Latest / Bloomberg Intelligence / AutoNation Looks Toward Used Cars Ahead of Downturn

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AutoNation Looks Toward Used Cars Ahead of Downturn · Bloomberg Intelligence

• 0:02
  Speaker 1: Welcome to the Bloomberg Panel Podcast. I'm Paul Sweene. You,
• 0:05
  Speaker 1: along with my co host Lisa Brahma Waits, each day
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  Speaker 1: we bring you the most noteworthy and useful interviews for
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  Speaker 1: the trading floor. Find a Bloomberg Panel podcast on Apple
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  Speaker 1: podcast or wherever you listen to podcasts, as well as
• 0:17
  Speaker 1: at Bloomberg dot com. Joining us. We are very glad
• 0:24
  Speaker 1: to have Carl Liebert, President and chief executive officer of
• 0:27
  Speaker 1: Auto Nation, which reported earnings. Uh, the earnings did disappoint
• 0:32
  Speaker 1: a little bit. The question that I have Carl, is
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  Speaker 1: that looking at the auto landscape right now, it does
• 0:39
  Speaker 1: seem like people are saying we have seen peak auto.
• 0:42
  Speaker 1: How are you adjusting to that new reality? Well, thank you,
• 0:45
  Speaker 1: thanks for having me on today. It's my honor to
• 0:48
  Speaker 1: be here. And and uh, look, I think we've we've
• 0:51
  Speaker 1: been talking about this for quite some time at Auto Nation,
• 0:54
  Speaker 1: that there was gonna be a slowing of retail sales.
• 0:59
  Speaker 1: And the play we called and wanted to execute is
• 1:03
  Speaker 1: to really really focus on profits per vehicle, and uh,
• 1:07
  Speaker 1: and how we thought about delivering on our commitments to
• 1:10
  Speaker 1: our shareholders um and the first quarter turned out extraordinarily
• 1:15
  Speaker 1: well from us when you start to think about our
• 1:17
  Speaker 1: revenue being down, but our but our profits and are
• 1:20
  Speaker 1: Arnie for share a new record for Q one. We
• 1:23
  Speaker 1: feel good about it. We've got a long way to go.
• 1:26
  Speaker 1: Is we're at the end of this economic cycle, so
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  Speaker 1: we're watching inventories closely and making sure we can we're
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  Speaker 1: executing the play. So Carl talked us a little bit
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  Speaker 1: about the used car market and the relative I know
• 1:37
  Speaker 1: you guys have kind of shaded your focus a little
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  Speaker 1: bit towards that side of the business, talk about the
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  Speaker 1: relative profitability there and what upside you see in that
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  Speaker 1: side of business. Well, and I think this is uh
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  Speaker 1: one thing we're really proud about in the used car
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  Speaker 1: space is our one price strategy. We know our customers
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  Speaker 1: really really like that one price strategy. It creates transparency,
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  Speaker 1: it creates the opportunity for them to uh perhaps get
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  Speaker 1: a nearly new vehicle something that they may not get
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  Speaker 1: can't afford when it's a new car. And so we've
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  Speaker 1: thought about the used car business in a in a
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  Speaker 1: different way just to standpoint of how it can differentiate automation.
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  Speaker 1: I think we still have some work to do there, UM,
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  Speaker 1: but we're working hard at it to UM. We're promintly
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  Speaker 1: known for our new vehicle sales. It's what it's what
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  Speaker 1: made us great and delivered on that. And UH, we've
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  Speaker 1: got five Automation USA stores that are used car only
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  Speaker 1: that are continuing to improve and we're learning lots of
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  Speaker 1: exciting insights around where we want to go there. But
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  Speaker 1: we see that as a significant opportunity for us in
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  Speaker 1: the future. And um, not to open more uh used
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  Speaker 1: only stores, but just to learn how we can maximize
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  Speaker 1: the opportunity for both customers and automation in the used
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  Speaker 1: car space. Carl Liebert, Presidency of AutoNation. That partly that
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  Speaker 1: play of sort of understanding the used car sales market
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  Speaker 1: a little bit better. Is that partly because we are
• 3:07
  Speaker 1: late in this credit cycle and you are starting to
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  Speaker 1: see consumers be a little bit more cautious with where
• 3:13
  Speaker 1: they spend. Yeah, I think that's fair to say that
• 3:17
  Speaker 1: we're we are late into credit cycle. We we do
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  Speaker 1: see consumers are are are surprisingly holding up well and
• 3:24
  Speaker 1: they're strong and and then the idea that we're probably
• 3:27
  Speaker 1: not going to get um, you know, depends on what
• 3:30
  Speaker 1: the FED does, but we do we get a rate
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  Speaker 1: increase or not this year based on some of the
• 3:34
  Speaker 1: things UM we're reading and hearing. UM, I think that
• 3:38
  Speaker 1: adds stimulus on top of you know, the GDP number
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  Speaker 1: we saw that just got announced this morning, but it
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  Speaker 1: may I think the trend that exists that's out there
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  Speaker 1: is consumers are looking for nearly new vehicles so they
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  Speaker 1: don't have to take that depreciation when they drive off
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  Speaker 1: a lot. And and so the ability to provide them
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  Speaker 1: with the inventory, with the right experience. UM, those are
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  Speaker 1: the things that we think are real. It could be
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  Speaker 1: real hallmarks for our strategy going forward. Carl can talk
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  Speaker 1: a little about the your financial services side of the business.
