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Private Equity, EVs, And Rails (Podcast) · Bloomberg Intelligence

• 0:00
  Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside
• 0:04
  Speaker 1: my co host Matt Miller. Every business day we bring
• 0:06
  Speaker 1: you interviews from CEOs, market pros, and Bloomberg experts, along
• 0:11
  Speaker 1: with essential market moving news. Find the Bloomberg Markets Podcast
• 0:15
  Speaker 1: on Apple Podcasts or wherever you listen to podcasts, and
• 0:18
  Speaker 1: at Bloomberg dot com slash podcast. All right, we've got
• 0:22
  Speaker 1: SMP off year today. Now that's that close to thirty pcent.
• 0:26
  Speaker 1: You've got bonds down double digits. I mean, where do
• 0:29
  Speaker 1: you go? How does your alternative investment portfolio looking. Let's
• 0:33
  Speaker 1: check in with some folks on the private equity side.
• 0:35
  Speaker 1: Andrea our Back, she's the head of private investments at
• 0:38
  Speaker 1: Cambridge Associates. Andrea talk to us about the private equity markets.
• 0:43
  Speaker 1: I mean, is it tough to get deals done? Do
• 0:46
  Speaker 1: you have to mark down your existing portfolio? How's the
• 0:50
  Speaker 1: private ecto market dealing with this volatility this year? Yeah,
• 0:55
  Speaker 1: a great question. Good good morning to you both um.
• 0:58
  Speaker 1: In terms of the private markets at the moment it
• 1:02
  Speaker 1: is today, tough to get deals done is an interesting question.
• 1:05
  Speaker 1: I think all parties have moved to the sidelines to
• 1:08
  Speaker 1: try to see what exactly is going to happen as
• 1:10
  Speaker 1: market conditions continue to infer in front of us. Right,
• 1:13
  Speaker 1: So a lot of transaction activity is stalling at the
• 1:17
  Speaker 1: moment um, and so folks are investors are waiting to see,
• 1:20
  Speaker 1: how do I make adjustments to my projections, what price
• 1:23
  Speaker 1: am I willing to pay, et cetera. In terms of
• 1:26
  Speaker 1: the markdowns, though, great question. Private equity UM is a
• 1:30
  Speaker 1: fairly a liquid asset class, right. You you invest, the
• 1:34
  Speaker 1: group you invest with, buy something presumably works with that asset,
• 1:39
  Speaker 1: and that company holds it for a number of years privately,
• 1:42
  Speaker 1: and then sells it at some point in the future. Right,
• 1:44
  Speaker 1: So things unfold over a multi year period rather than
• 1:47
  Speaker 1: on a daily, monthly or quarterly period as you as
• 1:50
  Speaker 1: you all obviously observe in the public markets. And so
• 1:53
  Speaker 1: in terms of markdowns um. And the other element that
• 1:56
  Speaker 1: I should note for you and your listeners is that
• 1:59
  Speaker 1: private equity be because it's it's private, it's a little
• 2:02
  Speaker 1: it's a liquid we often have a bit of a
• 2:04
  Speaker 1: lag in the reporting. Right, So the quarterly marks, if
• 2:07
  Speaker 1: you will, a bit of a reference point for one
• 2:10
  Speaker 1: cube um private equity. The private equity benchmark that we
• 2:16
  Speaker 1: track was down roughly thirty five basis points relative to
• 2:19
  Speaker 1: what the public markets were down in one queue, just
• 2:21
  Speaker 1: to give you a sense, so it will take it.
• 2:24
  Speaker 1: What do you think it is right now? I mean, um,
• 2:27
  Speaker 1: I had a friend who invests big sums in private
• 2:31
  Speaker 1: equity and he said he's worried they're not marking the market. Well,
• 2:35
  Speaker 1: it's a great question. And what happens is in private
• 2:38
  Speaker 1: equity is you mark to market in different ways, right,
• 2:41
  Speaker 1: instead of just taking what the public equity markets are
• 2:44
  Speaker 1: telling you. There are multiple ways to value a private business,
• 2:48
  Speaker 1: and most investors take a look at all the different
• 2:51
  Speaker 1: ways you can you can value that private business and
• 2:53
  Speaker 1: thread the needle through all of those valuations. So we
• 2:57
  Speaker 1: don't involve precincts reporting, so Cambridge Associates track asists on
• 3:00
  Speaker 1: a quarterly basis. We don't have all precincts in yet
• 3:03
  Speaker 1: for two Q, but preliminary returns look like private equity
• 3:07
  Speaker 1: will be down four hundred basis points from our benchmark.
• 3:10
  Speaker 1: So our benchmark is looking like it's going to come
• 3:12
  Speaker 1: down again about four hundred basis points. Still not in
• 3:16
  Speaker 1: lock step with the public markets though for the reasons
• 3:18
  Speaker 1: I just told you, all right, so, Andrea, I mean,
• 3:21
  Speaker 1: I guess the theme over the last twenty years has
• 3:24
  Speaker 1: just been, you know, in terms of asset allocation, a big,
• 3:27
  Speaker 1: big move into alternative investments. I'm thinking about the average
• 3:31
  Speaker 1: you know, UM university endowment for for example. So there's
• 3:35
  Speaker 1: a tons of equity capital. Uh, there is this a
• 3:40
  Speaker 1: buying opportunity of inordinate magnitude. And if so, can you
• 3:45
  Speaker 1: get debt capital to fund the deals as well? M
• 3:48
  Speaker 1: m yeah. The amount of dry powder, right, the amount
• 3:53
  Speaker 1: of capital that's been committed by endowment foundations, pensions, UM families, right,
• 4:00
  Speaker 1: every You know, there are many types of investors that
• 4:02
  Speaker 1: that put capital into the private equity markets, the private
• 4:05
  Speaker 1: investment markets. There is a lot of dry powder waiting
• 4:08
  Speaker 1: to get in, right, hundreds of billions of dollars. I
• 4:11
  Speaker 1: think in the US we are tracking it around seven
• 4:13
  Speaker 1: hundred billions. To give you a sense of what there's
• 4:16
  Speaker 1: always a lot of dr power. I mean I go
• 4:17
  Speaker 1: to Superinturn every year and they're always like one point
• 4:19
  Speaker 1: seven trillion dollars of dry powder. You know, Yes, the yardstick.
