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Brexit, U.S-China Trade, AutoNation CEO · Bloomberg Intelligence

• 0:02
  Speaker 1: Welcome to the Bloomberg Penel podcast. I'm Paul swing you,
• 0:05
  Speaker 1: along with my co host Lisa Brahma wits. Each day
• 0:07
  Speaker 1: we bring you the most noteworthy and useful interviews for
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  Speaker 1: you and your money. Whether at the grocery store or
• 0:12
  Speaker 1: the trading floor. Find a Bloomberg Penl podcast on Apple
• 0:15
  Speaker 1: podcast or wherever you listen to podcasts, as well as
• 0:17
  Speaker 1: at Bloomberg dot com. The pound today is rallying on
• 0:23
  Speaker 1: the prospect of the lesser chance of a hard Brexit
• 0:27
  Speaker 1: joining us now. Are very glad to say, as Terrace
• 0:29
  Speaker 1: Raphael Bloomberg Opinion edited away in on the latest on Brexit,
• 0:33
  Speaker 1: and I think that probably the most interesting story of
• 0:36
  Speaker 1: the day are certainly one of them to me, Teres
• 0:39
  Speaker 1: was the relationship between Joe Johnson and Boris Johnson, two brothers.
• 0:44
  Speaker 1: Joe quitting parliament because he couldn't reconcile his relationship with
• 0:49
  Speaker 1: his family Boris and his view that the UK should
• 0:54
  Speaker 1: remain part of the European Union. What's the relationship like
• 0:59
  Speaker 1: between these two? Well, I think the bigger surprise was
• 1:01
  Speaker 1: that Johnson actually joined his brother's cabinet to begin with.
• 1:04
  Speaker 1: Um Joe Johnson resigned uh from when when he was
• 1:09
  Speaker 1: part of UH Theresa May's government over his UH, his
• 1:14
  Speaker 1: preference for his second referendum. So he is a remainder,
• 1:17
  Speaker 1: but he wants a second referendum rather than you know,
• 1:20
  Speaker 1: his position isn't that just simply that that Britain should
• 1:24
  Speaker 1: stay in the He would like to have a referendum
• 1:26
  Speaker 1: on it. Now obviously that puts him into direct conflict
• 1:29
  Speaker 1: with h with his brother, the Prime Minister, and it
• 1:31
  Speaker 1: was quite a surprise when he announced that he would
• 1:34
  Speaker 1: be that that Joe Johnson would be part of the cabinet.
• 1:37
  Speaker 1: The timing of Joe's resignation is of course very pointed.
• 1:41
  Speaker 1: Boris Johnson has just suffered major defeats in Parliament. His
• 1:45
  Speaker 1: prorogration strategy, the decision to suspend parliament for five weeks,
• 1:50
  Speaker 1: is hugely controversial. He is now uh potentially unable to
• 1:55
  Speaker 1: get the election that he wants on October fifteenth, after
• 1:59
  Speaker 1: parliament was he was not able to get the two
• 2:01
  Speaker 1: thirds majority for that, and then on top of that,
• 2:03
  Speaker 1: to have his brother say, you know, I'm out seems
• 2:06
  Speaker 1: to be a sign that this purge of the of
• 2:08
  Speaker 1: the Conservative Party, um, you know, has provoked a backlash,
• 2:13
  Speaker 1: and you know he now has that to deal with
• 2:15
  Speaker 1: on top of everything else. So Tos, I almost hate
• 2:18
  Speaker 1: to put you on the spot here, but you know,
• 2:20
  Speaker 1: because I'm sure nobody really has a good sense. But
• 2:23
  Speaker 1: what are the next steps here? What do you how
• 2:24
  Speaker 1: do you think this is going to play out in
• 2:25
  Speaker 1: your term? I guess I heard someone say if you
• 2:29
  Speaker 1: know what's going to happen, you haven't been paying attention.
• 2:31
  Speaker 1: I think that's that's pretty accurate. So the next step
• 2:35
  Speaker 1: is that Johnson will try one more time to get
• 2:37
  Speaker 1: the October fifteenth election date, and he'll try to do
• 2:40
  Speaker 1: that by a different parliamentary mechanism. You can't bring the
• 2:46
  Speaker 1: same motion before in a parliamentary session twice, so he's
• 2:50
  Speaker 1: going to use a different mechanism. Nowth that fails, and
• 2:53
  Speaker 1: it may well fail. Parliament is suspended parode now until
• 2:58
  Speaker 1: um the middle of October, and the no further attempt
• 3:01
  Speaker 1: to get that election, and therefore it becomes impossible to
• 3:04
  Speaker 1: imagine how he would get an election before October thirty one.
• 3:08
  Speaker 1: And that puts us into slightly different territory because remember
• 3:11
  Speaker 1: Johnson promised he would pull Britain out do or die
• 3:14
  Speaker 1: by October thirty one. An election into November means he's
• 3:18
  Speaker 1: broken that promise. Now, some polls are showing that Leave
• 3:21
  Speaker 1: supporters would not blame him, they'd blame parliament or they
• 3:24
  Speaker 1: blame the EU. But I think the longer this drags
• 3:27
  Speaker 1: out before an election, the harder it will be for
• 3:30
  Speaker 1: Johnson to just come in and sweep up that parliamentary majority.
• 3:34
  Speaker 1: That is the key to him, um, to him delivering
• 3:38
  Speaker 1: the Brexit that he's promising. What political leader in the
• 3:41
  Speaker 1: United Kingdom could potentially get the support necessary to push
• 3:46
  Speaker 1: this process forward, Well, depends on what process I mean that.