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  Speaker 1: I know that's been an area that a focus for
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  Speaker 1: your for your company and for the growth. Yeah, i'd
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  Speaker 1: love to so thank you. So you know, we've all
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  Speaker 1: we've been an industry leader in customer financial services UH
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  Speaker 1: for quite some time and and and and but in
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  Speaker 1: the first quarter we saw we were up seven percent
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  Speaker 1: or a hundred and twenty four dollars per vehicle just
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  Speaker 1: for what we said is we we launched our private
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  Speaker 1: label UH Experience in in UH financials, UH customer financial services.
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  Speaker 1: That was our first what we referred to as a
• 4:45
  Speaker 1: brand extension, and we're very pleased with the progress we
• 4:50
  Speaker 1: made in the first quarter there. So, Carl, it's interesting.
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  Speaker 1: One of the things that you know, we've been hearing
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  Speaker 1: about it from as we take a look at the
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  Speaker 1: you know, global auto industries, this concept of of peak
• 4:58
  Speaker 1: auto at feel about that. I mean, you know, got
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  Speaker 1: Uber and Lift and so on, and is that a
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  Speaker 1: concern that you have? Yeah, you know, Look, I think
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  Speaker 1: the industry is going to be UH down from a
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  Speaker 1: little over seventeen million to high sixteens UM this year. UM.
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  Speaker 1: My first week on the on the job, I took
• 5:18
  Speaker 1: a team to a weymo and we were out in
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  Speaker 1: Silicon Valley. We have a partnership with them and we're
• 5:24
  Speaker 1: working closely with them in the Phoenix market with several
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  Speaker 1: pilots UH and UH and I think Uber and Lift
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  Speaker 1: one of the one of the great things about them
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  Speaker 1: is UM, people are gonna buy vehicles and then people
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  Speaker 1: are gonna need those vehicles to be serviced, and that's
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  Speaker 1: when UH you having stores coast to coast for that
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  Speaker 1: we can service those vehicles. I think the mobility space
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  Speaker 1: is going to change and transform. The great news that
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  Speaker 1: because of our our store locations and our service locations,
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  Speaker 1: we can play in that space and be a part
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  Speaker 1: of that that uber or lift dry her as well
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  Speaker 1: as UH the autonomous space when and if it finally
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  Speaker 1: gets here. So one thing that you have focused on
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  Speaker 1: is on new vehicle margins and the idea of not discounting.
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  Speaker 1: What's the reception been like from consumers to that, Well,
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  Speaker 1: you know, this is the great thing is is UH
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  Speaker 1: we had thirty five stores um when the JD Power
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  Speaker 1: Satisfaction where we were far and away the largest represented there. UM.
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  Speaker 1: What what's what's interesting is our customers come in and
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  Speaker 1: they don't like all the I'll call it when I
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  Speaker 1: say discounting, it's all the different offers and they feel
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  Speaker 1: like are they getting the best deal? And so as
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  Speaker 1: we've really managed our inventory as well in the first
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  Speaker 1: quarter relative to the rest of the industry, making sure
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  Speaker 1: we have the right vehicles for customers, we're able to
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  Speaker 1: talk to them UH and and get to a good
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  Speaker 1: price for them and then not come in at the
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  Speaker 1: last minute and say, oh can offer this incentive, but
• 7:01
  Speaker 1: we can take it. We have this incentive to offer
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  Speaker 1: you because UM that we don't know that exists and
• 7:06
  Speaker 1: we know it exists, especially at the end of quarters
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  Speaker 1: when that happens, I mean, that doesn't build trust with customers.
