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Transcript

What's Happening to the Retail Industry? · Bloomberg Intelligence

• 0:05
  Speaker 1: Welcome to the Bloomberg p m L Podcast. I'm pim Fox.
• 0:08
  Speaker 1: Along with my co host Lisa Abramowitz. Each day we
• 0:11
  Speaker 1: bring you the most important, noteworthy, and useful interviews for
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  Speaker 1: you and your money, whether you're at the grocery store
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  Speaker 1: or the trading floor. Find the Bloomberg p m L
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  Speaker 1: Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. Well,
• 0:32
  Speaker 1: let's turn our attention out to an area of the
• 0:34
  Speaker 1: economy which has not necessarily, let's say, been illuminated by
• 0:38
  Speaker 1: Donald Trump's presidency, and that is the retail sector. And
• 0:41
  Speaker 1: here to tell us more as Chris Fulkei is the
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  Speaker 1: chief executive Store Capital Chris, thanks very much for being here.
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  Speaker 1: Now I just want to read you one note. This
• 0:50
  Speaker 1: comes actually from a Credit Suite report, and this has
• 0:54
  Speaker 1: to do with the deterioration in real estate investment trust
• 0:58
  Speaker 1: but specifically in the mall A segment. It says this
• 1:02
  Speaker 1: has to do with the associated mortgage backed securities and
• 1:05
  Speaker 1: CDs right swaps. Barely a quarter into seventeen, year to
• 1:10
  Speaker 1: day retail store closings have already surpassed those of two
• 1:15
  Speaker 1: thousand and eight. Is that scary? It is scary? There
• 1:20
  Speaker 1: are probably close to nine thousand stores slated to be
• 1:23
  Speaker 1: closed potentially this year. UM. Now, the good news for
• 1:27
  Speaker 1: us is that we're into service space and manufacturing, so
• 1:31
  Speaker 1: we have give or take exposure to retail, and of that,
• 1:36
  Speaker 1: very few of our locations are anywhere close to any
• 1:39
  Speaker 1: of the chains that are suffering the big closures. Well,
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  Speaker 1: so let's talk about your firm, your chief executive officers
• 1:45
  Speaker 1: officer of store Capital, which is a middle market real
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  Speaker 1: estate capital solutions firm. Are you going into some of
• 1:54
  Speaker 1: these mid tier retailers and these mid tier malls and
• 1:58
  Speaker 1: trying to help them structure their debts and their businesses
• 2:02
  Speaker 1: that they can emerge from this uh, this deterioration and
• 2:06
  Speaker 1: credit worthiness that we've seen on a broad based level
• 2:10
  Speaker 1: and retail. Uh No. So, so store is stands for
• 2:14
  Speaker 1: single tenant operational real estate. So we focus on profit
• 2:17
  Speaker 1: center properties. So we do business mostly in the service space.
• 2:21
  Speaker 1: So think about health clubs and fitness or early childhood education,
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  Speaker 1: movie theaters, uh, you know, veterinary clinics, that kind of thing.
• 2:29
  Speaker 1: So we do lots of lots of things in the
• 2:31
  Speaker 1: service space. We do about in the retail space. And
• 2:35
  Speaker 1: we started the company in two thousand and eleven, which
• 2:37
  Speaker 1: meant we had a little bit of foresight to know that, hey,
• 2:40
  Speaker 1: the Internet is here. We know that you have to
• 2:42
  Speaker 1: be an experiential retailer. And clearly there are retailers that
• 2:46
  Speaker 1: are expanding in today's economy. But uh, the the assets
• 2:49
  Speaker 1: that we're owning would be let's say, in the furniture space, hunting, fishing,
• 2:53
  Speaker 1: um uh, you know, home improvement, things like that hobby
• 2:57
  Speaker 1: space uh and which is just a different kind of space,
• 3:01
  Speaker 1: and and things that you would not typically buy over
• 3:03
  Speaker 1: the internet, things you'd like to try out. Can you
• 3:05
  Speaker 1: put numbers to just how different the fates of these
• 3:08
  Speaker 1: experiential stores are to their retail they're like physical retail brethren. Well,
• 3:17
  Speaker 1: I would say that our average retailer is probably growing
• 3:21
  Speaker 1: year to year about eight percent top line in sales,
• 3:24
  Speaker 1: so uh, and some of that same store sales growth,
• 3:26
  Speaker 1: and some of that's adding new locations. Um So, these
• 3:30
  Speaker 1: are vibrant retail companies. And again it's only about fift
• 3:34
  Speaker 1: of what we do, but it's um uh. Typically people
• 3:38
  Speaker 1: for example, want to try an mattress or they want
• 3:40
  Speaker 1: to try a sofa there, and they have a hard
• 3:42
  Speaker 1: time returning things if they're if they're delivered to them,
• 3:45
  Speaker 1: and so on. So uh so these are the types
• 3:48
  Speaker 1: of things that we think long term, uh will do well.