• 3:49
  Speaker 1: You know, the problem for those that oppose Johnson's plan
• 3:52
  Speaker 1: is that they don't have a single leader they can
• 3:55
  Speaker 1: rally behind. Jeremy Corbyn, the Labor leader, is very unpopular
• 3:59
  Speaker 1: even with many of his own MPs. The other opposition
• 4:02
  Speaker 1: parties refused to have Corbin become a sort of national
• 4:05
  Speaker 1: unity candidate. Uh And the Conservatives also don't have a
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  Speaker 1: leader other than Johnson that they would rally behind now
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  Speaker 1: and that party is utterly split between its two wings.
• 4:15
  Speaker 1: So um, you know, the answer is an election could
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  Speaker 1: throw up any number of options from a Conservative majority,
• 4:21
  Speaker 1: which is what Johnson is betting onto a hung parliament.
• 4:24
  Speaker 1: It doesn't really solve the problem. So what is the
• 4:27
  Speaker 1: sense of timing here? I mean, is there is there
• 4:28
  Speaker 1: some drop dead date where something really has to happen. Well,
• 4:34
  Speaker 1: October thirty one, something has to happen. Either Britain has
• 4:37
  Speaker 1: to UH receive an extension from the EU. And now
• 4:41
  Speaker 1: you know, let's let's uh remind listeners that that has
• 4:44
  Speaker 1: to be unanimously approved by all of the EU's members.
• 4:48
  Speaker 1: So even if one of them, say Emmanuel Macon in
• 4:51
  Speaker 1: France or Victor Orbon of Hungary, some have suggested say no,
• 4:54
  Speaker 1: we don't approve an extension that can happen in Britain
• 4:57
  Speaker 1: crashes out on October thirty one. There is the other
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  Speaker 1: key date is the European Council summit in October seventeenth,
• 5:04
  Speaker 1: and that is the UH the summit in which Johnson
• 5:07
  Speaker 1: was promising to bring back a deal. Finally, closer date
• 5:10
  Speaker 1: that we should all watch is Monday, UH. Next week
• 5:14
  Speaker 1: Boris Johnson meets with the Irish T shirt Leah um
• 5:18
  Speaker 1: Leo Vodka and that will be very interesting because Johnson
• 5:21
  Speaker 1: has been promising that he will bring um solutions to
• 5:25
  Speaker 1: this impass over the Irish backstop. He'll bring alternative ideas,
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  Speaker 1: so we shall hopefully see next week what he has
• 5:33
  Speaker 1: in mind and whether there is any possibility that ire
• 5:36
  Speaker 1: that Ireland or the E would take it seriously. Tres Rafael,
• 5:39
  Speaker 1: thank you so much for bringing some clarity to an
• 5:41
  Speaker 1: absolutely chaotic situation. Tres Rafael, Bloomberg opinion editor covering European politics,
• 5:46
  Speaker 1: UH and economics for Bloomberg, calling this UH in from
• 5:50
  Speaker 1: our London bureau. You can read more on this and
• 5:52
  Speaker 1: other stories from Bloomberg Opinion at Bloomberg dot com, slash
• 5:56
  Speaker 1: Opinion and on the terminal by typing O, P, I
• 6:00
  Speaker 1: and go. Let's talk about trade because that seems to
• 6:16
  Speaker 1: be one of the presiding factors when it comes to
• 6:19
  Speaker 1: what direction the markets are going to be in any
• 6:20
  Speaker 1: given day. There seems to be a little bit more
• 6:23
  Speaker 1: optimism right now because there are talks about talks about
• 6:25
  Speaker 1: talks about talks about getting maybe together to talk about trade.
• 6:28
  Speaker 1: So let's have talk to Sean Donna, who's Bloomberg new
• 6:30
  Speaker 1: senior trade reporter coming to us from our Washington d
• 6:34
  Speaker 1: C studios. Sean, what actually do we know that has
• 6:37
  Speaker 1: happened in order with respect to moving closer to some
• 6:41
  Speaker 1: sort of trade resolution. Well, I think you nailed it there.
• 6:43
  Speaker 1: We've got more talks about talks about talks coming, and
• 6:47
  Speaker 1: we are expecting at some point in uh coming weaker
• 6:51
  Speaker 1: ten days or so UH to see the Chinese send
• 6:56
  Speaker 1: a delegation over here to Washington. Will be a working
• 6:59
  Speaker 1: level delegation to try and hash out where they resumed
• 7:04
  Speaker 1: these negotiations. And that's really the point to stress here. UH.
• 7:09
  Speaker 1: When we when these talks broke down in May, UH,
• 7:13
  Speaker 1: they had a hundred and fifty pages of text. UH.