• 4:24
  Speaker 1: What does Foxo Tony fail I'm going to say about
• 4:26
  Speaker 1: it today, Yes, But I mean, is that dry is
• 4:29
  Speaker 1: that just is that just always there is there always
• 4:32
  Speaker 1: going to be a trillion plus of capital ready to go.
• 4:36
  Speaker 1: I mean a bigger let me let me pan out
• 4:39
  Speaker 1: to give a slightly bigger perspective, right, So, the institutional
• 4:42
  Speaker 1: private markets are in their fourth decade, so it's it's
• 4:46
  Speaker 1: a growing space that continues to attract capital regardless of
• 4:50
  Speaker 1: prevailing market conditions because it is a productive place to
• 4:53
  Speaker 1: earn a good return. So to your point, yes, I
• 4:56
  Speaker 1: agree with you. I think every year that amount of
• 4:59
  Speaker 1: dry powder is going to grow. Is it a good
• 5:01
  Speaker 1: buying opportunity in front of us compared to what it
• 5:05
  Speaker 1: was over the last two years? I would argue most likely.
• 5:09
  Speaker 1: But you've got to pick your way through this market
• 5:11
  Speaker 1: taking in all of this information that we that's continually
• 5:14
  Speaker 1: getting updated every day. Inflation, interest rates, supply chain or
• 5:19
  Speaker 1: all of these factors can drive the long term value
• 5:23
  Speaker 1: of whatever company you're going to buy in the next year.
• 5:26
  Speaker 1: So you've got to be careful, all right, Andrea, great stuff.
• 5:29
  Speaker 1: I always appreciate getting your perspective on the private equity market.
• 5:32
  Speaker 1: Andrea our back. She's head of private Investments at Cambridge
• 5:35
  Speaker 1: Associates that's located up in Boston High Street. I believe
• 5:38
  Speaker 1: if I recall, uh, lots of good pe up there Cambridge.
• 5:43
  Speaker 1: She went to school there as well, so I understand, Yeah,
• 5:46
  Speaker 1: exactly right, they got them smart folks up there. Now
• 5:53
  Speaker 1: I'm very excited because I get talked to one of
• 5:54
  Speaker 1: my favorite reporters that ever and about one of my
• 5:58
  Speaker 1: favorite things. Um So Elizabeth Behrman covers runs the auto
• 6:03
  Speaker 1: coverage for US in Germany, and she's covering the Volkswagen
• 6:07
  Speaker 1: sale along with a team of really great journalists. Uh.
• 6:13
  Speaker 1: This the I p O of Porsche. Um. She joins
• 6:16
  Speaker 1: us now out of Munich. Elizabeth, thanks so much. Tell
• 6:19
  Speaker 1: us what we what we know about, just the details,
• 6:22
  Speaker 1: the sort of headline details. When is this ip A
• 6:24
  Speaker 1: going to happen, how much are they gonna sell? And
• 6:28
  Speaker 1: how popular is it right now? Well, it's one of
• 6:32
  Speaker 1: the most exciting deals in Europe today and also for
• 6:36
  Speaker 1: some years. UM. If Porter or v W Rad gets
• 6:39
  Speaker 1: this away at the top of the target range, which
• 6:42
  Speaker 1: we understand to be evaluation of as much as eighty
• 6:45
  Speaker 1: five billion euros um, it will be Europe's biggest ever
• 6:50
  Speaker 1: um I p O. And this is happening at the
• 6:52
  Speaker 1: time of course, you were just talking about it. Markets
• 6:56
  Speaker 1: at tanking conditions are really really difficult. But this is
• 6:59
  Speaker 1: an iconic spotsmaker and known around the world, and obviously
• 7:04
  Speaker 1: there is a unique opportunity to invest. Yeah, I'm gonna
• 7:07
  Speaker 1: go ahead and say they make the single greatest sports
• 7:10
  Speaker 1: car in the world. Well that's big and um, you know,
• 7:15
  Speaker 1: almost at any price. And at one time I remember
• 7:19
  Speaker 1: covering poor show when I first started at Bloomberg and Frankfurt,
• 7:23
  Speaker 1: it was the most profitable car maker in the world.
• 7:25
  Speaker 1: This is before the whole debacle where they tried to
• 7:28
  Speaker 1: sort of behind the back of the market by Volkswagen
• 7:32
  Speaker 1: and then backfired and then Volkswagen ended up buying them.
• 7:35
  Speaker 1: But um, they still are. They still have to be, Elizabeth,
• 7:38
  Speaker 1: one of the most profitable carmakers out there, right, they
• 7:42
  Speaker 1: absolutely are. Usually their their returns around fifteen to eight um.
• 7:50
  Speaker 1: That's still quite away below Ferrari obviously, and that's one
• 7:55
  Speaker 1: of the car makers they're tasting as well. Um, probably
• 7:58
  Speaker 1: they won't get to you know, Ferrari levels, but they
• 8:01
  Speaker 1: have in terms of valuations. You mean, no, in terms
• 8:05
  Speaker 1: of returns on some selling cars. Okay, okay, I was
• 8:08
  Speaker 1: just thinking in terms of because everybody has used Ferrari
• 8:11
  Speaker 1: is kind of a measuring stick. Um when comparing car makers.
