Credit: Image source: General Motors.General Motors (NYSE: GM) said it expects its revenue and pre-tax earnings to grow in 2017 versus its strong 2016 result. That runs counter to guidance from some of GM's key rivals -- and to most analysts' expectations for the U.S. new-car market in 2017.
What is GM thinking? That requires a little explanation.
Image source: General Motors.
It's nearly always true in the auto business that new products command higher prices and deliver fatter profit margins than the products they replace, at least for the first couple of years. That's especially true when a strongly competitive new product replaces one that had become dated -- and when the new product is in a hot market segment. And GM has a slew of new products coming to market.
Image source: General Motors.
Right now, the hottest market segments in the U.S. (and to some extent in China and Europe as well) are crossover SUVs. Well, guess what GM is launching over the next couple of years? Ammann explained:
GM has already revealed all-new versions of the huge-selling Chevrolet Equinox and important GMC Terrain and Chevy Traverse crossovers, all launching over the next few months for the 2018 model year.
Those join the all-new Cadillac XT5, GMC Acadia, and Buick Envision launched last year -- and they'll soon be joined by more all-new crossovers, including a new Buick Enclave and at least two all-new Cadillacs over the next couple of years.
This is why GM is confident that 2017 will be better than 2016
Odds are that each of those new crossover models will sell better than their predecessors, at least for a while, even if the overall market is flat. And whether sales totals rise or not, it's a safe bet that every one of those new products will generate more profit per sale than the vehicles they replace.
That's why GM is confident that its revenue and earnings will rise in 2017 even if the U.S. market shows no growth: As Ammann said, it has the right products arriving at the right moment.
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John Rosevear owns shares of Ford and General Motors. The Motley Fool owns shares of and recommends Ford. The Motley Fool recommends General Motors. The Motley Fool has a disclosure policy .
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