• 7:16
  Speaker 1: They were close to uh something meaningful on both sides
• 7:22
  Speaker 1: and h then the Chinese walked away from that, in
• 7:25
  Speaker 1: part because President Trump wasn't willing to withdraw tariffs or
• 7:30
  Speaker 1: commit to that at that point. And what we've seen
• 7:33
  Speaker 1: since is an escalation in tariffs, is a lot more
• 7:35
  Speaker 1: tariffs in place. Now, the mistrust on both sides has
• 7:39
  Speaker 1: grown over the summer, UH, and they're getting back to
• 7:42
  Speaker 1: the table, but again they're they're trying to figure out
• 7:46
  Speaker 1: how to start having substantive negotiations. Again, that doesn't mean
• 7:50
  Speaker 1: that they are having substantive negotiations, and that doesn't mean
• 7:54
  Speaker 1: that we're any closer to a deal today than we
• 7:57
  Speaker 1: were before this call happened last night and the announced
• 7:59
  Speaker 1: he's talked last night. So Sean, what does it mean
• 8:02
  Speaker 1: typically historically when a country like China or the United
• 8:07
  Speaker 1: States sends over a relatively high level negotiating team, does
• 8:12
  Speaker 1: it is it? You know, does that typically mean oh boy,
• 8:15
  Speaker 1: work close to something or serious or can it just
• 8:18
  Speaker 1: be it for show one In First of all, we're
• 8:22
  Speaker 1: not in a normal situation in terms, so if you know,
• 8:24
  Speaker 1: the history is a tough guide here in terms of
• 8:27
  Speaker 1: trade negotiations, just because the President Trump's approach to these things.
• 8:29
  Speaker 1: We've seen that with his approach to dealing with Japan,
• 8:33
  Speaker 1: for example. We have a great story up on on
• 8:36
  Speaker 1: Bloomberg today from my colleague Jennie Lenard talking about how
• 8:39
  Speaker 1: they're racing to try and work out some really important
• 8:42
  Speaker 1: stuff in a deal that President Trump announced as being
• 8:46
  Speaker 1: all all done at the G seven just a week
• 8:49
  Speaker 1: or ten days ago, and and they're still negotiating some
• 8:52
  Speaker 1: really substitutive stuff and they're hoping to sign that deal
• 8:56
  Speaker 1: or or get an announce a final deal at the
• 8:59
  Speaker 1: end of septem When you look at what's happening with China. Uh.
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  Speaker 1: It is not unusual for ministers to shuttle around the
• 9:06
  Speaker 1: world as part of trade negotiations. That's what they do.
• 9:09
  Speaker 1: That's what trade ministers do, That's what US trade representatives
• 9:12
  Speaker 1: have done for years. So in some ways that's not
• 9:16
  Speaker 1: meaningful and in itself. But that's where this is different,
• 9:20
  Speaker 1: right because over the summer, these negotiations broke down and
• 9:25
  Speaker 1: we are kind of seizing and markets certainly are seizing
• 9:28
  Speaker 1: on any news of the two sides. Even talking is
• 9:32
  Speaker 1: is something meaningful, So you know, I think we need
• 9:35
  Speaker 1: to be really careful, uh, in terms of managing our
• 9:39
  Speaker 1: own expectations with these things. This does not mean that
• 9:42
  Speaker 1: a deal is nigh. Uh. It just means that they're
• 9:46
  Speaker 1: back to talk. I think that a lot of investors
• 9:48
  Speaker 1: right now, and you'll talk to people and they'll say,
• 9:51
  Speaker 1: you know, we're trying to understand President Trump's motivations, the psychology,
• 9:55
  Speaker 1: which you know, good luck. But I think that there
• 9:57
  Speaker 1: is a question here of President Trump. Does he kind
• 10:00
  Speaker 1: of have a put on the market? People are counting
• 10:03
  Speaker 1: on him to, at some point close to elections try
• 10:06
  Speaker 1: to make some sort of deal with China in order
• 10:09
  Speaker 1: to give a boost to market. Uh, and and sort
• 10:12
  Speaker 1: of have have sort of some momentum heading into the election.
• 10:16
  Speaker 1: Is your sense from the people that you talked to
• 10:19
  Speaker 1: that that belief is legitimate. Look, there's no doubt that
• 10:23
  Speaker 1: President Trump has wanted to make a deal. That's that's
• 10:27
  Speaker 1: in his nature. Uh. And the question is whether something
• 10:31
  Speaker 1: has changed over the summer. And that's where what we're
• 10:35
  Speaker 1: really trying to figure out. I've had people close to
• 10:38
  Speaker 1: this administration say to me as recently as yesterday that
• 10:42
  Speaker 1: they thought that they were seeing a new hard line
• 10:45
  Speaker 1: from President Trump in his tweets, and that they thought
• 10:49
  Speaker 1: that he had moved from wanting a deal to to
• 10:51
  Speaker 1: wanting uh, to just sort of embracing this idea of
• 10:55
  Speaker 1: the need for a standoff with China, for someone to
• 11:00
  Speaker 1: take on China. We saw that in his comments yesterday
• 11:02
  Speaker 1: about where he literally said, you know, I don't care
• 11:05
  Speaker 1: about the economy. This is bigger than the economy, when
• 11:08
  Speaker 1: he was talking to reporters about the China talx. So.
• 11:11
  Speaker 1: I mean, the swings in sentiment here are are remarkable,
• 11:15
  Speaker 1: and it makes it really really hard to try and uh,
• 11:20
  Speaker 1: you know, discern the signal from the noise, you know,
• 11:24
  Speaker 1: that's what we try to do every day. We talked
• 11:26
  Speaker 1: to people inside administration, around the administration, and it's, you know,
• 11:30
  Speaker 1: it's it's hard to know on a day to day
• 11:32
  Speaker 1: basis where the President wants to take this, and it
• 11:36
  Speaker 1: changes on a day to basis. Socialan just thirty seconds,
• 11:39
  Speaker 1: any sense of where China is? Has anything changed for
• 11:42
  Speaker 1: China over the summer from your perspective, Yeah, I think
• 11:46
  Speaker 1: what we hear from Beijing, and what we hear from
• 11:48
  Speaker 1: from people who meet with Chinese officials regularly, is that
• 11:52
  Speaker 1: there's been a change in Beijing and in their approach
• 11:55
  Speaker 1: of this, they now believe that they are involved in
• 11:59
  Speaker 1: a longer term fight with the Chinese. They have a
• 12:03
  Speaker 1: higher level of suspicion of Donald Trump and his ability
• 12:07
  Speaker 1: to deliver a deal. Uh and UH. They are approaching
• 12:12
  Speaker 1: this much more warily than they were even six months ago.