• 8:17
  Speaker 1: I think they are worth like twenty times earnings, and
• 8:20
  Speaker 1: other car makers like in the US or worth like
• 8:23
  Speaker 1: five to six um. And then you've got a company
• 8:26
  Speaker 1: like Tesla that just comes and blows things away. Um,
• 8:30
  Speaker 1: where are we excited to see Porsche? And we're not
• 8:35
  Speaker 1: exactly sure yet, but they are certainly targeting that luxury
• 8:39
  Speaker 1: premium where Ferrari is settled at. And that's also what
• 8:42
  Speaker 1: they've been telling investors that they can add certain features
• 8:46
  Speaker 1: that they can translate the excitement that obviously with you
• 8:49
  Speaker 1: as well. These vehicles generate into a much bigger evaluation
• 8:54
  Speaker 1: than where they currently are inside the v W stable,
• 9:00
  Speaker 1: and if they get to that evaluation of eighty five billion,
• 9:03
  Speaker 1: that would be roughly on par with the entire value
• 9:06
  Speaker 1: of the W. So, Elizabeth, I understand that there's some
• 9:10
  Speaker 1: weird shareholder structure thing here, the Porsche family and all
• 9:13
  Speaker 1: that kind of stuff. You and some people think that
• 9:15
  Speaker 1: that might be or could be a little bit of
• 9:17
  Speaker 1: a drag on valuation. Can you explain that? Yeah, it's
• 9:21
  Speaker 1: I mean, it's it's hellishly complex. You you would know
• 9:24
  Speaker 1: about this because you were around at the time of
• 9:27
  Speaker 1: the big takeover battle between Porsche and b W. But
• 9:31
  Speaker 1: essentially m v W is a family run business and
• 9:36
  Speaker 1: Porsche before the takeover was also a family run business.
• 9:40
  Speaker 1: And this deal is very much driven also by the
• 9:44
  Speaker 1: Porsche p a billionaire family clan trying to get back
• 9:48
  Speaker 1: a medicum of influence on decision making um At Porsche.
• 9:54
  Speaker 1: It's too complex to get into this in this radio
• 9:57
  Speaker 1: and TV right now, but what the family will emerge
• 10:02
  Speaker 1: with if the steel goes ahead is a blocking minority
• 10:06
  Speaker 1: stake which will allow them to influence decisions on where
• 10:11
  Speaker 1: to make cars, for instance, on on the key decisions
• 10:14
  Speaker 1: in future, so they'll be they'll own it again. By
• 10:17
  Speaker 1: the way, John Tucker was talking about Ferdinand Porsche earlier.
• 10:20
  Speaker 1: He's the original family members designed the Volkswagen Bug and
• 10:24
  Speaker 1: then the three fifty six and so on. Then he
• 10:26
  Speaker 1: had a son, Fairy, who designed UM I think the
• 10:30
  Speaker 1: which is what Tom Cruise drove in Risky business, and
• 10:33
  Speaker 1: then Wolfgang Porsche as the grandson. But his cousin um
• 10:37
  Speaker 1: what was Pisha's I'm blanking on Friedrich. What was PISA's
• 10:41
  Speaker 1: first name? I'm blanking on Pisha's first name. Pe Okay,
• 10:45
  Speaker 1: So Pieche was uh Wilkins cousin. He ran Volkswagen. He's
• 10:50
  Speaker 1: the one who made all these huge takeovers. He bought
• 10:52
  Speaker 1: all these marquis brands like Bugatti and Ducati. And it'll
• 10:56
  Speaker 1: be interesting to see how Porsche um does. It won't
• 11:00
  Speaker 1: be completely outside of the Volkswagen family. They're going to
• 11:02
  Speaker 1: have the same CEO for Porsche and for Volkswagen, and
• 11:04
  Speaker 1: they'll still be able to use the same resources. Yeah. Absolutely,
• 11:09
  Speaker 1: And that your role. Just to come back to your
• 11:11
  Speaker 1: earlier question as well. Um, that's also triggering governance concern
• 11:16
  Speaker 1: because the question that is raised, of course that well,
• 11:19
  Speaker 1: how independent is Porsche really ever going to be if
• 11:23
  Speaker 1: you've got the same guy running the show? I know,
• 11:27
  Speaker 1: the the economy in Europe in particular is rough. Is
• 11:30
  Speaker 1: anybody buying these expensive cars? I mean, what's the forecast
• 11:34
  Speaker 1: for who's not g T three right now? You'll be
• 11:37
  Speaker 1: on a two year waiting list? Really let you on it?
• 11:39
  Speaker 1: Yeah wow, um, I mean the less expensive cars are
• 11:43
  Speaker 1: bigger set are you know, easier to get? But yeah,
• 11:45
  Speaker 1: tell us about the sales right now, and we have
• 11:47
  Speaker 1: some positive sales news out of in terms of cars
• 11:49
  Speaker 1: out of Europe today, didn't we Yeah, exactly. I mean,
• 11:53
  Speaker 1: on the face of it, it looked as though the
• 11:55
  Speaker 1: market is getting better across Europe, but I mean it's
• 11:58
  Speaker 1: been a year declines, mostly because there weren't enough A
• 12:04
  Speaker 1: semiconductors to build cars. Um. But now what we're seeing
• 12:08
  Speaker 1: is that the inflation concerns, the concerns about energy build
• 12:12
  Speaker 1: are increasingly driving and consumer behavior. So while we had
• 12:15
  Speaker 1: arise this month and last month, that's still way below
• 12:19
  Speaker 1: what we had in twin And just to turn back
• 12:22
  Speaker 1: to Porsche, I mean, this is what the bankers on
• 12:26
  Speaker 1: the deal and what the Porsche exacts will have been
• 12:28
  Speaker 1: telling investors as they've been road sharing this, which is
• 12:33
  Speaker 1: they would have been telling them, well, we're Porter, we're
• 12:36
  Speaker 1: Todd luxury car make and were an iconic brand. We're
• 12:39
  Speaker 1: kind of exempt from all of that. And to an
• 12:42
  Speaker 1: extent that's true as well. I would I suppose it's
• 12:46
  Speaker 1: when is it still happen? When when can I buy
• 12:48
  Speaker 1: my start? What day are we looking at? Elizabeth? Um?