• 3:52
  Speaker 1: We don't think that people will just stay in there
• 3:53
  Speaker 1: on their sofa and order everything that they can. So
• 3:56
  Speaker 1: would it be okay to classify you as an expert
• 3:59
  Speaker 1: in credit? Uh? You know a little bit about it
• 4:02
  Speaker 1: right well? And the reason because I'm wondering if you
• 4:04
  Speaker 1: could just walk us through the credit landscape right now
• 4:07
  Speaker 1: and give us your thoughts not just as a as
• 4:10
  Speaker 1: an investor, but as someone that is a practitioner about
• 4:14
  Speaker 1: the consent deals you're seeing and the kinds of investors
• 4:16
  Speaker 1: that are being courted because yields are as still historically low. Well,
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  Speaker 1: I mean, I've I've always thought in our space the
• 4:24
  Speaker 1: credits miss priced. People have a tendency to think that
• 4:28
  Speaker 1: a strong credit equates to an investment grade contracts. So
• 4:31
  Speaker 1: otherwise I have an investment grade tenant, I must have
• 4:34
  Speaker 1: an investment grade contract. Um Uh. If I have a
• 4:36
  Speaker 1: pretty piece of real estate, it must be a good investment.
• 4:39
  Speaker 1: I mean, these are things that are not necessarily true.
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  Speaker 1: Good credit does not equate to a good contract. A
• 4:43
  Speaker 1: pretty piece of real estate does not equate to a
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  Speaker 1: good investment. Just to give maybe given example so people
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  Speaker 1: understand how that works. Well, Uh, you could have a
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  Speaker 1: company that's an investment grade credit, but you could pay
• 4:53
  Speaker 1: twice what the real estate would cost to build for
• 4:55
  Speaker 1: for for example, you may not have proper allianments of interest,
• 4:59
  Speaker 1: so leases allow the tenant to go dark. Anytime. You
• 5:02
  Speaker 1: don't have master leases, you have no financial reporting. If
• 5:04
  Speaker 1: you look at our company today, we get financial reporting
• 5:08
  Speaker 1: from about nine percent of our talents, which is just
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  Speaker 1: staggering at the store level, not just the corporate level,
• 5:14
  Speaker 1: the corporate level, but the store level. So that's just unbelievable.
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  Speaker 1: Where are the companies that you invest in the stores?
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  Speaker 1: Are they in a level malls sea level malls? Are
• 5:27
  Speaker 1: they not in malls? I would say most of them
• 5:30
  Speaker 1: are not in malls. Um, So let's if I if
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  Speaker 1: I have three of our properties that are within a
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  Speaker 1: quarter of a mile roughly of Macy's, a Kmart, a Pennies,
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  Speaker 1: a Sears. That tells you that we're not really in malls.
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  Speaker 1: Where in strip center is more or less in front
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  Speaker 1: of Walmart's, in front of targets. Uh. Sometimes if it's
• 5:48
  Speaker 1: a if it's a restaurant, or if it's another retail store,
• 5:51
  Speaker 1: we might be adjacent to one of those kinds of properties. Well,
• 5:54
  Speaker 1: I guess I I What I'm trying to get at
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  Speaker 1: is we've heard a lot of hedge fund managers say
• 5:57
  Speaker 1: that shorting mall related debt is the next big short,
• 6:03
  Speaker 1: and we've seen a lot of big investors who are
• 6:05
  Speaker 1: very respected go in and try to do this via
• 6:08
  Speaker 1: derivative wagers, among others. Do you think that they're onto
• 6:12
  Speaker 1: something based on what you have seen in your personal
• 6:15
  Speaker 1: investing experience. I think if you could find a pure
• 6:18
  Speaker 1: way to short more related debt, it might be an
• 6:22
  Speaker 1: interesting investment. Uh, it's it's far moved from what I
• 6:24
  Speaker 1: do for a living, but it might be interesting investment.