• 12:16
  Speaker 1: Sean Donna, thank you so much. I feel like we're
• 12:18
  Speaker 1: gonna be talking to you a lot more going forward.
• 12:21
  Speaker 1: There's still much more to go on this story, obviously,
• 12:24
  Speaker 1: Sean don and senior trade reporter for Bloomberg News. Uh,
• 12:28
  Speaker 1: talking to us from our d C of bureau crewed
• 12:46
  Speaker 1: very much getting a bid today on the heels of
• 12:49
  Speaker 1: some softening and trade talks between at the US and China,
• 12:52
  Speaker 1: perhaps talks about talks about talks. We're saying crewed up
• 12:54
  Speaker 1: about one percent today following a two point three percent
• 12:57
  Speaker 1: gain yesterday. But really, what is going to be the
• 13:01
  Speaker 1: longer term driver of crude prices? Joining us now, Stephen Short,
• 13:04
  Speaker 1: president of the Short Group Group and editor of the
• 13:07
  Speaker 1: Short Report, joining us on the phone. So Stephen, let's
• 13:10
  Speaker 1: just get started. Um crude prices they've been bouncing around
• 13:14
  Speaker 1: pretty much in sandem with the feeling from trade. How
• 13:19
  Speaker 1: long is this sustainable? Uh? Well, for the foreseeable future.
• 13:23
  Speaker 1: We're going into Lisa now, a very volatile time in
• 13:26
  Speaker 1: the market. Uh To your point, oil is rallying hard.
• 13:30
  Speaker 1: We got some good numbers a DP employment. We have
• 13:33
  Speaker 1: some bullish support numbers from today's weekly update on petroleum stocks.
• 13:37
  Speaker 1: But first and foremost, the driver currently now is the
• 13:40
  Speaker 1: market's taken another hit of hopium, that is to say,
• 13:44
  Speaker 1: hope that we might actually get some sort of resolution
• 13:47
  Speaker 1: with the China trade riff. So at this point, this
• 13:51
  Speaker 1: is where these speculators are pouring their hearts and souls into.
• 13:55
  Speaker 1: Uh so going forward, now when we talk about volatility,
• 13:59
  Speaker 1: it is September. So over the next two months, oil
• 14:02
  Speaker 1: refineries here in North America in northern Europe are going
• 14:06
  Speaker 1: to go into their maintenance season, so they're going to
• 14:08
  Speaker 1: be buying fewer barrels as they shut in operations to
• 14:12
  Speaker 1: get ready for the winter demand season. So when you
• 14:14
  Speaker 1: take that fundamental out of the market, when you take
• 14:16
  Speaker 1: that fundamental um driver, that buyer out of the market,
• 14:20
  Speaker 1: it creates a void. And when you have that void,
• 14:23
  Speaker 1: you have the chance for volatility. So once again we're
• 14:26
  Speaker 1: gonna be looking at markets that can can continue over
• 14:29
  Speaker 1: the next two three months to trade off of headlines.
• 14:32
  Speaker 1: Today we happen to have a bullish headline and so
• 14:35
  Speaker 1: the market is finding good support here. So it's interesting
• 14:38
  Speaker 1: when you know, when we talked to you, um Stephen
• 14:40
  Speaker 1: about the you know, the energy markets, we always have
• 14:42
  Speaker 1: discussions about the you know, the demand side of the
• 14:45
  Speaker 1: equation and the supply side of the equation. But it
• 14:47
  Speaker 1: seems like what's really driving oil prices, energy prices in
• 14:51
  Speaker 1: general is really the demand side, and again tied very
• 14:54
  Speaker 1: much to trade. Is that kind of how the traders
• 14:56
  Speaker 1: are positioning themselves. Yes, and absolutely and in fact, we
• 14:59
  Speaker 1: we had some numbers that came out the surveys before.
• 15:03
  Speaker 1: And keep in mind demand is still strong. The the
• 15:07
  Speaker 1: the economy is still finding support. It's just this this
• 15:11
  Speaker 1: overhang of this trade riff, and and everyone's talking about
• 15:15
  Speaker 1: potential recession, and we're starting to see the pull back
• 15:18
  Speaker 1: on the manufacturing side. And the manufacturing side tends to
• 15:22
  Speaker 1: be a bell weather. So even though it is only
• 15:25
  Speaker 1: ten to twelve of the U S economy, it's still
• 15:28
  Speaker 1: a significant driver. And and that is really where the
• 15:32
  Speaker 1: concern is um so on the supply side. Look, we're
• 15:36
  Speaker 1: starting to degluct the market here in the United States.
• 15:40
  Speaker 1: Over the past month, we've had two major pipelines that
• 15:43
  Speaker 1: have started shipping crude oil out of the West Texas
• 15:45
  Speaker 1: Permian Basin to the export markets near in Corpus Christie.
