Dan Ammann, left, president of General Motors Co., and Duncan Aldred, vice president of Buick-GMC sales at GM, pose in front of a 2017 Canyon Denali truck. Despite a hesitant market, Ammann says GM can earn profits for years to come.
October 16, 2016 1:02 AM
Few on Wall Street sold on GM
David Welch | Bloomberg
General Motors generates $1 billion in pretax profit a month. Yet the stock market seems unimpressed, assigning the company a market value of just $50 billion.
So why are GM shares so cheap? It’s one of the more vexing questions Dan Ammann, the company’s president, faces every day.
The Detroit automaker posted record profits last year, will be close to that level this year and is putting the pieces in place for a run at more growth in 2017, Ammann said in an interview at Bloomberg News headquarters in New York. GM has a wave of new, high-margin sport utility vehicles coming to market in the next few years, and the company believes that, even with the rapid growth of ride-sharing services, cars sales will continue to be steady and profitable.
“The core of where we make money will be sustained for a long time to come,” he said. “We are delivering real results, and we see opportunity to grow.”
At the same time, the tech giants that have been casting a shadow over GM’s future with plans of high-tech driverless cars suddenly look less threatening. Alphabet Inc.’s Google has hinted it may not want to build a car after all, and Apple’s plans remain unclear. Even Tesla Motors Inc. has lost the love of some investors as a proposed merger with SolarCity Corp. looks problematic.
Still, investors aren’t listening to Ammann’s message. GM stock is down 6 percent this year – trading in the $31-to-$32-a-share range, below the 2010 initial public offering price of $33 and way off its Dec. 17, 2013, high of $41.53. That’s despite record net income of $9.7 billion last year and a company forecast for $9.2 billion this year.
Ammann and CEO Mary Barra have had to wrestle with investor perceptions that the traditional car market has peaked. It hasn’t helped that crosstown rival Ford Motor Co. has reined in its own earnings forecast, pulling GM shares down as its stock falters.
GM, which has an Allen County truck assembly plant, is being punished in part because it has been late to develop new crossover SUVs like Honda’s CR-V and BMW’s X3. But all that’s about to change, Ammann said. GM has a handful of SUVs coming out in the next few years, and a redesigned Chevrolet Equinox will go on sale in the first quarter of 2017 after seven years without a major update.
Meanwhile, GM’s luxury brand continues to struggle. Cadillac has just two SUV models, the hulking Escalade and the more nimble XT5, compared with at least four from rivals including Daimler AG’s Mercedes-Benz and BMW. Ammann said Cadillac will add several more in the next three years.
Even without those new models, GM has been raising prices to an average of $35,000 a car, $1,000 higher than last year and $5,000 over the industry average.
Perhaps GM’s biggest perception problem with Wall Street is that it remains an old fashioned, out-of-style Detroit producer of mass vehicles, while investors see true innovation in the industry coming from the likes of Apple, Uber and Google, all of which want to master self-driving models and ride-hailing apps that could replace individual car ownership.
Ammann sees those technological advances as an opportunity rather than a threat. Cars now travel an average of about 15,000 miles a year. A vehicle in a ride-hailing service could go as many as 80,000 and would need to be replaced – or perhaps refurbished in some way – far more often, he said.
That’s why GM has invested in Lyft Inc. and is renting cars to Lyft drivers – especially vehicles customers leased and brought back to dealers.
Still, ride sharing could prove to be the weak link in GM’s growth strategy. Lyft is expanding but is far outflanked by market leader Uber, newly flush with an investment from Chinese ride-share company Didi Chuxing.
There are some signs GM is getting its message across to investors. Nine of the 23 analysts covering the company have some version of a buy rating on its stock and just one has a sell rating, according to data compiled by Bloomberg.
The shares got a 2.4 percent bounce last month after a recommendation from Morgan Stanley analyst Adam Jonas, long a bull for Tesla and considerably dour on Detroit’s venerable automakers. He reasoned GM’s core business will generate stable profits for the next two years and the transformational technologies from Silicon Valley are further off than people realize.
In discussions with investors, however, he found “great apathy and skepticism” toward the company; “sentiment appears even lower than we had previously thought,” he said in a note 10 days after his recommendation. The shares fell 1.3 percent that day.