• 12:52
  Speaker 1: It's not completely officially yet, but it will be very
• 12:55
  Speaker 1: very shortly at some point in this month. A good
• 12:59
  Speaker 1: stuff gonna be really interesting. I think a lot of
• 13:01
  Speaker 1: people are gonna just go nuts over this deal. All right, Elizabeth,
• 13:04
  Speaker 1: thanks so much for joining us, Elizabeth Berman. I gotta
• 13:06
  Speaker 1: tell you a team quality also of these cars, it's
• 13:09
  Speaker 1: just it's another level, right because I got my uh
• 13:14
  Speaker 1: nine eleven Carrera s in two thousand fourteen. Never had
• 13:19
  Speaker 1: any kind of mechanical never have any mechanical issue or
• 13:22
  Speaker 1: even electronics issues. Right. Meanwhile, a lot of people you
• 13:25
  Speaker 1: go out and you buy a new truck and then
• 13:27
  Speaker 1: two weeks later, your front collision warning light is on,
• 13:31
  Speaker 1: your trus control isn't working, the lane split lane keep
• 13:35
  Speaker 1: assist isn't working, and you know, two weeks into your
• 13:37
  Speaker 1: purchase and you've got these kind of problems. We'll see
• 13:41
  Speaker 1: about it, all right, Porsche, I p O. That's gonna
• 13:44
  Speaker 1: be fun. All right. It looks like the railroad guys
• 13:50
  Speaker 1: that got a deal done with their unions, so the
• 13:52
  Speaker 1: freight will continue moving. That is good news for everybody
• 13:55
  Speaker 1: depends on that kind of stuff, and good news for
• 13:57
  Speaker 1: the US economy. Let's bring on Tony Hatch. Tony has
• 14:00
  Speaker 1: been covering the railroad and trucking industry for decades on
• 14:03
  Speaker 1: Wall Streets guy's own consulting company, ABH Consulting. Um, he's
• 14:08
  Speaker 1: the guy to go to, Tony. Thanks much for joining
• 14:10
  Speaker 1: us here. It seems like a pretty good deal. It
• 14:13
  Speaker 1: seems like the workers got a lot of what they
• 14:15
  Speaker 1: were looking for. And I guess it's good for the
• 14:18
  Speaker 1: railroads because they continue to move stuff around. What do
• 14:21
  Speaker 1: you think? So I never thought there would was going
• 14:24
  Speaker 1: to be a strike? Um, you recall the process. This
• 14:28
  Speaker 1: is just a part of the product. This is just
• 14:30
  Speaker 1: the ongoing wage negotiations and how the process plays out
• 14:34
  Speaker 1: with under the Rail and Labor Act, where it goes
• 14:36
  Speaker 1: on forever and they're all these cooling off periods. What's
• 14:39
  Speaker 1: different about it this time is that labor had a
• 14:41
  Speaker 1: lot of cards to play. Labor shortages in general, supply
• 14:44
  Speaker 1: chain issues, Democratic House, Democratic White House, rail service issues,
• 14:49
  Speaker 1: making railroads already in the penalty box in Washington, right.
• 14:52
  Speaker 1: So the the rail labor leaders did the smart thing,
• 14:55
  Speaker 1: which is go to the very end of the of
• 14:57
  Speaker 1: the story, why settle early? Every day you wait is
• 15:01
  Speaker 1: pressure on them, and by waiting until almost the last minute,
• 15:05
  Speaker 1: they were able to secure an additional eleven bonus and
• 15:08
  Speaker 1: some changes in work rules about how attendance is kept
• 15:11
  Speaker 1: literally and uh sick days. So they've got a pretty
• 15:14
  Speaker 1: fine package. Hopefully they'll ratify it. From the From the
• 15:17
  Speaker 1: rail point of view, all of their service issues and
• 15:19
  Speaker 1: their lack of growth issues come down to labor shortage,
• 15:23
  Speaker 1: high attrition, the great resignation, um, etcetera, etcetera. It takes
• 15:28
  Speaker 1: nine months to two from hiring to putting somebody in
• 15:30
  Speaker 1: the field. Uh, it's a network business. Or shortages and
• 15:34
  Speaker 1: small regions can affect the entire continent. So the for railroads,
• 15:38
  Speaker 1: if they get labor peace, that's a big victory. They
• 15:40
  Speaker 1: need to get people into the field and pick up
• 15:43
  Speaker 1: pent up demand. So, Tony, one of the things I
• 15:45
  Speaker 1: learned about, you know, kind of reading all this stuff
• 15:46
  Speaker 1: about you know, the conditions for the workers is this
• 15:49
  Speaker 1: percision railroading has really been tough on rail workers. Explain
• 15:54
  Speaker 1: that side of the story. What precision railroading is. So
• 15:58
  Speaker 1: this is you know, I could take up the rest
• 15:59
  Speaker 1: of your time, and I know you have the pown
• 16:00
  Speaker 1: to talk about, but decision schedule railroading is um. You know,
• 16:05
  Speaker 1: Hunter Harrison was a famous now a late rail CEO,
• 16:08
  Speaker 1: and it's really a way of of doing more with
• 16:10
  Speaker 1: less and trying to bring full schedule into a railroad.
• 16:13
  Speaker 1: Railroads were only semi scheduled before you would hold a
• 16:16
  Speaker 1: train to get more volume to justify moving the train
• 16:19
  Speaker 1: because of the high costs of a train. Start and
• 16:21
  Speaker 1: Hunter reversed that said, move the trains, that if we
• 16:24
  Speaker 1: will them regularly, will get the volume eventually. Uh. And
• 16:27
  Speaker 1: in so doing we need fewer of everything, including people. Uh.
• 16:30
  Speaker 1: That process, which we worked so well in Canada, was
• 16:33
  Speaker 1: brought to the US starting and I was just gonna
• 16:39
  Speaker 1: say that it was mostly over with. It is being
• 16:42
  Speaker 1: used as the as the boogeyman by labor and by
• 16:46
  Speaker 1: Washington regulators and whatnot. It's not the cause really of
• 16:49
  Speaker 1: this issue. The the the relads have really gone beyond
• 16:53
  Speaker 1: the cost cutting phase by the beginning of the pandemic.
• 16:56
  Speaker 1: The pandemic is the cause that when people didn't come back,
• 17:00
  Speaker 1: the rail workers who had to deal with the recovery.
• 17:02
  Speaker 1: If you remember in the second all the people are
• 17:05
  Speaker 1: out there who were working, we're working doubly hard. Uh.