• 15:49
  Speaker 1: By the end of the year, we'll have another pipeline
• 15:52
  Speaker 1: that comes online. So our takeaway capacity with all that
• 15:55
  Speaker 1: oil being produced in West Texas is going to increase
• 15:58
  Speaker 1: by by two thirds. So we're starting to deglute and
• 16:01
  Speaker 1: we're starting to balance the market at this point. So, yes,
• 16:04
  Speaker 1: it is the demand, and keep in mind the underlying
• 16:07
  Speaker 1: economic demand story is still firm at this point. But
• 16:10
  Speaker 1: it's all about the future. It's all about perception, and
• 16:13
  Speaker 1: right now people are are very cautious and that is
• 16:16
  Speaker 1: certainly a concern that is overhanging the commodity markets. Stephen,
• 16:21
  Speaker 1: I remember when people cared about what was going on
• 16:23
  Speaker 1: with respect to Iran, what was happening with with respect
• 16:27
  Speaker 1: to Libya, Venezuela, Argentina. I mean, they're all of these
• 16:32
  Speaker 1: issues that used to matter and that don't seem to anymore. Yep.
• 16:37
  Speaker 1: And again right, and to your point's an excellent point,
• 16:40
  Speaker 1: And it's all about perception. I mean, OPEC, when's the
• 16:43
  Speaker 1: last time headline of OPEC actually moved this market? Uh,
• 16:47
  Speaker 1: this is a US centric story. United States is the
• 16:51
  Speaker 1: nine pound gerrilla in the oil market. At this point.
• 16:54
  Speaker 1: We are burgeoning export, uh powerhouse with all this production
• 16:59
  Speaker 1: coming out out and and that kind of masks you know,
• 17:02
  Speaker 1: the concerns here to your point, Iran, Venezuela, Right, Venezuela
• 17:07
  Speaker 1: used to be our fourth largest supplier of crudel and
• 17:11
  Speaker 1: now their production has has fallen off significantly, and so
• 17:16
  Speaker 1: that is the concern that potentially that will start to
• 17:21
  Speaker 1: see a pullback in demand. Uh. You know that is
• 17:26
  Speaker 1: being masked right now by the loss of supply, and
• 17:28
  Speaker 1: all it's going to take is what one good good
• 17:31
  Speaker 1: disruption and uh, you know, all of this goes to
• 17:35
  Speaker 1: not Stephen, what are your thoughts on the natural gas
• 17:38
  Speaker 1: market as we look ahead to kind of the colder
• 17:40
  Speaker 1: months coming up. It's pathetic, I mean the natural gas market.
• 17:44
  Speaker 1: And yeah, exactly. Now, natural gas market is getting a
• 17:50
  Speaker 1: nice rally right now. If and I've been telling all
• 17:52
  Speaker 1: my hedging hedging clients in the short report that over
• 17:55
  Speaker 1: the past month, if you have not been buying every
• 17:58
  Speaker 1: single molecule of natural gas at these levels for your
• 18:01
  Speaker 1: winter needs, you're really being foolish because the market is
• 18:04
  Speaker 1: really gifting you this opportunity. Uh. To that point, we
• 18:08
  Speaker 1: have so much gas. There is the pullback on the
• 18:10
  Speaker 1: industrial side, so that is overhang. Supplies are plentiful, but
• 18:15
  Speaker 1: the market has rallied about twenty cents at Decca therm
• 18:18
  Speaker 1: over the past month, and that is because Wall Street
• 18:21
  Speaker 1: speculators have never been more barished this market. So this
• 18:24
  Speaker 1: is a market that is extremely over sold. So we're
• 18:27
  Speaker 1: getting kind of a counter uh intuitive rise in price
• 18:31
  Speaker 1: right now, which probably has a lot of speculatives scratch
• 18:33
  Speaker 1: in their head because the fundamentals are so barrashed. So
• 18:36
  Speaker 1: that's to say that we tend to see in the
• 18:38
  Speaker 1: natural gas market, we get this rally before the winter,
• 18:42
  Speaker 1: before the heat heating season kicks in, and I think
• 18:45
  Speaker 1: we're in the midst of that. How high can we go?
• 18:49
  Speaker 1: Our quant models right now are looking at potentially this
• 18:53
  Speaker 1: month we could see natural gas prices rally about another
• 18:56
  Speaker 1: forty cents higher, which would really be more of a
• 19:00
  Speaker 1: short covering rally, not fundamentally driven. But we're looking going
• 19:04
  Speaker 1: into the winter and market that if you're hedging, you
• 19:07
  Speaker 1: should have been buying. You'll still have opportunities. We're in
• 19:10
  Speaker 1: the midst of a counter shortcovering rally, but the overall
• 19:14
  Speaker 1: is still barish. Stephen Short, thanks so much for that overview.