• 6:26
  Speaker 1: But what I've seen is that things that people are
• 6:29
  Speaker 1: shorting tend to be somewhat blunt instruments, so they're not
• 6:31
  Speaker 1: exactly pure more related debt. There is no pure thing
• 6:34
  Speaker 1: to short in CDs as there was in residential real
• 6:37
  Speaker 1: estate prior to the Great Recession. Some of your customers
• 6:40
  Speaker 1: might be restaurants, for example, right, like for Burger King Right.
• 6:44
  Speaker 1: If you need some financing or some help with the franchise,
• 6:47
  Speaker 1: then you're going to lend your expertise to that. You're
• 6:50
  Speaker 1: in Scottsdale, Arizona. When I thought when I saw that,
• 6:53
  Speaker 1: and I remembered, of course, what you have to live
• 6:55
  Speaker 1: through it to be in Scottsdale, Arizona. Let's say, back
• 6:58
  Speaker 1: in two thousand and eight, if you can give us
• 7:00
  Speaker 1: a little perspective as to why this cycle appears the
• 7:05
  Speaker 1: way it does, and not to confuse it with what
• 7:07
  Speaker 1: happened in two thousand and eight, right, well, to put
• 7:09
  Speaker 1: it in perspective. We've been in this business for about
• 7:12
  Speaker 1: thirty five years UM, and this is our third public company,
• 7:15
  Speaker 1: so this is not my first rodeo. And every company
• 7:19
  Speaker 1: we've run is outperformed the benchmark. So it didn't matter
• 7:21
  Speaker 1: whether a ten year treasury with six fifty four fifty.
• 7:23
  Speaker 1: Today we're a two thirty, So we've always out performed
• 7:26
  Speaker 1: the benchmarks. Um Our Stores, the assets that we own
• 7:30
  Speaker 1: are today in forty eight states, UH, the biggest state
• 7:33
  Speaker 1: being Texas, at no other states north of ten UM,
• 7:37
  Speaker 1: so we're all over the country and we're providing UH
• 7:41
  Speaker 1: financial real estate net least solutions to middle market and
• 7:44
  Speaker 1: larger companies and for them we're providing a financial solution
• 7:47
  Speaker 1: for our investors, were providing them with the opportunity to
• 7:49
  Speaker 1: own some really good quality real estate investments. How many
• 7:52
  Speaker 1: competitors do you have if you noticed that the field
• 7:54
  Speaker 1: has gotten more crowded as an investment firms to look
• 7:56
  Speaker 1: for new opportunities so far, I would say no, um
• 8:00
  Speaker 1: uh and and I we sold our first public company
• 8:03
  Speaker 1: in two thousand one to GE Capital. Uh. Today my
• 8:06
  Speaker 1: office is actually in UH space that used to be
• 8:09
  Speaker 1: occupied by the successor company to the first company were created.
• 8:12
  Speaker 1: G must have bought ten people in our space, so
• 8:15
  Speaker 1: they almost like the oxygen out of the room, buying
• 8:18
  Speaker 1: people and growing it in. Today G Capital has has
• 8:21
  Speaker 1: ceased to exist, So I would say that there it's
• 8:24
  Speaker 1: very very hard to create an institutional player in the space.
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  Speaker 1: Most of the people that are competitors of ours are
• 8:30
  Speaker 1: small to medium sized landlords. They're privately held. They're very
• 8:34
  Speaker 1: few of you know, good quality public you know landlords.