• 17:08
  Speaker 1: It was they were just stressed. They were massively impacted
• 17:12
  Speaker 1: by only Crown. You can line up rail, labor and
• 17:15
  Speaker 1: vaccines in a in a complete opposite order, right, and
• 17:18
  Speaker 1: you can they So all of this stress has been
• 17:22
  Speaker 1: attributed to PSR PSR like any kind of just in
• 17:25
  Speaker 1: time system. And this instead of by a just in
• 17:28
  Speaker 1: time by a shipper, this is by a carrier. If
• 17:30
  Speaker 1: you will that that makes the system a little more fragile.
• 17:33
  Speaker 1: And I won't say it didn't contribute to the problems
• 17:36
  Speaker 1: once they got a shock, but they aren't the cause
• 17:39
  Speaker 1: of the problem. The shock was. Yeah, I want I
• 17:41
  Speaker 1: wanted to ask you about the conditions because I suspected
• 17:45
  Speaker 1: that the media to which I listened is mostly just
• 17:49
  Speaker 1: super lefties. But I heard you know, they weren't getting
• 17:51
  Speaker 1: any sick days. There's like one guy running a whole train,
• 17:55
  Speaker 1: um and uh, they haven't gotten a raisin forever. It
• 17:59
  Speaker 1: just seem like they were due for a for a
• 18:01
  Speaker 1: good deal. Well, here's the deal under the rail labor actor.
• 18:04
  Speaker 1: You know, they didn't get a raised because once your contract,
• 18:07
  Speaker 1: the terms are out the contractors in perpetuity, the terms
• 18:10
  Speaker 1: are up, it's ready to go. You're you're working under
• 18:12
  Speaker 1: the old rules. They didn't get a raise every three years.
• 18:16
  Speaker 1: They go through this process and it actually turns into
• 18:18
  Speaker 1: a five year process where you get back pay. So
• 18:21
  Speaker 1: they got back pay. That is a normal I mean
• 18:23
  Speaker 1: for seventy years that's going on. They didn't not get
• 18:26
  Speaker 1: a raised because they the rail managers were cheap. They
• 18:30
  Speaker 1: couldn't give them a raise because they didn't have a
• 18:31
  Speaker 1: new contract yet. Until they ratified this contract, they won't
• 18:35
  Speaker 1: get the raise. That is, they wouldn't have accepted a
• 18:37
  Speaker 1: raise when rail was tried to give them some in fact,
• 18:40
  Speaker 1: in order to get people to go, because they didn't
• 18:42
  Speaker 1: want that to impact this national round of negotiations. They
• 18:45
  Speaker 1: were working harder, there is no doubt about it. They
• 18:48
  Speaker 1: also were politically a student enough to see the railroads
• 18:51
  Speaker 1: had become public issues as part of the supply chain crisis.
• 18:54
  Speaker 1: You know that so dominated say the spring and summer,
• 18:57
  Speaker 1: they were called in three separate hearings to be taken
• 19:00
  Speaker 1: to the woodshed by their regulator, the STB. So rail
• 19:03
  Speaker 1: labor has definitely been pounding the table about this because
• 19:06
  Speaker 1: they know that if they had gone on stripe, the
• 19:08
  Speaker 1: ultimate arbiter of their wages is Congress. Jeez, you know,
• 19:14
  Speaker 1: publicly in all those lefty publications that I like to read.
• 19:17
  Speaker 1: That's right, exactly, all right, Tony, thank you so much.
• 19:20
  Speaker 1: Next time, we'll get you in the studio because we've
• 19:22
  Speaker 1: got a whole supply chain thing we want to go down.
• 19:24
  Speaker 1: Tony Hatch, consultant and analysts at a B H Consulting.
• 19:32
  Speaker 1: Let's bring in Lee Classgow. He's the finally senior analysts
• 19:35
  Speaker 1: covering all the transportation stuff for Bloomberg Intelligence. Lee, we
• 19:38
  Speaker 1: got a million things to talk about. We spoke with
• 19:40
  Speaker 1: your old buddy Tony Hatch earlier this morning about the
• 19:43
  Speaker 1: trained stuff. Lee. Everybody, I gotta tell you, everyone for
• 19:46
  Speaker 1: days has been like, get Lee Classo on the horn exactly. Well,
• 19:50
  Speaker 1: he's probably on a beach somewhere knowing him. But Lee,
• 19:52
  Speaker 1: thanks so much for joining us here. Let's start with FedEx.
• 19:55
  Speaker 1: Man that stocks taken a beating today. Didn't people know
• 19:58
  Speaker 1: there's kind of recession to She's out there supply chain
• 20:01
  Speaker 1: issues out there. Yeah, but you know there are all
• 20:04
  Speaker 1: those things. But you know what I would say about
• 20:06
  Speaker 1: FedEx and the pre announcement, which was extremely disappointing to
• 20:09
  Speaker 1: say the least, is that you know a lot of
• 20:11
  Speaker 1: what FedEx is facing is not the macro it's really
• 20:14
  Speaker 1: company specific. Their express business, which is a lot of
• 20:17
  Speaker 1: their international stuff has really suffered because of an integration
• 20:21
  Speaker 1: with TNT. It's an acquisition they bought six years ago, uh,
• 20:26
  Speaker 1: and it's really having problems because they didn't mention specifically
• 20:29
  Speaker 1: in their release that uh, you know, they were dealing
• 20:32
  Speaker 1: with some service issues in Europe and we just you
• 20:36
  Speaker 1: know read that as you know t n T and
• 20:38
  Speaker 1: you know, uh, the fact that it's going to take
• 20:41
  Speaker 1: even longer for this acquisition to pay off. And the
• 20:44
  Speaker 1: whole you know, genesis of the acquisition back in sixteen
• 20:47
  Speaker 1: was to put it on better footing against UPS and
• 20:51
  Speaker 1: deutsch A Post and and just just on on those
• 20:54
  Speaker 1: two other competitors. You know, Deutscha Post held a capital
• 20:57
  Speaker 1: markets day in September eight and they didn't see anything
• 21:00
  Speaker 1: as terrible as fed X as seeing, and UPS at
• 21:03
  Speaker 1: a sell side event on September nine, and they maintain
• 21:06
  Speaker 1: their two outlook. So a lot of this, you know, listen,
• 21:11
  Speaker 1: I'm not going to say that everything is fantastic and
• 21:13
  Speaker 1: the world is great. Well, you know, the world is great,
• 21:16
  Speaker 1: but like demand, demand is moderating, the economy is moderating.