• 19:17
  Speaker 1: Excellent overview as always on the energy markets looking accrued
• 19:20
  Speaker 1: and nanny guess at the moment. Right Stephen Shark's President
• 19:23
  Speaker 1: Short Group of phoning in from Pennsylvania. Right now, we
• 19:42
  Speaker 1: have the honor of speaking with Auto Nations new chief
• 19:45
  Speaker 1: executive officer, Cheryl Miller. She came in about forty five
• 19:50
  Speaker 1: days ago to head Auto Nation, which she's normally based
• 19:54
  Speaker 1: in Fort Lauderdale in Florida, but she's here in Ourlubritter
• 19:57
  Speaker 1: Active Broker Studios. Sharyl, congratulations. The shares of the company
• 20:00
  Speaker 1: up more than thirty six percent year to date. I
• 20:04
  Speaker 1: want to start with the transition in your first forty
• 20:07
  Speaker 1: five days, taking over after a very brief stint uh
• 20:11
  Speaker 1: for the previous CEO, Carl Liebert. So what what's it
• 20:16
  Speaker 1: been like, given the fact that it's been a little
• 20:18
  Speaker 1: bit tumultuous over the past couple of months. Yes, it's
• 20:20
  Speaker 1: great to be here today with you, Lisa, with you, Paul,
• 20:23
  Speaker 1: and it's been great. The last forty five days have
• 20:25
  Speaker 1: been fantastic. And coming in, my core focus was execution, right,
• 20:30
  Speaker 1: so we're an operating business execution of our existing play
• 20:34
  Speaker 1: and then also I'm making sure we're working on this
• 20:36
  Speaker 1: automation brand extension strategy. So when I stepped into the role,
• 20:40
  Speaker 1: I met immediately with our leadership team I've known for
• 20:43
  Speaker 1: many years, our operational leadership team. I met with them personally,
• 20:46
  Speaker 1: we talked about the strategy, had their full confidence, and
• 20:50
  Speaker 1: I also met with the corporate team. I reminded the
• 20:53
  Speaker 1: corporate team, as we always do, that our focuses on
• 20:55
  Speaker 1: servicing our customers and really pulled together that leadership team
• 21:00
  Speaker 1: to focus on the core. I've had some initial O
• 21:03
  Speaker 1: E M discussions, but certainly I've known many of them,
• 21:05
  Speaker 1: having been in the industry for years as well. So
• 21:08
  Speaker 1: I'm just looking at the stock stocks done well, up
• 21:11
  Speaker 1: thirty seven percent this year, there's only one analysts recommending
• 21:14
  Speaker 1: it in nine have a hold, and there's a couple
• 21:16
  Speaker 1: of cells. What are what's the bear case out there?
• 21:18
  Speaker 1: What are analysts not seeing having missed kind of this
• 21:21
  Speaker 1: run up in the stock? Yes, and Paul, I think
• 21:23
  Speaker 1: it's a great observation. I think what people are missing
• 21:26
  Speaker 1: is really the thought out there has been. Are we
• 21:28
  Speaker 1: at peak auto? And if you think about that, years ago,
• 21:32
  Speaker 1: we knew we would have a gradual climb out of
• 21:34
  Speaker 1: those lower star levels, and we always said we thought
• 21:36
  Speaker 1: we would level off somewhere between sixteen and seventeen million
• 21:40
  Speaker 1: units of sales, and and that is where we have
• 21:42
  Speaker 1: leveled off. But keep in mind that we're not just
• 21:44
  Speaker 1: about new vehicle sales. We also do a lot of
• 21:47
  Speaker 1: nearly new, and you've seen the customer preference shifts somewhat
• 21:51
  Speaker 1: towards nearly new and we also have the service aspects
• 21:54
  Speaker 1: of the business. And so I think the analyst thesis
• 21:57
  Speaker 1: has been around sort of peak auto, and I think
• 22:00
  Speaker 1: we've got a lot more than that. And you've been
• 22:04
  Speaker 1: with automation for years, so you have a sense of
• 22:07
  Speaker 1: the sort of h the breakdown between used and new
• 22:12
  Speaker 1: cars and car sales. Can you speak a little bit
• 22:14
  Speaker 1: more about the shift that you've seen recently in preference
• 22:17
  Speaker 1: for almost new vehicles by the US consumer. Yeah, absolutely,
• 22:22
  Speaker 1: So I've certainly been in the industry for a while,
• 22:23
  Speaker 1: and my one of my fun facts is the fact
• 22:25
  Speaker 1: that I actually was an automation the first time before
• 22:27
  Speaker 1: Mike so I was was there back in ninety eight,
• 22:30
  Speaker 1: and I saw the early days of the company through
• 22:32
  Speaker 1: the evolution today. But as I think about the consumer, um,
• 22:36
  Speaker 1: I think about most of the customers coming back into
• 22:39
  Speaker 1: our show rooms are coming online to interact with us.
• 22:42
  Speaker 1: The last time they may have purchased a vehicle could
• 22:45
  Speaker 1: have been when interest rates are basically at zero. So
• 22:47
  Speaker 1: now they're coming back in and although rates fortunately we're
• 22:51
  Speaker 1: not going to have the hikes we originally anticipated this year,
• 22:54
  Speaker 1: but but rates are a little higher than zero certainly,
• 22:57
  Speaker 1: and customer affordabilities a little bit tougher. So the average
• 23:00
  Speaker 1: new vehicle payment monthly it's five dollars a month. So
• 23:04
  Speaker 1: for some customers there's a little bit of a sticker
• 23:06
  Speaker 1: shock as they come into the stores, and therefore they
• 23:10
  Speaker 1: look over to the side and say, hey, that's that's
• 23:12
  Speaker 1: a nearly new vehicle. It's got great technology, it maybe
• 23:15
  Speaker 1: two to three four years old, and they'll opt in
• 23:18
  Speaker 1: for that. So we're actually seeing very strong pre owned
• 23:21
  Speaker 1: sales this year, and you've seen us with two record
• 23:23
  Speaker 1: quarters and part of that was supported by great pre
• 23:26
  Speaker 1: owned sales. So I'm just looking at the consensus estimates
• 23:29
  Speaker 1: out on the on the Bloomberg terminal. Not much revenue growth,
• 23:32
  Speaker 1: but some very strong margins here. So it give us
• 23:34
  Speaker 1: a sense of kind of the business mix for you guys,
• 23:37
  Speaker 1: between kind of the the sales of cars and maybe
• 23:39
  Speaker 1: the services for your business and kind of which is
• 23:42
  Speaker 1: really driving the growth for you. Yes, they think about
• 23:44
  Speaker 1: the growth drivers within the business. The service or we
• 23:47
  Speaker 1: call customer care side of the business has great margins.