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  Speaker 1: And in the marketplace. By the way, that our our
• 8:40
  Speaker 1: market alone is about two and a half treeion dollars
• 8:42
  Speaker 1: in size, so uh and and here we are with
• 8:45
  Speaker 1: an equity capitalization that's just north of four bayon acquisitions,
• 8:49
  Speaker 1: what are you looking for? Well, our guidance this year
• 8:52
  Speaker 1: so far is to do nine million dollars net of sales,
• 8:55
  Speaker 1: so we'll sell properties from time to time. Last year
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  Speaker 1: we did about a b in one fifty uh so
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  Speaker 1: the year before that we did about the same. We've
• 9:03
  Speaker 1: been in general doing somewhere around a hunter million hours
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  Speaker 1: a month worth of business. We've been doing thirty to
• 9:08
  Speaker 1: forty transactions every quarter. We've been adding to our customer base,
• 9:12
  Speaker 1: and about a third of the business we do is
• 9:13
  Speaker 1: repeat business with existing tenants. What do you think will
• 9:17
  Speaker 1: be the hallmark to look for to indicate that the
• 9:22
  Speaker 1: retail armageddon iss some people have been calling it with
• 9:25
  Speaker 1: the incredible rush of stores that have been closed, that
• 9:27
  Speaker 1: this that this retail blood bath is reaching a crescendo.
• 9:34
  Speaker 1: You know, I think that the retail blood bath that
• 9:37
  Speaker 1: you're talking about is mostly going to affect malls where
• 9:40
  Speaker 1: you're dealing with large anchors that are having issues, which
• 9:44
  Speaker 1: can cause a lot of smaller retailers to also close
• 9:46
  Speaker 1: down their shops. And some of those smaller retailers are
• 9:49
  Speaker 1: also closing down their shops on their own. Um, if
• 9:51
  Speaker 1: you look at strip malls, for example, most of those
• 9:54
  Speaker 1: malls are filled with you know, a Walmart, and then
• 9:57
  Speaker 1: lots of service providers could be taxed for fighters, could
• 10:00
  Speaker 1: be yoga studios, um. And I think that a lot
• 10:03
  Speaker 1: of those malls are doing great. So but a lot
• 10:06
  Speaker 1: of people say that we're not in the ninth inning,
• 10:08
  Speaker 1: if you're going to use a baseball analogy, We're not
• 10:11
  Speaker 1: necessarily nearing the end of the pain that we've seen
• 10:14
  Speaker 1: in the retail industry. I mean, would you agree, I
• 10:17
  Speaker 1: do agree. I think that you know, we're going to
• 10:20
  Speaker 1: see the demise of some very old and um storied
• 10:25
  Speaker 1: names and retail over time. Thank you so much, truly
• 10:30
  Speaker 1: fascinating to speak with you, and thank you so much
• 10:32
  Speaker 1: for coming to the studios. Chris Volki is chief executive
• 10:35
  Speaker 1: officer of Store Capital, talking about middle market investing in
• 10:40
  Speaker 1: retail spaces but really focusing on experiences, not just selling stuff. Well, yesterday,
• 10:58
  Speaker 1: Home Capital Group, which is Canada's biggest alternative mortgage lender,
• 11:04
  Speaker 1: plunged more than sixty percent after disclosing that it needed
• 11:07
  Speaker 1: emergency financing that was done and secured at very un
• 11:12
  Speaker 1: uh financially unpleasant terms. Let's just say now the stock
• 11:17
  Speaker 1: is rebounding rebounding a bit, but I really want to
• 11:19
  Speaker 1: get a sense of how much this company serves as
• 11:22
  Speaker 1: a harbinger for the broader Canadian mortgage market which has
• 11:25
  Speaker 1: been on fire. Doug Alexander, please join us and make
• 11:29
  Speaker 1: sense of this. Doug Alexander is a Canadian financial service
• 11:32
  Speaker 1: services reporter with Bloomberg and he comes to us from Toronto. Doug,
• 11:37
  Speaker 1: can you just put this into broader context? I mean,
• 11:39
  Speaker 1: is Home Capital Group considered UH sort of a red
• 11:44
  Speaker 1: flag a Canary uh that sort of signifies some deeper,
• 11:48
  Speaker 1: broader pain in the mortgage market in Canada. Yes, good morning, UM,
• 11:52
  Speaker 1: Home Capital H. A short answer would be uh no, Um.