• 21:19
  Speaker 1: Inflation is real. It's impacting demand, but you know it's
• 21:22
  Speaker 1: not in a way that you know, we're seeing in
• 21:25
  Speaker 1: the shares of fed X because we just think that
• 21:27
  Speaker 1: that is really company specific. And you know, FedEx has
• 21:30
  Speaker 1: had a long line of um of disappointing announcements. To
• 21:34
  Speaker 1: be frank, uh, you know, they really need to focus
• 21:38
  Speaker 1: on their operations. A lot of a lot of analysts
• 21:42
  Speaker 1: kind of question the ground and Express separate models, uh
• 21:46
  Speaker 1: networks being more like a UPS and more integrated provider.
• 21:51
  Speaker 1: You know, the fact is that the Express margins from
• 21:54
  Speaker 1: the release and in in the one the first quarter
• 21:57
  Speaker 1: are about one point seven percent versus five point two
• 22:00
  Speaker 1: percent last year. UM the ground, you know, their goals
• 22:04
  Speaker 1: get double digit margins, it was only eight point five.
• 22:07
  Speaker 1: And what I will say is that they're less than
• 22:09
  Speaker 1: truckload business, which is FedEx fright is on fire. They've
• 22:13
  Speaker 1: had margins of at FedEx right um and in the
• 22:17
  Speaker 1: first quarter, and a lot of that is not because
• 22:19
  Speaker 1: the volumes, because they have great pricing power in that
• 22:21
  Speaker 1: business and and that's a real strong business and some
• 22:24
  Speaker 1: of its competitors or or companies like Old Dominion and XPO.
• 22:27
  Speaker 1: But the issue you're saying, so FedEx is worse off
• 22:30
  Speaker 1: than Deutscha Post and UPS still um, the world as
• 22:36
  Speaker 1: awesome as it is, has seen or at least, let's say,
• 22:39
  Speaker 1: the Port of l A has seen a plunge in shipments,
• 22:42
  Speaker 1: the biggest plunge. Um. The story came out yesterday the
• 22:46
  Speaker 1: l A Port saw the biggest plunge and shipments since
• 22:48
  Speaker 1: um the pandemic early in the pandemic era. So things
• 22:52
  Speaker 1: are slowing down. Yeah, And what I'll also say to that,
• 22:56
  Speaker 1: and I don't mean to always find a silver lining
• 22:58
  Speaker 1: or the or the positive, because at least really not
• 23:01
  Speaker 1: that positive guy. Yeah, I think I might say I
• 23:04
  Speaker 1: like it. I like it, But like on the ports,
• 23:07
  Speaker 1: if you think about it, you know, the peak season
• 23:09
  Speaker 1: is probably going to be relatively muted this year, and
• 23:11
  Speaker 1: a lot of that has to do with the fact
• 23:13
  Speaker 1: that retailers were ordering way aheaded in advance because they
• 23:17
  Speaker 1: were afraid of the delays. I mean, the poort backup
• 23:19
  Speaker 1: used to be I think it was the peak was
• 23:21
  Speaker 1: one of a hundred and nine ships. Now it's like,
• 23:23
  Speaker 1: uh ten or eleven year or eight. Uh So it's
• 23:27
  Speaker 1: it's down significantly, and so a lot of that freight
• 23:30
  Speaker 1: probably came in probably in July for the holiday season.
• 23:36
  Speaker 1: I know that sounds crazy because p's usually starts around September. Uh,
• 23:40
  Speaker 1: and and so we're facing more difficult comparisons from last year. Um,
• 23:44
  Speaker 1: you know, and some of that inventory. I was at
• 23:46
  Speaker 1: a conference earlier in the week and uh someone from
• 23:49
  Speaker 1: the National Retail Federation was speaking, and he pointed out,
• 23:53
  Speaker 1: like a really interesting fact that inventory our levels are
• 23:56
  Speaker 1: high at certain retailers and certain parts of the market,
• 23:59
  Speaker 1: but also inventory levels are low at other parts of
• 24:02
  Speaker 1: the market. I know, Math's gonna like to talk about it.
• 24:04
  Speaker 1: The automotive industry, you know, they have low inventories. So
• 24:07
  Speaker 1: it's it's not there's some definitely weakness in the market,
• 24:10
  Speaker 1: but there's also pockinsive strength that people didn't look towards.
• 24:14
  Speaker 1: Thirty seconds. Where are we in terms of getting through
• 24:16
  Speaker 1: the supply chain problem? Honestly, Um, since the pandemic, it's
• 24:22
  Speaker 1: been one thing after the next. You mentioned the rail strike,
• 24:25
  Speaker 1: you know, the fact that the rails kind of started
• 24:27
  Speaker 1: closing shop ahead of a strike. It's going to take
• 24:30
  Speaker 1: weeks before that even gets back to normal. Before that,
• 24:32
  Speaker 1: the war in Ukraine, it's just it's just one thing
• 24:36
  Speaker 1: to yes that that is a tragedy. Um. Just it's
• 24:42
  Speaker 1: also may just really slow down business in Britain, right,
• 24:46
  Speaker 1: I mean, no one's doing anything there except for queuing
• 24:48
  Speaker 1: out to see your coffin. Yeah, and and and Britain
• 24:51
  Speaker 1: also had a couple of port strikes over the last
• 24:54
  Speaker 1: I think eight weeks, so you know, so they're facing
• 24:57
  Speaker 1: their own internal kind of um stri striking, which is
• 25:01
  Speaker 1: impacting freight flows not only with them, but around the
• 25:04
  Speaker 1: globe because if you know, if one port has a strike,
• 25:07
  Speaker 1: means that's going to impact everybody. People have to reroute freight. Right, Lee,
• 25:11
  Speaker 1: great stuff. We're gonna get you back on with Tony
• 25:13
  Speaker 1: Hatch with a little roundtable here and supply chains Lee
• 25:15
  Speaker 1: Classgo bloomorgan Intelligence. I am very excited and I'm honored
• 25:22
  Speaker 1: even to bring in a legend in the automotive public.