• 23:51
  Speaker 1: So those margins are in the forty five percent range
• 23:53
  Speaker 1: plus or minus compared to new and used vehicle sales
• 23:57
  Speaker 1: that are in the case of used vehicles sub eight
• 23:59
  Speaker 1: percent new vehicle sales certainly much lower on a percentage basis.
• 24:03
  Speaker 1: So as we continue to shift and focus on growth
• 24:06
  Speaker 1: in the customer care side of the business, you're seeing
• 24:09
  Speaker 1: some margin improvement but also flow through. So if you
• 24:11
  Speaker 1: think about our bottom line improvement, we've made some good
• 24:15
  Speaker 1: steps with respect to s g n A. So so
• 24:18
  Speaker 1: the nice thing of having said in the CFO roll
• 24:20
  Speaker 1: previously is that continued focus on cost optimization. So going forward,
• 24:26
  Speaker 1: you know, you talked a little bit about how people
• 24:29
  Speaker 1: analysts perhaps are thinking more about are we hitting peak
• 24:31
  Speaker 1: auto than they are your specific business model, but that
• 24:36
  Speaker 1: you can't lose sight of that either, right, the whole
• 24:38
  Speaker 1: idea that cars, that the cost of cars is getting
• 24:41
  Speaker 1: a lot more expensive as companies try to offset the
• 24:44
  Speaker 1: fact that people are buying fewer of them. So what
• 24:47
  Speaker 1: is sort of the key price level that you're seeing
• 24:49
  Speaker 1: is the sweet spot where sales are continuing and sort
• 24:52
  Speaker 1: of what's the sort of tipping point at which point
• 24:54
  Speaker 1: sales drop off. Well, one of the great things about
• 24:57
  Speaker 1: that question relative to price for the con zoom or
• 25:00
  Speaker 1: is we're going to have a little bit of a
• 25:01
  Speaker 1: tail win with interest rates, So coming into the year
• 25:04
  Speaker 1: thinking we might have three hikes versus now having one
• 25:08
  Speaker 1: cut so far, and hopefully with the next month here
• 25:10
  Speaker 1: you may see a second cut with respect to rates.
• 25:14
  Speaker 1: That actually improves affordability. So as I think about that,
• 25:18
  Speaker 1: that provides some more balance for the customers, so it
• 25:21
  Speaker 1: provides them a little bit more running room. But at
• 25:23
  Speaker 1: the same time, if people aren't buying new, maybe they're
• 25:26
  Speaker 1: buying nearly new. If they're not buying nearly new, they're
• 25:29
  Speaker 1: holding their vehicles. And we saw this play out in
• 25:31
  Speaker 1: the recession back in two thousand and eight, two thousand nine.
• 25:34
  Speaker 1: It's a countercyclical part of our business parts and service
• 25:38
  Speaker 1: because if you're not buying, you need to service and
• 25:40
  Speaker 1: maintain your existing vehicle. So that's the way I think
• 25:43
  Speaker 1: about the composition of the business. But I'm also excited
• 25:45
  Speaker 1: to have one ft into the future and thinking about relationships,
• 25:49
  Speaker 1: strategic partnerships like Weymo, where we're thinking about forward looking
• 25:53
  Speaker 1: consumer mobility, which may look a little bit different than
• 25:56
  Speaker 1: it has in the past. One of the things you
• 25:58
  Speaker 1: mentioned just peak auto, are you concerned that uber and
• 26:03
  Speaker 1: lift and those types of things are going to result
• 26:05
  Speaker 1: in fewer people driving. It's a really interesting question, Paul.
• 26:09
  Speaker 1: And so the way I think about it is when
• 26:11
  Speaker 1: you look at what Uber and Lift have replaced to date,
• 26:14
  Speaker 1: they've really replaced a lot of the shared use. So
• 26:17
  Speaker 1: think taxi cabs where we are here today in New
• 26:19
  Speaker 1: York City, UH, think about rental car companies. That's really
• 26:23
  Speaker 1: a lot of what it is replaced today. What we
• 26:26
  Speaker 1: are hearing from customers is they'll occasionally take an Uber
• 26:29
  Speaker 1: lift if they're going out to dinner, if they're going
• 26:31
  Speaker 1: into this city somewhere it's expensive to park. We have
• 26:34
  Speaker 1: not really seen it replacing traditional ownership at this stage,
• 26:38
  Speaker 1: but we'll continue to to watch the market as it evolves,
• 26:41
  Speaker 1: and as we look at our core capabilities. We've got
• 26:43
  Speaker 1: great retail locations, we've got a ton of experience selling
• 26:47
  Speaker 1: twelve million vehicles, servicing forty five million vehicles, and so
• 26:51
  Speaker 1: we've got great experience to meet the customer where they are.
• 26:54
  Speaker 1: But at this point, the customer isn't dropping off their
• 26:57
  Speaker 1: car and droves and UH and opting exclusively for Uber Lift.
• 27:02
  Speaker 1: So let's talk a little bit about the Weymo partnership
• 27:05
  Speaker 1: because you did mention it and Auto Nation does have
• 27:08
  Speaker 1: UH some partnership with them. Can you describe a little
• 27:11
  Speaker 1: bit more about that. Weymo, of course is the self
• 27:15
  Speaker 1: driving project formerly of Google, now an alphabet company. Yeah. Absolutely.