• 11:57
  Speaker 1: They are actually, UH, as you point out, the largest
• 12:02
  Speaker 1: alternative lender UH in Canada. They do. They've been around
• 12:06
  Speaker 1: for like thirty one years, um. And what they really
• 12:08
  Speaker 1: do is they do specialize in a certain kind of mortgage.
• 12:11
  Speaker 1: It's not necessarily like the subprime that you'd see in
• 12:13
  Speaker 1: the US that has what caused so many problems during
• 12:16
  Speaker 1: the financial crisis, but they do provide loans to people
• 12:20
  Speaker 1: that may have a bit more difficulty UH getting qualifications
• 12:25
  Speaker 1: through the major Canadian banks, whether it be because they
• 12:29
  Speaker 1: have more complicated UM income streams, or they could be
• 12:33
  Speaker 1: foreigners that have just moved into the country. But the
• 12:35
  Speaker 1: bottom line, home capital has about twenty billion dollars or
• 12:39
  Speaker 1: less than twenty billion dollars of loans UM mortgage loans,
• 12:44
  Speaker 1: and the Canadian UH mortgage market essentially is about one
• 12:48
  Speaker 1: point one trillion in Canadian Hey, hey, Doug, you know,
• 12:51
  Speaker 1: I wonder if you could just step back into and
• 12:52
  Speaker 1: explain a little bit about the real estate market, the
• 12:55
  Speaker 1: residential real estate market in Canada, because, uh, the government
• 13:00
  Speaker 1: has I believed already proposed a tax on foreign purchases. Also,
• 13:07
  Speaker 1: you've seen explosive increases in real estate values in cities
• 13:12
  Speaker 1: like Vancouver and also in Toronto. You got a lot
• 13:14
  Speaker 1: of speculators. What if you could just kind of pull
• 13:16
  Speaker 1: it all together for Yeah, it's a very interesting market.
• 13:19
  Speaker 1: So when it comes to real estate in Canada, UM
• 13:21
  Speaker 1: and really, as you point out, there has been a
• 13:24
  Speaker 1: huge price appreciation as of late. It's really am It's
• 13:29
  Speaker 1: really a market that is very, very lumpy. There are
• 13:32
  Speaker 1: two areas in the country where you could argue that
• 13:35
  Speaker 1: there's an overheated housing market, which is UH Toronto currently
• 13:39
  Speaker 1: UM and Vancouver Vancouver is UM kind of eased off
• 13:43
  Speaker 1: a little bit, but as you point out, in UM
• 13:46
  Speaker 1: Vancouver last year, there were UH measures taken to curb
• 13:53
  Speaker 1: UH some of that demand UM by targeting UH foreign
• 13:56
  Speaker 1: investors with a with a tax UM that's been in
• 13:59
  Speaker 1: pos is now in to cover the Toronto market as well.
• 14:03
  Speaker 1: But either very two very specific markets in the country.
• 14:06
  Speaker 1: If you look across the country and that there are
• 14:09
  Speaker 1: other markets that are are UH seeing a slowdown UM
• 14:13
  Speaker 1: for whatever UM economic reasons, Calary being one of them.
• 14:18
  Speaker 1: UM and other major cities like Much we all that
• 14:20
  Speaker 1: really just haven't seen that UM that that same level
• 14:24
  Speaker 1: of appreciation. So it's really a a country that has
• 14:28
  Speaker 1: two overheated housing markets. And let's be clear that's actually
• 14:32
  Speaker 1: concerned policymakers UM and you know those in the financial
• 14:37
  Speaker 1: services industry and UH and UH you know politicians at
• 14:41
  Speaker 1: the local level as well well. I just want to
• 14:43
  Speaker 1: bring this back to Home Capital Group because this UH
• 14:47
  Speaker 1: is this company is based in Toronto, which is one
• 14:49
  Speaker 1: of the overheated markets that you point to, and they
• 14:52
  Speaker 1: have been the subject of a regulatory probe basically looking
• 14:56
  Speaker 1: into whether their lending standards were overly lax. Another words,
• 15:00
  Speaker 1: they were letting me perhaps money to people who couldn't
• 15:02
  Speaker 1: afford to pay it back. I mean, I guess that
• 15:04
  Speaker 1: from that perspective, you have to wonder, is this a problem.
