WEBVTT - Debt ETFs Could Grow to $2 Trillion: BlackRock’s Tucker 0:00:05.800 --> 0:00:08.720 Welcome to the Bloomberg p m L Podcast. I'm pim Fox. 0:00:08.760 --> 0:00:11.520 Along with my co host Lisa Abramowitz. Each day we 0:00:11.640 --> 0:00:15.120 bring you the most important, noteworthy, and useful interviews for 0:00:15.200 --> 0:00:17.840 you and your money, whether you're at the grocery store 0:00:17.960 --> 0:00:20.720 or the trading floor. Find the Bloomberg p m L 0:00:20.840 --> 0:00:31.200 Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot Com. I'm 0:00:31.320 --> 0:00:33.800 so pleased to have our next guest, someone who I've 0:00:33.840 --> 0:00:36.720 been speaking with for years, but who now has a beard, 0:00:36.760 --> 0:00:39.440 so it's completely different. Matt Tucker, head of I Shares 0:00:40.040 --> 0:00:43.480 America's fixed income strategy at black Rock, the first portfolio 0:00:43.520 --> 0:00:46.440 manager for a fixed income et F How much the 0:00:46.479 --> 0:00:50.040 world has changed since then? Right? Quite a bit? Good morning, Lisa. Yeah, 0:00:50.080 --> 0:00:51.760 you know. The joke I make is that I was 0:00:51.840 --> 0:00:53.720 the first PM on the first fixed income e t 0:00:53.880 --> 0:00:59.080 f B. At the time, nobody cared. Right now, Well, 0:00:59.280 --> 0:01:01.040 but one day I want to ask you about, especially 0:01:01.160 --> 0:01:04.240 as the total a U m asset center management and 0:01:04.280 --> 0:01:08.200 fixed in comm e TF swells to eight hundred billion dollars, 0:01:08.600 --> 0:01:10.600 where do we go from here? Are we sort of 0:01:10.920 --> 0:01:14.080 past peak growth for this industry given the fact that 0:01:14.160 --> 0:01:16.840 rates are rising, or do you see this a total 0:01:17.000 --> 0:01:19.600 significantly increasing over the next few years, you know. A 0:01:19.680 --> 0:01:21.039 For me, I think the joke is that we're still 0:01:21.080 --> 0:01:22.920 in the early innings. Right. If you look at the 0:01:22.920 --> 0:01:25.120 market so global fixed in com ets, as you said, 0:01:25.120 --> 0:01:27.840 it's over eight hundred billion. The fixed income market is 0:01:27.880 --> 0:01:31.520 over a hundred trillion dollars, So less than one percent 0:01:31.600 --> 0:01:33.600 of all the bonds and kind of bond exposures in 0:01:33.640 --> 0:01:35.560 the world are in ETFs, but so many of them 0:01:35.600 --> 0:01:37.959 aren't even that liquid. So how much is sort of 0:01:38.000 --> 0:01:42.399 ETF a bowl? I think a lot more, um, So 0:01:42.480 --> 0:01:44.840 give us some projections. So I think in the next 0:01:44.880 --> 0:01:46.720 five years you could see this will easily cross a 0:01:46.720 --> 0:01:49.360 trillion and probably approached two trillion globally for fixed in 0:01:49.400 --> 0:01:52.040 com ETFs. And we're still growing at pretty healthy fift 0:01:53.000 --> 0:01:55.400 year growth rates um. Things like So, I think I 0:01:55.400 --> 0:01:56.720 have to look at a couple different trends. So one 0:01:56.760 --> 0:01:58.600 is you're just seeing more adoption of e t f 0:01:58.680 --> 0:02:00.960 s as a way to invest in fixt income markets. Right, 0:02:01.160 --> 0:02:02.400 they do a lot of things that you can do. 0:02:02.400 --> 0:02:03.760 The one you can do the ETF you can't do 0:02:03.800 --> 0:02:05.960 with the mutual fund or a bond, right, But at 0:02:06.000 --> 0:02:07.800 the same time, you do have kind of these shorter 0:02:07.920 --> 0:02:10.160 term periods where you have like rising rates that might 0:02:10.160 --> 0:02:12.880 cause some pullback and fixed income, but that doesn't diminish 0:02:12.880 --> 0:02:15.400 the overall trend, right, I mean, go back to thirteen, 0:02:16.000 --> 0:02:18.200 the fan went, he had the taper tantrum. Rates went up, 0:02:18.360 --> 0:02:21.120 people pulled money out of fixed income ETFs. Money came out, 0:02:21.120 --> 0:02:23.800 but they went back in in fourteen, fifteen, sixteen, seventeen. 