• 27:20
  Speaker 1: So I had the great opportunity in two thousand seventeen
• 27:24
  Speaker 1: to be at the starting point of that relationship, So
• 27:28
  Speaker 1: being out in Phoenix where that was started, as well
• 27:30
  Speaker 1: as in discussions out in California, And as we looked
• 27:33
  Speaker 1: at this potential relationship, I had to say, what is
• 27:36
  Speaker 1: Auto Nation really good at? What core compencies does AutoNation
• 27:40
  Speaker 1: bring to the table that may or may not be
• 27:42
  Speaker 1: things that Weymo is interested as a company and doing directly.
• 27:46
  Speaker 1: And that really came down to service. So if you
• 27:49
  Speaker 1: think about the quality of our technicians the technical complexity
• 27:52
  Speaker 1: of vehicles, were really good at the hard stuff. And
• 27:55
  Speaker 1: so if you think about hybrids and electrics, we've serviced
• 27:58
  Speaker 1: a ton of hybrid and a tricks already. We were
• 28:01
  Speaker 1: ready to think about how do we service autonomous This
• 28:04
  Speaker 1: is this is fascinating because there there's been a big
• 28:06
  Speaker 1: discussion about self driving vehicles and who would be the
• 28:10
  Speaker 1: maintainer of those, right would be okay, well, this is
• 28:13
  Speaker 1: really interesting, right and it's sort of at the intersection
• 28:16
  Speaker 1: over A lot of people think is this sort of
• 28:18
  Speaker 1: see change in the way people get around. The question
• 28:21
  Speaker 1: is are we really getting the kind of traction in
• 28:23
  Speaker 1: the self driving space that a lot of people have
• 28:25
  Speaker 1: thought that we would At this point, it's really early days.
• 28:28
  Speaker 1: It's a great point. So the great thing is we
• 28:30
  Speaker 1: want to have a foot in the future. We want
• 28:31
  Speaker 1: to be learning today and we want to be assisting today.
• 28:35
  Speaker 1: So the way I think about it is we bring
• 28:37
  Speaker 1: these great technicians and now they're they're they're used to
• 28:40
  Speaker 1: working on complex vehicles. So if you think about a
• 28:43
  Speaker 1: DAS and all that technology that's already in the cars,
• 28:46
  Speaker 1: lane assists, they're working on things with sensors and computers
• 28:50
  Speaker 1: today already. This is an expansion of that great technician
• 28:54
  Speaker 1: base where we have existing technicians that are now learning
• 28:58
  Speaker 1: how to work around and autonomous vehicles. So it's something
• 29:02
  Speaker 1: that's really within our sweet spot. We also have great
• 29:05
  Speaker 1: retail locations. If you think about it, where do customers
• 29:08
  Speaker 1: live and work? Automation is located near where customers live
• 29:12
  Speaker 1: and work, not in a remote area, So we're already
• 29:15
  Speaker 1: around that daily traffic flow of where customers live and work.
• 29:19
  Speaker 1: And that's where they where they want their vehicles to
• 29:21
  Speaker 1: be traveling. So you're obviously with all your locations and
• 29:25
  Speaker 1: the sales and service, you can have a great feel
• 29:27
  Speaker 1: for the consumer. We know, despite slowing manufacturing data and whatever,
• 29:31
  Speaker 1: we see it pretty strong consumer. What are your what
• 29:33
  Speaker 1: are you seeing on the ground in your business? Just
• 29:35
  Speaker 1: is it relates to kind of the health of the consumer.
• 29:38
  Speaker 1: So what we're seeing an automation is is pretty good
• 29:40
  Speaker 1: health at the consumer. Right. People have jobs and that's
• 29:42
  Speaker 1: the great thing. When I contrast that to how it
• 29:44
  Speaker 1: felt back in two thousand and eight, two thousand nine
• 29:47
  Speaker 1: when jobs were tough, it feels decidedly different. That being said,
• 29:51
  Speaker 1: we've talked about affordability, so I think a little bit
• 29:54
  Speaker 1: of relief on the interest rates will help with that.
• 29:56
  Speaker 1: But fundamentally, I'm seeing a pretty strong consumer showing up
• 29:59
  Speaker 1: in our in our stores and online. This has been fascinating.
• 30:03
  Speaker 1: Cheryl Miller Miller, thank you so much for being with
• 30:06
  Speaker 1: us in congratulations on your first forty five days. Cheryl
• 30:09
  Speaker 1: Miller is chief executive officer and President of Auto Nation,
• 30:13
  Speaker 1: joining us here in our Bloomberg Interactive Broker's studio. She
• 30:17
  Speaker 1: came into the company about forty five days ago after
• 30:20
  Speaker 1: it's long term leader and now the company's chairman, Mike Jackson,
• 30:25
  Speaker 1: stepped down in a brief tenure by another temporary executive.
• 30:29
  Speaker 1: Thanks for listening to the Bloomberg P and L podcast.
• 30:32
  Speaker 1: You can subscribe and listen to interviews at Apple Podcasts
• 30:35
  Speaker 1: or whatever podcast platform you prefer. I'm Paul Sweeney, I'm
• 30:38
  Speaker 1: on Twitter at pt Sweeney. I'm Lisa A. Bram Woods.
• 30:40
  Speaker 1: I'm on Twitter at Lisa A. Bram Woods. One before
• 30:43
  Speaker 1: the podcast, you can always catch us worldwide on Bloomberg Radio.