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  Speaker 1: So I'd say from some of the satisfaction awards that
• 7:17
  Speaker 1: we were fortunate up to win UM Automation. Customers are
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  Speaker 1: responding very well to the strategy and the and the
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  Speaker 1: execution we're running. Carl Libert, thank you so much for
• 7:26
  Speaker 1: joining us. Carl's president and CEO of Auto Nation joining
• 7:29
  Speaker 1: us on the phone well. A growing practice in residential
• 7:49
  Speaker 1: and commercial construction is sustainable construction. One of the ways
• 7:53
  Speaker 1: is repurposing shipping containers into living and working environments. To
• 7:57
  Speaker 1: help us explain this story, we welcome Paul Alvin, Paul's
• 8:00
  Speaker 1: chairman and chief executive officer of SG blocks based in Brooklyn,
• 8:04
  Speaker 1: New York, but Paul's joins us and our Bloomberg Interactive
• 8:06
  Speaker 1: Brooker Studio. Paul, Welcome to Bloomberg. Give us a sense
• 8:09
  Speaker 1: of kind of what you guys do in terms of
• 8:12
  Speaker 1: repurposing these containers and how they're used. Sure, so great
• 8:16
  Speaker 1: to be here. Thanks for having us and always supporting
• 8:19
  Speaker 1: sustainability at Bloomberg. UM. Our business is premised upon taking
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  Speaker 1: the heavy gage shipping containers that are aggregating in America.
• 8:27
  Speaker 1: Because we're a net importer and using proprietary technology, we
• 8:32
  Speaker 1: use a very small carbon footprint and turn these intermodal
• 8:36
  Speaker 1: units of transportation into into modal units of construction. And
• 8:40
  Speaker 1: so our company delivers UH, medical, educational, residential, and commercial
• 8:47
  Speaker 1: structures through pre fabricating the finishes of shipping containers that
• 8:52
  Speaker 1: sit on flatbed trucks stack nine hide naturally are made
• 8:57
  Speaker 1: of a heavy gate steel UH that is an almost
• 9:00
  Speaker 1: lead protective It's Corten steel. It's the same steel they
• 9:03
  Speaker 1: build bridges with. And so our question is, why wouldn't
• 9:06
  Speaker 1: you want to put your family, or your business, or
• 9:08
  Speaker 1: your students in the strongest structure you can make. So,
• 9:11
  Speaker 1: can you give us a sense of how many of
• 9:12
  Speaker 1: these structures have been built and where? Oh, we've delivered
• 9:16
  Speaker 1: a structure to forty nine of fifty states and three
• 9:19
  Speaker 1: out of seven continents. There are twenty two million containers
• 9:23
  Speaker 1: in the world. UM. We work with a company called
• 9:25
  Speaker 1: con Global. UH. They manage about six of the domestic
• 9:29
  Speaker 1: inventory of containers. So when they come out of circulation,
• 9:33
  Speaker 1: we take them and modify them, create windows, doors, take
• 9:37
  Speaker 1: outside walls, put them through a modular factory where they
• 9:40
  Speaker 1: come out on the other side complete windows, doors, floors, cabinets, appliances,
• 9:47
  Speaker 1: and then they get to the site and we we
• 9:49
  Speaker 1: install about a thousand square feet an hour. So if
• 9:52
  Speaker 1: your structure is five thousand square feet or less, it
• 9:55
  Speaker 1: will be erected in a day. So I mean, as
• 9:58
  Speaker 1: I come out of Newark Airport and I look at
• 10:00
  Speaker 1: the Port of Newark, I see stacks and stacks and
• 10:03
  Speaker 1: stacks of these containers. Is that what we're talking about? You,
• 10:06
  Speaker 1: that's what we're talking about. Okay? And then I saw
• 10:08
  Speaker 1: on your I think on your website you turn these
• 10:10
  Speaker 1: things into like a Starbucks. Yeah, in where does all
• 10:14
  Speaker 1: that happen? So a lot of it happens at the port,
• 10:17
  Speaker 1: and then we have great modular partners to do the
• 10:20
  Speaker 1: interior and finish work. But the reason why UH containers
• 10:24
  Speaker 1: are such a good form of construction is because they're robust,
• 10:27
  Speaker 1: they're abundant, they're recycled, they're much stronger than would construction.
• 10:32
  Speaker 1: So how much cheaper is it? And basically what are
• 10:34
  Speaker 1: the margins like here for you? So we work on
• 10:36
  Speaker 1: a probably a blended margin on our product, but we're
• 10:40
  Speaker 1: materially less expensive than urban construction. We can deliver a
• 10:44
  Speaker 1: product multi story, multi family, and about the two square
• 10:48
  Speaker 1: foot range. And that's when you look at New York,
• 10:51
  Speaker 1: Los Angeles, Chicago, Miami. The trust put it, have any
• 10:57
  Speaker 1: municipalities or cities approached you about providing housing for the homeless?