0:02:23.840 --> 0:02:26.359 So you're gonna have these short term pullbacks, but long term, 0:02:26.360 --> 0:02:27.960 I mean, the trend is still. I think you're gonna 0:02:28.000 --> 0:02:31.000 still see adoption because there's still so many investors discovering 0:02:31.040 --> 0:02:33.480 bond ETFs. So where's the biggest opportunity, where's the biggest 0:02:33.480 --> 0:02:35.639 growth could come from? So I think the biggest growth 0:02:35.760 --> 0:02:37.840 is this move towards model portfolios that's happening in the 0:02:37.880 --> 0:02:41.440 wealth space, right, so so many wealth managers smart smart data, 0:02:41.680 --> 0:02:44.000 well not even a smart data. So to put that aside, 0:02:44.080 --> 0:02:45.560 I'll I think there is a growth area. But if 0:02:45.560 --> 0:02:47.240 you put that aside and just say kind of bread 0:02:47.280 --> 0:02:50.440 and butter, how investors invest today is changing. So it 0:02:50.520 --> 0:02:52.639 used to be that a portfolio manager, say it a 0:02:52.880 --> 0:02:55.360 say called a financial advisor would go buy a couple 0:02:55.400 --> 0:02:58.200 active funds and say, Okay, that's my bond allocation. Now 0:02:58.200 --> 0:02:59.679 they're saying, you know what, I can use e t 0:02:59.840 --> 0:03:02.720 F to actually build my own exposure at the client level, 0:03:02.760 --> 0:03:06.280 so every individual investor can have a customized fixed income portfolio. 0:03:06.680 --> 0:03:08.640 That trend is still growing. I think it'll be a 0:03:08.639 --> 0:03:12.000 ton more adoption of body tfs around that trend alright, So, 0:03:12.840 --> 0:03:15.880 certainly there has been a lot of growth in government bonds. 0:03:15.880 --> 0:03:19.240 Certainly there's been quite a bit of growth in corporate bonds. 0:03:19.280 --> 0:03:20.919 But when it comes to the risk of your debt 0:03:21.200 --> 0:03:24.280 high your bondy ts, for example, the assets have kind 0:03:24.280 --> 0:03:26.760 of stagnated. It seems like recently there's been sort of 0:03:26.840 --> 0:03:30.280 a leveling off, and even as volumes increase in institutions 0:03:30.360 --> 0:03:32.640 use it more, it kind of has seems to have 0:03:32.680 --> 0:03:34.720 reach a saturation point. Do you think that that's the case. 0:03:34.760 --> 0:03:37.480 Do you think that they're sort of done growing. I'm 0:03:37.520 --> 0:03:39.200 much sure they're done growing forever. I think at this 0:03:39.280 --> 0:03:40.920 part of the cycle. Though, if you kind of look 0:03:40.960 --> 0:03:42.520 at who's using them right now, you have a lot 0:03:42.560 --> 0:03:45.280 of institutions, as you mentioned, using high O dtfs, the 0:03:45.360 --> 0:03:48.320 liquidity is very strong. Um there, there's kind of enough 0:03:48.560 --> 0:03:50.640 float out there to kind of support the liquidity that's 0:03:50.640 --> 0:03:52.640 out there. I think if you had a period where 0:03:52.640 --> 0:03:54.480 investors started to allocate more to HIE out as an 0:03:54.480 --> 0:03:57.120 asset class, you'd see it grow. But honestly, where spreads 0:03:57.120 --> 0:03:58.720 are right now and we are in the cycle, you're 0:03:58.760 --> 0:04:00.280 just not seeing a lot of investor to and an 0:04:00.280 --> 0:04:03.040 appetite for high yield um. Different part of the cycle 0:04:03.080 --> 0:04:04.600 that changes, I think they grow, but I think at 0:04:04.600 --> 0:04:06.800 this point it's hard to imagine it would grow, right 0:04:06.880 --> 0:04:09.040 just like you're not seeing growth in highled mutual funds 0:04:09.080 --> 0:04:11.480 or other HILD vehicles. So, Matt, what do you think 0:04:11.520 --> 0:04:15.760 of bitcoin ETFs? We don't have any yet. I mean 0:04:15.880 --> 0:04:17.320 bitcoin has got a hold of the problem and that 0:04:17.360 --> 0:04:19.280 no one's quite sure if it's a security or not, right, 0:04:19.279 --> 0:04:21.040 and so kind of tell you to fine. If it's 0:04:21.040 --> 0:04:23.039 a security, it's hard to actually put it into something 0:04:23.080 --> 0:04:25.320 else which is a security. So I think the regulators 0:04:25.320 --> 0:04:26.760 have a lot of work to to kind of figure 0:04:26.760 --> 0:04:29.040 that out and figure out how to legally treat bitcoin. 