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 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 SUVs 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. Google has hinted it may not want to build a car after all, and Apple Inc.’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 about 6 percent 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.
GM shares moved 1.6 percent higher to close at $32.68 today.
Ammann and GM 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 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.