• 11:02
  Speaker 1: For example, By way of background, I founded and ran
• 11:05
  Speaker 1: a homeless age charity for twenty years, which led me
• 11:08
  Speaker 1: into this line of work. One of our one of
• 11:10
  Speaker 1: our big value propositions is affordable in workforce housing. That
• 11:15
  Speaker 1: used to just be regular housing for people. But what's
• 11:19
  Speaker 1: happened over the years as we've been kind of brainwashed
• 11:21
  Speaker 1: into thinking affordable housing requires the government to subsidize it
• 11:25
  Speaker 1: with tax credits or tax certificates. So if a hundred
• 11:29
  Speaker 1: people want to do affordable housing, maybe five get the award.
• 11:32
  Speaker 1: Because we build so economically, and we build so quickly,
• 11:37
  Speaker 1: and you get your revenue in half the time. We're
• 11:39
  Speaker 1: able to deliver affordable housing private market, no government subsidy.
• 11:45
  Speaker 1: So in New York State takes forty eight months to
• 11:47
  Speaker 1: do an affordable housing project, in California sixty months. We
• 11:52
  Speaker 1: can do that project start to finish in twelve months.
• 11:54
  Speaker 1: Do you ever get pushed back from people who say
• 11:56
  Speaker 1: they just don't think it's that pretty, that that basically
• 11:58
  Speaker 1: these these containers stacked up, They don't want that in
• 12:01
  Speaker 1: their backyard. Um My mom has said that. But okay,
• 12:06
  Speaker 1: But to be honest, I don't Whatever house you guys
• 12:09
  Speaker 1: live in, we could build it out of containers and
• 12:11
  Speaker 1: put the same outside covering the container and you wouldn't know.
• 12:14
  Speaker 1: But you'd be living in an earthquake and a hurricane
• 12:16
  Speaker 1: resistant house. You can go to our websites. Are structures
• 12:19
  Speaker 1: look and feel like every other structure. Wow, and and
• 12:22
  Speaker 1: again just the cost differential just on a square foot
• 12:25
  Speaker 1: is how much less than like, Oh, in major markets,
• 12:28
  Speaker 1: we could be twenty to thirty percent less than traditional
• 12:31
  Speaker 1: construction because they have to deal with prevailing wage, meaning
• 12:35
  Speaker 1: every person that sets foot on that construction site is
• 12:38
  Speaker 1: paid a union wage. We're doing the work in a
• 12:41
  Speaker 1: factory in Texas where it's sixty eight degrees. You know,
• 12:45
  Speaker 1: it begs the question of course we should do construction indoors?
• 12:48
  Speaker 1: Would they build your car and your driveway? Well, just
• 12:52
  Speaker 1: real quick here, twenty seconds, you raised almost a billion
• 12:54
  Speaker 1: dollars in financing recently, what's it for UM just to
• 12:57
  Speaker 1: keep a little cash on the balance sheet. We have
• 12:59
  Speaker 1: a very big backlog of a hundred about a million
• 13:01
  Speaker 1: square feet to deliver a hundred hundred million bucks, and
• 13:05
  Speaker 1: we're looking forward to our first generation of multi story,
• 13:08
  Speaker 1: multi family workforce housing projects. One in the Bronx wanted
• 13:12
  Speaker 1: meant to sell in New York. So this is something. UH,
• 13:15
  Speaker 1: there's gonna be a lot to hear. Construction needs to
• 13:17
  Speaker 1: be disruptive. Rents are so high and housers are so
• 13:19
  Speaker 1: high because contractors are getting away with murder. They're building
• 13:23
  Speaker 1: at five hundred of foot How could you do anything affordable?
• 13:26
  Speaker 1: Paul Galvin keeping some some money in his pocket with
• 13:29
  Speaker 1: the very nearly billion dollars truly cool story. I love
• 13:32
  Speaker 1: this idea. Paul Galvin, head of Sustainable Construction UH company
• 13:36
  Speaker 1: SG blocks. Really interesting to see what they're doing and
• 13:40
  Speaker 1: how they're using containers well. Despite the better than expected
• 13:58
  Speaker 1: GDP number this morning, our next guest has a decidedly
• 14:02
  Speaker 1: cautious view of the economy. Tom Attabery is partner and
• 14:05
  Speaker 1: portfolio manager for FPA, manages a little over six and
• 14:08
  Speaker 1: a half billion dollars based in Los Angeles, but joining
• 14:10
  Speaker 1: us live here in our Bloomberg Interactive Brooker Studio. So, Tom,
• 14:14
  Speaker 1: what did you see in the GDP report today? Was?