0:04:29.520 --> 0:04:32.440 But once you actually have it established, the rules are established, sure, 0:04:32.480 --> 0:04:33.840 I can see making its way to do an E 0:04:33.880 --> 0:04:35.640 T F as long as it was eligible. Well, just 0:04:35.680 --> 0:04:38.280 talking about that, I'm wondering with some of the derivatives 0:04:38.279 --> 0:04:39.920 that have been used in e t F. Some'm thinking 0:04:39.960 --> 0:04:43.760 of an E t F complex that has credit default 0:04:43.800 --> 0:04:46.600 swaps as the backing. It's just sort of a derivative 0:04:46.640 --> 0:04:48.599 of a derivative. Does that start to get you nervous 0:04:48.720 --> 0:04:51.520 or you know, with the right parameters and the right holdings, 0:04:51.560 --> 0:04:54.160 it's fine. I think as long as you structure and 0:04:54.200 --> 0:04:56.640 manage the risks appropriately, it can be fine. Right, so 0:04:56.680 --> 0:04:58.640 as you can imagine AID and all these things. I 0:04:58.680 --> 0:05:00.839 think there are actually in the market credit fault swap 0:05:00.920 --> 0:05:02.640 you know, back t tps. But as long as those 0:05:02.640 --> 0:05:05.240 are fully collateralized, there's not a lot of leverage, I 0:05:05.240 --> 0:05:06.720 think it can work. I think if you started getting 0:05:06.720 --> 0:05:09.640 into layers of leverage, I think that's the lesson of 0:05:09.960 --> 0:05:12.160 ten years ago, right, that's when you start to create 0:05:12.200 --> 0:05:14.480 these structures that can unwind quickly in a crisis, but 0:05:15.000 --> 0:05:17.680 fully collateralized, fully back whether you hold a bond or 0:05:17.680 --> 0:05:20.200 a derivative, it shouldn't matter much. Actually, are there bad 0:05:20.240 --> 0:05:22.600 actors in the E t F world that are doing 0:05:22.600 --> 0:05:27.080 things that you think are imprudent? That's always a tough question. Um, 0:05:27.200 --> 0:05:29.000 I like to I like to make your life difficult. 0:05:29.400 --> 0:05:31.960 I think there are more and more actors in this space. 0:05:32.040 --> 0:05:33.320 Right so I sit in a seat to your point 0:05:33.320 --> 0:05:35.440 where I've been doing this for more than sixteen years now, 0:05:35.520 --> 0:05:37.839 right so I take kind of a long lens on 0:05:37.880 --> 0:05:39.920 this where I think there are very good providers who 0:05:39.920 --> 0:05:42.120 put out very good products where they understand their risks 0:05:42.120 --> 0:05:45.000 and how to list them, like black Rock for example. 0:05:45.040 --> 0:05:46.520 Not to make this commercial, but yeah, so I feel 0:05:46.560 --> 0:05:48.360 like when we've been doing this so long, we understand 0:05:48.400 --> 0:05:50.080 this and understand how to do it. As you get 0:05:50.120 --> 0:05:52.880 new players market, you can't name names, but but I 0:05:52.920 --> 0:05:55.919 think you could firms that don't really understand the underlying 0:05:55.960 --> 0:05:59.200 don't understand how to create funds. I think there's risks 0:05:59.320 --> 0:06:01.320 like any industry, right you get more players in But 0:06:01.320 --> 0:06:04.120 but what kind of reputational risk is there to you 0:06:04.320 --> 0:06:06.839 and to your firm given the fact that there are 0:06:06.960 --> 0:06:12.560 more players, some with less perhaps prudent standards. Um, I 0:06:12.560 --> 0:06:14.640 am something that we definitely think about and talk about, 0:06:14.760 --> 0:06:17.000 right this This idea that if there was a