• 25:25
  Speaker 1: We've got a lineup today just by the way, we
• 25:28
  Speaker 1: got a great lineup. But this guy Um is someone
• 25:31
  Speaker 1: I've been kind of looking up to for ten years now,
• 25:34
  Speaker 1: and so is everybody else Um that covers cars. He
• 25:37
  Speaker 1: is the founder, CEO, chairman, and editor in chief of
• 25:41
  Speaker 1: Motor Trend magazine. Ed Low joins us to talk about
• 25:44
  Speaker 1: a new award that they're going to a new awards
• 25:46
  Speaker 1: program that they're going to bring in so and thanks
• 25:48
  Speaker 1: so much for joining us. Really appreciate having you today
• 25:52
  Speaker 1: talk to us about the Software Defined Vehicle Innovators Award,
• 25:57
  Speaker 1: which I hope you have a better name for that
• 26:00
  Speaker 1: that yes, really and I can't believe that the introduction.
• 26:03
  Speaker 1: Thank you so much. I'm probably watching into the opposite
• 26:05
  Speaker 1: different characters, you know, take the channel as here catch up.
• 26:09
  Speaker 1: We are launching at voter trend Um a ton of
• 26:12
  Speaker 1: content around this stage of the software divince view focus
• 26:16
  Speaker 1: is yes, a mouthful, but it's basically about how yourr
• 26:20
  Speaker 1: car is going to become smarter and your the smartest
• 26:24
  Speaker 1: smartphone out there. All of the over ther updates, all
• 26:28
  Speaker 1: of the new features that are coming, you know Tesla
• 26:31
  Speaker 1: to this dancing car mode last Christmas. All of these
• 26:35
  Speaker 1: new features are coming throughout the industry. It's massively disruptive.
• 26:39
  Speaker 1: It's going to fundamentally change the way you know, you know,
• 26:42
  Speaker 1: actiss by drive riding, and they become autonomous, these these
• 26:48
  Speaker 1: new vehicles and you know, some of the future technologies
• 26:51
  Speaker 1: way off. It's autonomous for instances just quite a far
• 26:54
  Speaker 1: ways off. But we thought it's really important to focus
• 26:58
  Speaker 1: on the innovators the pioneer and the leaders and highlight them,
• 27:02
  Speaker 1: just like we've been doing with our like Power List
• 27:05
  Speaker 1: and our Person Year Award. But this is specific to
• 27:08
  Speaker 1: the automotive side. So we just saun this and it's
• 27:12
  Speaker 1: it's We're hopeful it's gonna get construction, all right. I'm
• 27:15
  Speaker 1: very excited about it because I have only recently realized
• 27:18
  Speaker 1: how important and how difficult the software side of this is.
• 27:23
  Speaker 1: I'm gonna ask my producer, Eric Molow, though, to just
• 27:27
  Speaker 1: quickly disconnect and call you right back because the line
• 27:30
  Speaker 1: is bad. Paul. It's it's interesting. Here's my pitch. Yeah,
• 27:33
  Speaker 1: you and I go out to CES this January and
• 27:36
  Speaker 1: we do a couple of days of shows there because
• 27:38
  Speaker 1: the CS show has only gotten bigger and more important
• 27:42
  Speaker 1: in this economy, for example, the auto industry. I mean,
• 27:45
  Speaker 1: if they have four huge auditorium set up for CS,
• 27:49
  Speaker 1: I'm gonna say two are for the auto industry. It's
• 27:52
  Speaker 1: unbel it's an auto show with some computers around it.
• 27:55
  Speaker 1: I'm with you, And they have SEEMA also in Vegas,
• 27:58
  Speaker 1: and look there. You know, from most of my life,
• 28:00
  Speaker 1: the Detroit Auto Show was the pinnacle event of the year.
• 28:04
  Speaker 1: It was what I looked forward to, you know, after
• 28:07
  Speaker 1: I was seven, even more than Christmas. And now, I mean,
• 28:11
  Speaker 1: nobody even knows that the Detroit Auto Show is happening
• 28:14
  Speaker 1: right now. It's just like no one even goes to
• 28:16
  Speaker 1: the Detroit Auto Show. Vegas is where it's at, and
• 28:18
  Speaker 1: really it's all about CS and that's where Motor Trend
• 28:21
  Speaker 1: is gonna hold this new awards program. They're gonna do
• 28:24
  Speaker 1: it at CS in January. So yeah, I'd love to
• 28:26
  Speaker 1: get down there if I can. Out there, if I can,
• 28:31
  Speaker 1: hopefully we have ed back on the line and we
• 28:33
  Speaker 1: can just talk about why this is so difficult. You know,
• 28:35
  Speaker 1: Herbert Deee, retiring from Volkswagen the other day, was saying,
• 28:40
  Speaker 1: the shift to electric is no problem. That's a slam dunk,
• 28:44
  Speaker 1: super easy. I mean, yes, Tesla does it better arguably
• 28:47
  Speaker 1: right now than anyone else. But they'll catch up, UM,
• 28:50
  Speaker 1: and they're gonna make leaps and bounds. The shift to
• 28:52
  Speaker 1: UM new software oriented systems. That's hard. That's where everybody's
• 28:57
  Speaker 1: failing right now. And UM, those who figure out how
• 29:01
  Speaker 1: to do it right are going to be the leaders
• 29:03
  Speaker 1: for sure. And hopefully we have you back on the
• 29:06
  Speaker 1: line here. Who are who is doing the best in
• 29:10
  Speaker 1: terms of the software side right now. You know, the
• 29:14
  Speaker 1: industry leader has always been the actual example of the
• 29:19
  Speaker 1: software to find vehicle would be Tesla. Despite a lot
• 29:22
  Speaker 1: of their you know, there's some quality concerns on the vehicles,
• 29:25
  Speaker 1: but from the start, they actually built the world's first
• 29:28
  Speaker 1: software to find a vehicle. That is the story that's
• 29:31
  Speaker 1: gonna be emerging as you go into automotive history. Everybody
• 29:34
  Speaker 1: thinks that like the big EV producer, but they put software,
• 29:38
  Speaker 1: They put all the micropost decision, the chips all talking
• 29:41
  Speaker 1: to each other into their very first products from the start,
• 29:43
  Speaker 1: and everybody is playing catchup. And if you ask any
• 29:46
  Speaker 1: of the on the ends, they would admit this. And
• 29:48
  Speaker 1: you know, when you talk to card geeks like Matt,
• 29:51
  Speaker 1: like you, you guys talk about aspirated engines and horsepower
• 29:55
  Speaker 1: and on this kind of stuff. I kind of feel
• 29:57
  Speaker 1: like in the next few years you're gonna be talking
• 29:59
  Speaker 1: about electronics as the differentiator between cars. How big is
• 30:04
  Speaker 1: it gonna get? It's a good point. You know, this
• 30:09
  Speaker 1: is a massively Again I hate to use the word
• 30:12
  Speaker 1: it's very overused disruptive time, but I will tell you,
• 30:15
  Speaker 1: as the cars are all coming that the O E
• 30:17
  Speaker 1: M s are clearing the decks of internal combustion, gas power,
• 30:20
  Speaker 1: you know, vates, manual transmissions, all the stuff we know
• 30:23
  Speaker 1: and love is going away. There's a lot of people
• 30:25
  Speaker 1: really not happy about that. So while this future of
• 30:29
  Speaker 1: electrified vehicles, of software to find deals this is coming,
• 30:32
  Speaker 1: there's a narrative taking place a bit like in n RA.
