calculated as percentage of the import’s total value, including freight and insurance charges.

In principle, governments impose tariffs to make their own products more competitive and affordable, and to generate revenues.

Think of it this way: The additional taxes imposed on LG washers will make them more expensive for U.S. consumers to buy, so they’re likely to shop around and buy cheaper models, presumably made by U.S.-based manufacturers.  And if they do buy the more expensive foreign product, the tariff adds to U.S. coffers.

The problem is that tariffs can also spark something called a trade war. That’s when nations retaliate by increasing prices for products they export, or by imposing their own tariffs on imports. That, in turn, can make things more expensive for consumers in both countries.

South Korea has already said it will appeal the tariffs to the World Trade Organization, and LG has said it plans to increase the prices of the washers it ships to the U.S. in retaliation.

“It’s likely this will result in higher prices and fewer choices for consumers,” John Taylor, senior vice president for LG Electronics, told USA Today this week.

How does this affect the solar industry?

The solar industry in the U.S. has really taken off because the price of solar panels, 80% of which are manufactured overseas, has fallen by about 70% since 2010, according to reports.

But the U.S. solar industry is based on innovation and installation, more than manufacturing solar components, experts say.

Shares of First Solar, a U.S.-based manufacturer of solar components increased 7% following the tariff announcement.

Solar installation is currently a $29 billion industry, and it’s the fastest growing segment of the solar market in the U.S., according to Slate.

While the tariff on solar products is likely to help companies manufacturing solar panels and other components in the U.S., it’s likely to hurt the companies that install solar systems in consumer homes and rooftops, as costs for components go up.

For example, shares of First Solar, a U.S.-based manufacturer of solar components increased 7% following the tariff announcement.*

Solar installers, however, expressed concern about the tariffs.

“The gains that may materialize in module manufacturing won’t be nearly as much as the near certain losses in the rest of the US manufacturing supply chain and installation jobs,” Kevin Bassalleck,  the president of Affordable Solar, based in Albuquerque, told Business Insider.

The post What Do Solar Panels and Washing Machines Have in Common? appeared first on Stash Learn.

The layoffs are intended to help GE achieve $1 billion in cost savings over the next few years, the company said in a press release.

Behind the GE layoffs

GE Power, which produces a wide range of energy systems including power plants, turbines, and generators, is the company’s largest and most profitable division. It employs 57,000 people and had $27 billion in revenue for 2016, according to the Wall Street Journal. *

GE claims its power unit delivers one third of all electricity globally. The unit ran into trouble after it made a big bet on coal production, according to reports. It will now shift gears to renewable power such as wind and solar.

“This decision was painful but necessary for GE Power to respond to the disruption in the power market, which is driving significantly lower volumes in products and services,” Russell Stokes, president and chief executive of GE Power said in a statement. “(GE) Power will remain a work in progress in 2018. We expect market challenges to continue, but this plan will position us for 2019 and beyond.”

Remember when GE cut its dividends?

The layoffs are in line with GE’s announcement last month that it also plans to reduce its dividend by half. GE had been one of the biggest dividend payers in the U.S., distributing about $8 billion a year in cash annually to its shareholders, according to reports.

GE will now shift gears to renewable power such as wind and solar.

Companies tend to cut their dividends, which are a share of profits distributed to shareholders typically on a quarterly or an annual basis, when their earnings decline or their cash flow isn’t sufficient to fund the dividend payment.

Despite an economy and stock market that has roared ahead in 2017, GE reported weaker than expected earnings in the third quarter, with particularly soft performance in its power generation and oil and gas segments, which both posted losses, according to reports.

GE also said cash flow to fund operations for the year would be about $7 billion, roughly half earlier estimates of $12 to $14 billion, according to the New York Times.

More about GE

GE, one of the largest companies in the U.S., is a sprawling conglomerate with approximately 300,000 employees around the world. Its numerous business lines include the manufacture of aircraft engines, equipment for oil and gas mining, and diagnostic imaging systems for the healthcare industry, as well as home appliance manufacturing, not to mention consumer finance.

GE, an icon of U.S. business for 125 years, is the last remaining original component of the Dow Jones Industrial Average, and once one of the most admired companies globally. Its stock price has fallen about 44% in 2017.

News of the layoffs caused GE’s stock to increase 1.4% on Monday morning.

The post Power Trouble: GE Slashes 12,000 Jobs to Cut Costs appeared first on Stash Learn.