• 14:17
  Speaker 1: I mean that three point two percent print? Obviously you know,
• 14:20
  Speaker 1: much better than expected. But when you dig down, what
• 14:22
  Speaker 1: did you see? Part of the things I dug down
• 14:24
  Speaker 1: that that concern me longer term sort of you want
• 14:26
  Speaker 1: to think out six months, twelve months than such as
• 14:29
  Speaker 1: you had a pretty sizeable contribution from inventory, so they've
• 14:33
  Speaker 1: got someone's expecting to sell that merchandise and that that
• 14:36
  Speaker 1: always concerns is some If I think about retail sales
• 14:39
  Speaker 1: and what's been going on from the consumer, it's okay.
• 14:43
  Speaker 1: I guess it's the best way you want to define it.
• 14:45
  Speaker 1: I've read some things recently to talk about because you
• 14:48
  Speaker 1: have a late easter or passover, that that tends to
• 14:53
  Speaker 1: give you better retail sales in a month that happens,
• 14:56
  Speaker 1: which then sort of flipped back the other way the
• 14:59
  Speaker 1: month afterwards, because it's a fairly odd event to have
• 15:03
  Speaker 1: those holidays this late in the season. So if I
• 15:05
  Speaker 1: think of that as well, I'm going okay. Working through
• 15:08
  Speaker 1: some of that's telling me I really don't have as
• 15:10
  Speaker 1: a robust economy, as I think I do, I'm struggling
• 15:14
  Speaker 1: to square that with some of the earnings that we've
• 15:16
  Speaker 1: seen recently, with for example, Hasbro and Mattel showing that
• 15:20
  Speaker 1: that people are still spending on toys and just you know,
• 15:23
  Speaker 1: they have disposable income. Amazon came in massive returns, and yes,
• 15:28
  Speaker 1: Amazon is is definitely disrupting all of the consumer sector,
• 15:33
  Speaker 1: but you're seeing strong results out of others as well.
• 15:35
  Speaker 1: And yet here we have the bond market pricing in
• 15:37
  Speaker 1: a seventy one chance of a rate cut by January
• 15:41
  Speaker 1: next year. That just doesn't seem to square one. Are
• 15:45
  Speaker 1: the difficulties that makes the things that you've talked about.
• 15:48
  Speaker 1: If we had this conversation ten years ago, twenty years ago,
• 15:54
  Speaker 1: I think everything that you said gets easier to as
• 15:56
  Speaker 1: you put it square. But now I'm in a position
• 15:59
  Speaker 1: where this economy is not driven solely by what it
• 16:02
  Speaker 1: does internally. It has to deal with how well does
• 16:05
  Speaker 1: China grow. China being much much larger, it's the second
• 16:09
  Speaker 1: largest economy in the world, It's had difficulties with growth
• 16:12
  Speaker 1: because it's trying to swallow a lot of debt it's
• 16:14
  Speaker 1: taken on. And then I look at Europe in just general, right,
• 16:18
  Speaker 1: not specific countries, but in general, and realize it is
• 16:21
  Speaker 1: having difficulty as well. And the reason I walk through
• 16:24
  Speaker 1: that all three of those are fairly into interdependent with
• 16:27
  Speaker 1: each other, and so it becomes much less of one
• 16:30
  Speaker 1: of Oh, people in the US are buying more toys
• 16:33
  Speaker 1: from Hasbro right versus Okay, I've got an extremely slow
• 16:38
  Speaker 1: economy going on in Europe, and I've got a slowing
• 16:41
  Speaker 1: economy going on in China. Those are playing bigger roles
• 16:44
  Speaker 1: in how well do things do? I mean it is
• 16:48
  Speaker 1: you are right in the fact that the tax laws
• 16:50
  Speaker 1: of help us domestically for the consumer to spend um.
• 16:55
  Speaker 1: A year ago, it was much more of I'm going
• 16:57
  Speaker 1: to give you a bonus filling the dollars. But what
• 16:59
  Speaker 1: was it a thousand, maybe two thousand something in that
• 17:02
  Speaker 1: range two that started all to go away, And now
• 17:06
  Speaker 1: I've got to deal with well, how is China dealing
• 17:08
  Speaker 1: with its debt? You know? How is it dealing with that?
• 17:12
  Speaker 1: How is Germany trying to figure out how to export
• 17:14
  Speaker 1: to somebody others in China and get things growing again?
• 17:17
  Speaker 1: How are the Italians going to get out of the
• 17:18
  Speaker 1: mess that they're in and I think that plays a
• 17:21
  Speaker 1: bigger role. So as we look out, is there a
• 17:24
  Speaker 1: recession in your out look for us? If you look
• 17:28
  Speaker 1: at what the bond markets trying to tell you today,
• 17:31
  Speaker 1: and granted it will tell you different things, it moves around,
• 17:34
  Speaker 1: it's giving you this very flat yield curve, not inverted,
• 17:38
  Speaker 1: but it's close, okay, and it's been flattening for a while.