• 30:35
  Speaker 1: You'll know, you'll take take this from my cold dead hands.
• 30:37
  Speaker 1: But the future that's promised, and the efficiencies and all
• 30:41
  Speaker 1: the things you can do with making the cars better
• 30:44
  Speaker 1: through over the air updates, that's the part, along with
• 30:48
  Speaker 1: to reduced part complexity and taking away you know, you've
• 30:50
  Speaker 1: gotta take away vowels and pistons and cans and all
• 30:53
  Speaker 1: these parts. All the stuff goes away when you just
• 30:55
  Speaker 1: need a battery and a motor and single speed transmission.
• 30:59
  Speaker 1: The efficiency, these and the creative opportunities with these new
• 31:03
  Speaker 1: cars are really compelling. And that's what we're going to
• 31:05
  Speaker 1: be talking about. Going to be fast. Yeah, yeah, no, yeah,
• 31:10
  Speaker 1: this is exactly why I think that the that your
• 31:12
  Speaker 1: awards program is so important and so cool. Um, the
• 31:17
  Speaker 1: there's there are gonna be fewer distinctions between electric power trains. Right,
• 31:21
  Speaker 1: everyone's going to have a fast car. They're all gonna be,
• 31:24
  Speaker 1: um pretty much maintenance free. Um. The power train isn't
• 31:28
  Speaker 1: the issue. What's gonna make or break you. Um. The
• 31:31
  Speaker 1: reason that we're going to prefer a car, one car
• 31:34
  Speaker 1: over the other or not is the design obviously, which
• 31:37
  Speaker 1: has always been the case. But the software and the
• 31:39
  Speaker 1: way it works with you on the inside. And that's
• 31:42
  Speaker 1: what I think no one gets. Everybody knows we're going
• 31:45
  Speaker 1: to electric. Nobody understands, or fewer people maybe understand. UM.
• 31:49
  Speaker 1: And now you're highlighting it the importance of UM the
• 31:52
  Speaker 1: code exactly, and I mean you nail that. You should.
• 31:57
  Speaker 1: Can you want to go like the you have absolutely
• 32:00
  Speaker 1: crystallize it, which is everybody knows. Evs are quick, lucid ready,
• 32:05
  Speaker 1: and they've all shown this. Right, we're going to solve
• 32:08
  Speaker 1: for the range issue. And there are cars now we're
• 32:10
  Speaker 1: gonna easily three hundred even five miles of electric trains.
• 32:13
  Speaker 1: We're sovolving for the recharge time. You go to twenty
• 32:16
  Speaker 1: eight percent of some of these batteries in thirty minutes,
• 32:19
  Speaker 1: so evis once all of that. Unfortunately, all that performances,
• 32:23
  Speaker 1: all all of these car brands have to figure out
• 32:27
  Speaker 1: how do I differentiate from the other side, And it's
• 32:30
  Speaker 1: going to be about the experience that's delivered to reap
• 32:33
  Speaker 1: the code, and we are trying to highlight the people
• 32:35
  Speaker 1: that are driving that change and doing the best. All right,
• 32:39
  Speaker 1: And all I want is BMW to bring back my
• 32:42
  Speaker 1: five six speed to my BMW five series, but so
• 32:44
  Speaker 1: far that's not really getting much traction ed Low head
• 32:47
  Speaker 1: of editorial at Motor Trend Magazine, I think we gotta
• 32:51
  Speaker 1: go out to see Yes January, I'm gonna make a
• 32:53
  Speaker 1: phone call. Yeah, I think anybody. I think we definitely
• 32:56
  Speaker 1: want to want to go down there as well. That's
• 32:58
  Speaker 1: gonna be where well, all of the most powerful executives
• 33:01
  Speaker 1: in the industry will be there. In every industry, it
• 33:03
  Speaker 1: seems like tech and media. Thanks for listening to the
• 33:07
  Speaker 1: Bloomberg Markets podcast. You can subscribe and listen to interviews
• 33:11
  Speaker 1: with Apple Podcasts or whatever podcast platform you prefer. I'm
• 33:16
  Speaker 1: Matt Miller. I'm on Twitter at Matt Miller three. On
• 33:20
  Speaker 1: Fall Sweeney, I'm on Twitter at pt Sweeney. Before the podcast,
• 33:23
  Speaker 1: you can always catch us worldwide at Bloomberg Radio