GM’s Ammann Says Automaker Can Sustain Profits for Year to Come

Still, investors aren’t listening to Ammann’s message. GM stock is down about 6% this year to $32.17 a share, 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 GM Chief Executive Officer 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 is being punished in part because it has been late to develop new crossover SUVs like Honda Motor Co.’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 Technologies Inc. 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-sharing service could go as many as 80,000 and would need to be replaced -- or perhaps refurbished in some fashion -- far more often, he said.

New Revenue Source: Lyft

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. This provides GM with another new source of revenue and keeps low-mileage models from going to the used-car market and undercutting its new-car prices.

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.

Ammann wouldn’t say whether GM would work with Uber by providing it with leased vehicles, as Toyota Motor Corp. has agreed to do, or by jointly developing a fleet of self-driving cars. Right now, he said, the company is working on this with Lyft.

“The ride-sharing business is in its early days, and we’re in the early days of the shift from ownership to sharing.”

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.

Transformational Technologies

The shares got a 2.4% 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. His recommendation for GM came several months after he downgraded Tesla.

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% that day.

By David Welch