• 17:43
  Speaker 1: If I just take what is that trying to tell me,
• 17:46
  Speaker 1: and what it tells me is in the twelve day,
• 17:48
  Speaker 1: eighteen months from now. If I look at that flat today,
• 17:51
  Speaker 1: just think out that long, it's telling me I have
• 17:54
  Speaker 1: a bigger and bigger probability of recession occurring if you
• 17:58
  Speaker 1: invert it. Especially if you look at a three month
• 18:00
  Speaker 1: to ten year and it did invert during March for
• 18:05
  Speaker 1: five days. If it inverts for ten days in a row,
• 18:11
  Speaker 1: it's a reasonable indicator to tell you, okay, twelve eighteen
• 18:14
  Speaker 1: months act you're gonna have an economy slows down. So
• 18:16
  Speaker 1: we're fighting with that, and so that's telling me the
• 18:18
  Speaker 1: probability of that occurring is becoming elevated, and I need
• 18:22
  Speaker 1: to sort of invest with that thought in mind. So
• 18:27
  Speaker 1: given all of that, how are you investing? So the
• 18:30
  Speaker 1: things that we find attractive. I'll little with that first
• 18:34
  Speaker 1: is that, Okay, if I looked at uh fifteen year
• 18:37
  Speaker 1: agency mortgage pool, it's two or three years old. So
• 18:40
  Speaker 1: is he shoot in two thousand, sixteen or seventeen or
• 18:42
  Speaker 1: maybe fifteen. I have very good underrunning standards. I have
• 18:46
  Speaker 1: low LTV. I've got something today that's basically a three
• 18:51
  Speaker 1: year average life that I can earn two seventy about.
• 18:56
  Speaker 1: So that looks attractive is and one of the reasons
• 18:58
  Speaker 1: it looks attractive that spread his I a little bit
• 19:00
  Speaker 1: over the last year. If I compare that too a
• 19:05
  Speaker 1: asset back security with subprime auto loans with about a
• 19:11
  Speaker 1: three year average life to it, I get a little
• 19:13
  Speaker 1: ower to seventy six. I might get three if I'm lucky.
• 19:17
  Speaker 1: I'm gonna wait a second. You mean for twenty or
• 19:20
  Speaker 1: twenty five or ten basis points more. I'm taking on
• 19:23
  Speaker 1: a three year old used car with a six score
• 19:25
  Speaker 1: a hundred LTV, or I can take someone with a
• 19:28
  Speaker 1: seven score and a fifty LTV on a house. Trade
• 19:33
  Speaker 1: is upper quality trade. So that's on the high quality side.
• 19:37
  Speaker 1: When you look at the credit side, it tells you Um,
• 19:40
  Speaker 1: you know, I'm back to where I was in February
• 19:44
  Speaker 1: of last year, or you know, last fall. We'll wait
• 19:47
  Speaker 1: a second. My spread isn't that attractive, My yield isn't
• 19:49
  Speaker 1: that attractive. So credit things trip will be in below
• 19:53
  Speaker 1: really aren't that attractive either. Let them roll off. So
• 19:56
  Speaker 1: it's go up in quality. Try to go as far
• 19:59
  Speaker 1: out in maturity as you can without exposing yourself to
• 20:02
  Speaker 1: too much interest rate risk. Get as much liquidly as
• 20:06
  Speaker 1: you can to your you know, to the point about recession,
• 20:10
  Speaker 1: prepare yourself for when that's occurring, and be ready with
• 20:13
  Speaker 1: your capital to deploying a different fashion when it happens.
• 20:16
  Speaker 1: So it sounds like little to no interest in high yield,
• 20:19
  Speaker 1: letting the high yield stuff run off and read employs
• 20:22
  Speaker 1: any Is there any areas in high yield you still
• 20:23
  Speaker 1: think are attractive today. One of the things about how
• 20:26
  Speaker 1: we managed makes a comment about general areas difficult because
• 20:30
  Speaker 1: it's not we don't sector base. We're looking for what's
• 20:33
  Speaker 1: the risk I'm taking, what's the value of the assets,
• 20:36
  Speaker 1: what's the yield I'm getting? So that could take you anywhere, right,
• 20:39
  Speaker 1: not a specific sector or another specific sector. There just
• 20:43
  Speaker 1: aren't many that that show up. What happens is everything
• 20:45
  Speaker 1: you look at the yield is too low given the
• 20:47
  Speaker 1: risk that you're taking, and when you value the assets
• 20:49
  Speaker 1: in a more distressed fashion or a downturn type of fashion,
• 20:52
  Speaker 1: and going wow, I don't have a lot of protection there.