• 15:09
  Speaker 1: Are we seeing a repeat, perhaps on a smaller scale,
• 15:11
  Speaker 1: of what we saw leading up to two thousand and
• 15:13
  Speaker 1: eight in the US? Yeah, I don't think that's what's
• 15:16
  Speaker 1: what the you know, the analysts and UH and other
• 15:19
  Speaker 1: observers in the industry industry are looking at. They're looking at.
• 15:22
  Speaker 1: Home Capital is really a very company specific issue, and
• 15:25
  Speaker 1: I think to understand the current context that we're in
• 15:28
  Speaker 1: with home Capital, we have to kind of go back
• 15:30
  Speaker 1: a couple of years and really what their problem is
• 15:34
  Speaker 1: is a problem of disclosure. UM. A couple of years ago, UH,
• 15:38
  Speaker 1: they they had issues with some mortgages from outside brokers
• 15:45
  Speaker 1: UH that UH that turned out to be approved by
• 15:51
  Speaker 1: because some of the information on their income was falsified. Now,
• 15:55
  Speaker 1: as far as we've been told since, there's been really
• 15:57
  Speaker 1: no problems with those mortgages. But a time in two
• 16:00
  Speaker 1: thousand and fifteen, UH, the company cuts hies with about
• 16:06
  Speaker 1: forty brokers. The problem is that initially they kind of
• 16:10
  Speaker 1: downplayed that, they kind of hid that information UH in
• 16:13
  Speaker 1: their UM quarterly results and when they were asked about
• 16:16
  Speaker 1: it during the conference calls with the Analyston investor community,
• 16:19
  Speaker 1: they really kind of um sidestepped it. That brought concerns
• 16:24
  Speaker 1: with the Canadian regulator, Ontario's regulator, and that's where their
• 16:29
  Speaker 1: problems have surfaced as of late. Um Doug Alexander, I
• 16:33
  Speaker 1: wish we could continue because it's a fascinating story. We're
• 16:35
  Speaker 1: gonna have to leave it there. Doug Alexander is Canada's
• 16:37
  Speaker 1: financial services reporter for Bloomberg. Coming to us from Toronto.
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  Speaker 1: more at Bloomberg dot com. Slash lens Board is quote,
• 17:32
  Speaker 1: having one foot in today and one foot in tomorrow.
• 17:35
  Speaker 1: That's according to Chief executive officer Mark Fields. Today after
• 17:39
  Speaker 1: Ford Motor Company reported earnings that underwhelmed UH certainly traders,
• 17:44
  Speaker 1: the shares are down more than a percentage point based
• 17:48
  Speaker 1: on the idea that the company is spending more on
• 17:51
  Speaker 1: driver list technology now uh cost cutting more costs, and
• 17:55
  Speaker 1: trying to prepare for the future. To sort of explain
• 17:57
  Speaker 1: the road ahead, I am very pleased bringing Bob Shanks,
• 18:01
  Speaker 1: executive vice president and chief financial officer of Ford Motor Company,
• 18:05
  Speaker 1: coming to us from Dearborn, Michigan. Bob, thank you so
• 18:08
  Speaker 1: much for joining us. First, I just wanted to gauge
• 18:11
  Speaker 1: the mood inside Ford headquarters. I mean, do people feel
• 18:14
  Speaker 1: like it's kind of not fair that Ford is now
• 18:16
  Speaker 1: pouring money into too uh driver list technology and uh
• 18:20
  Speaker 1: more electric cars and investors are not impressed. Whereas Tesla,
• 18:25
  Speaker 1: all they have to do is say, you know, energy
• 18:28
  Speaker 1: and everybody cheers. Well, I can tell you you know
• 18:32
  Speaker 1: how I feel untrustrated frankly, because um, while we're creating
• 18:37
  Speaker 1: value in terms of the core business today, uh and
• 18:40
  Speaker 1: certainly our dividend is strong and it's sustainable even through