• 20:55
  Speaker 1: Every once in a while, we'll find something of interest.
• 20:57
  Speaker 1: It might be might be dip loan and someone going
• 21:01
  Speaker 1: through reorganization. It might be something beat up and retail.
• 21:04
  Speaker 1: It will go you know, that's really okay. It's it's
• 21:08
  Speaker 1: really reflects all the bad news and none of the
• 21:11
  Speaker 1: potential good news. What are the kind of returns that
• 21:14
  Speaker 1: you're telling clients to expect annualized over the next number
• 21:18
  Speaker 1: of years. So if you think about what we've just
• 21:21
  Speaker 1: been talking about and what you kind of go, Okay,
• 21:23
  Speaker 1: what's my best and worst cases? So I think about
• 21:27
  Speaker 1: the last three years and how the portfolio has done
• 21:30
  Speaker 1: in a rising interest rate environment. Okay, it did about Okay.
• 21:36
  Speaker 1: If things just sort of stay where they are, Okay,
• 21:40
  Speaker 1: I've got a fee that you've gotta pay, and I'm
• 21:42
  Speaker 1: earning somewhere two and three quarters to three at best.
• 21:45
  Speaker 1: Maybe that number looks more like two and a half
• 21:49
  Speaker 1: and if rates rise from here, Uh, actually probably something
• 21:53
  Speaker 1: that looks like two two and a half as well. Go.
• 21:55
  Speaker 1: I guess the point is you come back, you should
• 21:57
  Speaker 1: kind of ended going a little more than inflation. Nothing
• 22:00
  Speaker 1: really great, Tom Adaberry, thank you so much for being
• 22:03
  Speaker 1: with us. Tom Adaberry partner and portfolio manager at fp
• 22:06
  Speaker 1: A First Specific Advisors. He oversees more than six and
• 22:10
  Speaker 1: a half billion dollars f p A about twenty six
• 22:13
  Speaker 1: billion dollars. Joining us here in our Bloomberg Interactive Brokers studios.
• 22:32
  Speaker 1: Of course, we have our eye today on Intel because
• 22:34
  Speaker 1: right now we are looking at what is absolutely its
• 22:38
  Speaker 1: worst day since since I think two thousand and eight
• 22:43
  Speaker 1: at this point. Joining us now to talk about it
• 22:45
  Speaker 1: as Man Deep Sing, he covers the sector for Bloomberg Intelligence.
• 22:49
  Speaker 1: What what's your take on it? Well, I guess it
• 22:53
  Speaker 1: just goes to show that you know, the chip demand
• 22:56
  Speaker 1: is h you know for a company like Intel is
• 23:00
  Speaker 1: still you know, trying to recover from you know, the
• 23:05
  Speaker 1: sea of the CEO change, and just in general, I
• 23:09
  Speaker 1: I guess it's not that obvious for a company like
• 23:13
  Speaker 1: Intel that you know, the demand is robust, and you
• 23:16
  Speaker 1: know that's that's what we're seeing UM so it's it's
• 23:19
  Speaker 1: just amazing they've had a good performance for such a
• 23:21
  Speaker 1: long time, they haven't had that miss. But I guess
• 23:24
  Speaker 1: it really I guess, I guess the concern is, as
• 23:26
  Speaker 1: a call in the question, some of the the growth,
• 23:28
  Speaker 1: whether it's cloud or just some of the great spending
• 23:31
  Speaker 1: we've been is and I think that is a valid
• 23:33
  Speaker 1: concern you think about big tech overall, I would say,
• 23:37
  Speaker 1: you know, within tech, there are certain pockets like software, cloud,
• 23:41
  Speaker 1: you know, where the tech spending is really strong. When
• 23:44
  Speaker 1: it comes to semis and chips, it's kind of the
• 23:48
  Speaker 1: investment cycle driven. And what we are seeing right now
• 23:51
  Speaker 1: is the investment cycle for chips specifically you know UM
• 23:56
  Speaker 1: and and more so towards cloud data centers. That's where
• 23:59
  Speaker 1: the spending is going in and that maybe tapering off
• 24:02
  Speaker 1: because you know, we have been in this healthy environment
• 24:05
  Speaker 1: for such a long time now, so at some point
• 24:07
  Speaker 1: the party will end. So the party, I mean, we
• 24:09
  Speaker 1: talked about the biggest drop since two thousand and eight
• 24:12
  Speaker 1: coming off a really high valuation. I mean, like, let's
• 24:15
  Speaker 1: put this in a perspective here. We saw an incredible
• 24:18
  Speaker 1: run up in semico conductor stocks and you know, yesterday
• 24:22
  Speaker 1: we were speaking with an answering of us in your
• 24:24
  Speaker 1: colleague and he was saying, fundamentals have to prove that
• 24:27
  Speaker 1: that that these this optimism is correct. How bad is
• 24:32
  Speaker 1: this or is this just sort of a reality check? Guys,
• 24:34
  Speaker 1: you got ahead of yourselves. Well, I think with Intel
• 24:38
  Speaker 1: it's a little bit of a company specific case as well.