• 18:44
  Speaker 1: a downturn. UM. We we have laid out a plan
• 18:47
  Speaker 1: to participate in what's what's going to be a transformation
• 18:50
  Speaker 1: of the industry that will pay off as it will
• 18:52
  Speaker 1: for others that are working on similar technologies UM in
• 18:57
  Speaker 1: the future. There doesn't seem to be a much of
• 19:00
  Speaker 1: our recognition of that because I think deeper focused more
• 19:02
  Speaker 1: on the nearer term. I would just say, we're not pouring, uh,
• 19:05
  Speaker 1: you know, resources into that. The vast majority of the
• 19:07
  Speaker 1: investments we're making are in the core business. But we
• 19:10
  Speaker 1: we are investing appropriately imprudently in autonomy, electrification, mobility and
• 19:15
  Speaker 1: so forth. That's that's true. But you know, we're going
• 19:18
  Speaker 1: to continue to do what we're doing because we know
• 19:20
  Speaker 1: it's right, and we know where the industry is heading
• 19:22
  Speaker 1: and we have to be prepared for that, and we
• 19:23
  Speaker 1: we plan to participate that and to create value by
• 19:26
  Speaker 1: doing so. Bob, I want to talk a little bit
• 19:29
  Speaker 1: about the here and now with you and just get
• 19:30
  Speaker 1: your thoughts on Lincoln and the Lincoln Navigator and the
• 19:34
  Speaker 1: refresh that's going on. Yeah, that is, uh, that's a
• 19:38
  Speaker 1: really big opportunity for us, the Navigator as well as
• 19:40
  Speaker 1: the Ford Expedition We just revealed those products of the
• 19:44
  Speaker 1: Lincoln at the New York Auto Show expedition to a
• 19:47
  Speaker 1: bit earlier. This is the first complete ground up redesign
• 19:51
  Speaker 1: in a long time. It's gonna They're both going to
• 19:54
  Speaker 1: take aluminum bodies. They're going to be on the same
• 19:56
  Speaker 1: sort of platforms as the F one fifty, which has
• 19:58
  Speaker 1: been usually successful and the re action to that product
• 20:01
  Speaker 1: has been phenomenal. They'll be coming out. I think the
• 20:04
  Speaker 1: launches are in the third quarter, probably hit the market
• 20:07
  Speaker 1: in the fourth and they're very high margin products, so
• 20:09
  Speaker 1: it's a big opportunity for us. Just quickly where they
• 20:11
  Speaker 1: made are they say, in the same Kansas they're made
• 20:14
  Speaker 1: the F as the F series. They're made at Kentucky
• 20:17
  Speaker 1: Truck which is where we make the Super Duty. But
• 20:19
  Speaker 1: they have their own body shop and their own paint shop,
• 20:22
  Speaker 1: you know, Bob, I do want to just a touch
• 20:24
  Speaker 1: on used car prices and that Ford did say today
• 20:28
  Speaker 1: that they see use car prices falling six percent this year.
• 20:32
  Speaker 1: Can you put that into perspective whether use car values
• 20:35
  Speaker 1: are falling faster than you've been expecting and the road
• 20:39
  Speaker 1: ahead for the rest of the year. That's a good question.
• 20:42
  Speaker 1: I would say, they're not falling faster than what we
• 20:45
  Speaker 1: have been expecting over the last number of months. What
• 20:47
  Speaker 1: happened about a year ago actually this time, is that
• 20:50
  Speaker 1: we started to talk about and guide to decline in
• 20:54
  Speaker 1: use car values related to the fact that the industry
• 20:58
  Speaker 1: has been leasing at the levels of you know, we've
• 21:00
  Speaker 1: never seen before over the last number of years, and
• 21:02
  Speaker 1: a rising industry and been you know, a lot of
• 21:05
  Speaker 1: those vehicles. Now we're starting to come back off lease.