• 24:42
  Speaker 1: And and what you're seeing right now is uh you know, uh,
• 24:46
  Speaker 1: Intel is going through that CEO transition phase as well
• 24:49
  Speaker 1: as they missed the boat on mobility somewhat. You know,
• 24:52
  Speaker 1: when when I look at the demand for chips, it's
• 24:55
  Speaker 1: really geared towards cloud. That's what you don't see, you know,
• 24:59
  Speaker 1: um with uh intail or it's not that obvious that
• 25:02
  Speaker 1: they're at the forefront of it. And interesting. Manna also
• 25:06
  Speaker 1: want to bring in Olivia's Aleski. Olivia's a deal's reporter
• 25:09
  Speaker 1: for Bloomberg News. We just wanted to get her thoughts
• 25:11
  Speaker 1: a little bit and yours man deep on some of
• 25:13
  Speaker 1: the upcoming tech deals. Olivia joins us some our Bloomberg
• 25:16
  Speaker 1: nine sixties studio in San Francisco. Olivia, thanks for joining
• 25:19
  Speaker 1: us again. We've got some deals coming up on on
• 25:22
  Speaker 1: tech what are your thoughts first on the Uber filing?
• 25:26
  Speaker 1: Well do you? So, let's remember that Uber filed UH
• 25:29
  Speaker 1: a few weeks ago, that what came out this morning
• 25:31
  Speaker 1: was just a price range update, and so that companies
• 25:34
  Speaker 1: typically do this with they'll file initially with no price
• 25:38
  Speaker 1: range in their S one, and then they'll update once
• 25:40
  Speaker 1: they get a better sense of the market and what
• 25:42
  Speaker 1: the demand is UM and the market is telling them
• 25:46
  Speaker 1: to be conservative, which I think is the key sort
• 25:48
  Speaker 1: of point here. This morning they went out with a
• 25:52
  Speaker 1: forty four to fifty dollar range, which is quite conservative
• 25:56
  Speaker 1: and puts Uber's valuation about eighty four billion dollars. And
• 25:59
  Speaker 1: let remember that months ago, when bankers first started talking
• 26:03
  Speaker 1: to Uber, they were saying your your valuation could be
• 26:06
  Speaker 1: at a hundred and twenty billion UM. So this is
• 26:09
  Speaker 1: quite a step down for them. But I think it's
• 26:11
  Speaker 1: really sort of a kind of come to Jesus moment
• 26:14
  Speaker 1: for them to say, Okay, let's be conservative, let's come
• 26:16
  Speaker 1: out at a price range that's appropriate, so that we
• 26:19
  Speaker 1: can sort of avoid some of the blunders that Lift saw. Yeah,
• 26:23
  Speaker 1: and it's really interesting to see that Uber is ratcheting
• 26:25
  Speaker 1: back its expectations. Slack also submitted to its plans to
• 26:30
  Speaker 1: US regulators to go public, and it actually went through
• 26:32
  Speaker 1: an unusual direct listing. Olivia, I'm sure you'll be digging
• 26:35
  Speaker 1: through all of that. Olivia's Leski, Bloomberg Deal's Reporter. Also
• 26:39
  Speaker 1: our thanks to Man Deep Saying, senior tech industry analyst
• 26:42
  Speaker 1: for Bloomberg Intelligence. Uber's I p O filing, slacks, impending listing.
• 26:46
  Speaker 1: Sort of interesting to see how both of these are
• 26:49
  Speaker 1: coming at a time of really split demand, people demanding
• 26:53
  Speaker 1: to see the money. Thanks for listening to the Bloomberg
• 26:57
  Speaker 1: pen L podcast. You can subscribe and listen to Inner
• 27:00
  Speaker 1: Use at Apple Podcasts or whatever podcast platform you prefer.
• 27:03
  Speaker 1: M Paul Sweeney, I'm on Twitter at pt Sweeney. I'm
• 27:05
  Speaker 1: Lisa abram Woits I'm on Twitter at Lisa Abramoits. One.
• 27:09
  Speaker 1: Before the podcast, you can always catch us worldwide on
• 27:11
  Speaker 1: Bloomberg Radio