• 21:07
  Speaker 1: So we we expected a decline. We adjusted our view
• 21:11
  Speaker 1: of that decline in November last year, and everything that
• 21:13
  Speaker 1: we see today suggests that everything's happening and unfolding as
• 21:16
  Speaker 1: we had expected. So we have seen a year over
• 21:19
  Speaker 1: year decline of seven percent at Ford. That's in align
• 21:22
  Speaker 1: with what's happened overall across the industry. And what I
• 21:25
  Speaker 1: mentioned in the call today is that we expect on average,
• 21:28
  Speaker 1: used car values to decline about six percent over the
• 21:31
  Speaker 1: full year. But what about the charge offs in Ford's
• 21:35
  Speaker 1: credit unit. Have you seen delinquencies and write downs increase
• 21:40
  Speaker 1: at a faster pace than you've been expecting. Well, they've
• 21:42
  Speaker 1: been increasing from where they had been and they but
• 21:45
  Speaker 1: they've been at historical lows. So when we look at
• 21:48
  Speaker 1: the all the metrics around delinquencies, the frequency of defaults,
• 21:54
  Speaker 1: the severity of those defaults, they're only approaching what you know,
• 21:57
  Speaker 1: we would consider to be historical norms. So they were
• 22:00
  Speaker 1: extremely low when we came out of the downturn for
• 22:03
  Speaker 1: a number of years, or just approaching what you know,
• 22:05
  Speaker 1: we would call normal. Uh. And in fact, in recent
• 22:08
  Speaker 1: periods we've seen you know, some slow down if you will,
• 22:11
  Speaker 1: in terms of the pace of that change. So we
• 22:14
  Speaker 1: feel that we've captured that appropriately in the outlook for
• 22:17
  Speaker 1: Ford Credit for the full year. Bob, just taking a
• 22:20
  Speaker 1: look at the shares of Ford, I mean, they're down
• 22:22
  Speaker 1: about five percent so far this year, but you're paying
• 22:24
  Speaker 1: a five and a quarter percent dividend. And if you
• 22:27
  Speaker 1: are talking directly to and I'm sure you are in
• 22:30
  Speaker 1: a way speaking directly to shareholders who may be bought
• 22:33
  Speaker 1: into the Ford idea, let's say to three years ago
• 22:36
  Speaker 1: after the financial debacle, what would you say to them today? Well, clearly,
• 22:42
  Speaker 1: we've delivered seven years of very very strong performance right
• 22:45
  Speaker 1: across the board. This is a different company than it
• 22:48
  Speaker 1: was going into the downturn. We've done a lot of restructuring,
• 22:52
  Speaker 1: it's a much fitter company. It's ready for another downturn. Uh.
• 22:55
  Speaker 1: And in particular relatives to the dividend, you know, we
• 22:58
  Speaker 1: have staked very strong position that we intend and plan
• 23:03
  Speaker 1: and believe we have the capability of paying that regular
• 23:06
  Speaker 1: dividend at the level that it's at when we go
• 23:08
  Speaker 1: into the downturn throughout that downturn. So, you know, for
• 23:11
  Speaker 1: those interested in a good return, because as you said,
• 23:13
  Speaker 1: five percent and you're paying what fifteen fifteen cents to
• 23:16
  Speaker 1: share exactly. Uh. And in addition to that, over the
• 23:20
  Speaker 1: last two years, we've paid a supplement dividend UH. And
• 23:24
  Speaker 1: that opportunity still exists as as we move forward, because
• 23:27
  Speaker 1: we don't see any signs that the recession that ultimately
• 23:30
  Speaker 1: will happen is on the horizon. So we think we've
• 23:32
  Speaker 1: got a great story to tell for those that are
• 23:34
  Speaker 1: particularly interested in in dividend a great return. Thanks very
• 23:37
  Speaker 1: much for joining us. As always, Bob Shanks is the
• 23:40
  Speaker 1: executive vice president and the chief financial officer of the
• 23:43
  Speaker 1: Ford Motor Company based in Dearborn, Michigan. Thanks for listening
• 23:50
  Speaker 1: to the Bloomberg pm L podcast. You can subscribe and
• 23:53
  Speaker 1: listen to interviews at Apple Podcasts, SoundCloud, or whatever podcast
• 23:57
  Speaker 1: platform you prefer. I'm pim Fox. I'm on Twitter at
• 24:01
  Speaker 1: pim Fox. I'm on Twitter at Lisa Abramo. It's one
• 24:04
  Speaker 1: before the podcast. You can always catch us worldwide on
• 24:07
  Speaker 1: Bluebirg Radio