bad 0:06:17.040 --> 0:06:19.520 actor who made some big mistake, there could be some 0:06:19.600 --> 0:06:21.520 taint the e t F industry. That's kind of a 0:06:21.520 --> 0:06:24.160 tail risk that every industry has, right, But I think 0:06:24.200 --> 0:06:26.960 that the forces pushing the growth of ETFs are strong 0:06:27.040 --> 0:06:29.640 enough that the industry would weather any such event. I'm 0:06:29.680 --> 0:06:31.479 not really concerned about as a long term risk, but 0:06:31.720 --> 0:06:34.040 as a short term pullback or cause for concern, or 0:06:34.040 --> 0:06:36.280 an area where you might have to educate more. Yeah, 0:06:36.320 --> 0:06:37.880 I mean there could be something. If you look at 0:06:37.960 --> 0:06:40.760 leverage inverse funds classic example, right, they've gone through some 0:06:40.760 --> 0:06:42.880 periods that they've had a lot of scrutiny from regulators 0:06:42.880 --> 0:06:45.440 from investors, and when that's happened, we've gone out and 0:06:45.480 --> 0:06:47.520 done a lot of education to help people understand, like, 0:06:47.680 --> 0:06:50.240 these are what these securities are, this is how they operate. 0:06:50.240 --> 0:06:52.240 These are risk you should worry about. And as long 0:06:52.279 --> 0:06:54.000 as we keep doing that in educating the market, I 0:06:54.000 --> 0:06:57.440 think we're fine. Matt Tucker, so good to see you, 0:06:57.640 --> 0:07:00.560 like the beard. Thank you. Matt Tucker is the head 0:07:00.560 --> 0:07:03.640 of I Shares America's for fixed income strategy at black Rock. 0:07:03.960 --> 0:07:07.880 He was the first portfolio manager for a fixed income 0:07:07.920 --> 0:07:10.120 et F. He said people didn't really care back then 0:07:10.560 --> 0:07:13.280 nearly two decades ago, but people certainly care today. When 0:07:13.280 --> 0:07:17.960 there is eight hundred billion dollars in fixed income et fs, 0:07:18.000 --> 0:07:20.480 and definitely this is an increasing area where people are 0:07:20.520 --> 0:07:24.440 seeing both liquidity and an ability to invest in debt 0:07:24.960 --> 0:07:39.200 at relatively low fees. All focused today on marijuana, in 0:07:39.240 --> 0:07:43.440 particular Till Right, the Canadian cannabis company that has searched 0:07:43.520 --> 0:07:47.640 four hundred percent in just months and is now more 0:07:47.720 --> 0:07:53.000 valuable than American Air, Clorox and CBS. So who's hearing coaching? 0:07:53.360 --> 0:07:56.080 Perhaps it's Sam Massuchi. He joins us now. He's founder 0:07:56.080 --> 0:07:58.560 and chief executive officer of e t F Managers Group 0:07:58.600 --> 0:08:01.240 in Summit, New Jersey. Sam, thank you so much for 0:08:01.280 --> 0:08:04.880 being with us. You have an exchange traded fund that 0:08:05.000 --> 0:08:10.040 invests in marijuana companies. How has it benefited from the 0:08:10.160 --> 0:08:14.920 recent popularity of all things marijuana. Well, the fund, which 0:08:14.960 --> 0:08:17.800 was launched by the way at the end of December 0:08:17.880 --> 0:08:21.480 last year with seven million, is now over six million 0:08:21.520 --> 0:08:25.440 in assets. We had a thirty million in UH you 0:08:25.480 --> 0:08:29.840 know since August. UM it's had a record high yesterday 0:08:29.920 --> 0:08:34.040 and we're up mid August. So all of this positive news, 0:08:34.520 --> 0:08:38.840 whether it's related to UH til ray, the recent canopy 0:08:38.920 --> 0:08:45.439 growth transaction, UM, you know, growing global acceptance of marijuana 0:08:45.559 --> 0:08:47.880 is really helping the funds and investors in the funds. 0:08:47.960 --> 0:08:51.640 How concerned are you about deploying that cash because there's 0:08:51.640 --> 0:08:54.360 sort of a limited number of candidates here to receive it, 0:08:54.480 --> 0:08:58.400 certainly in the public market. Yeah, I mean currently the 0:08:58.440 --> 0:09:02.160 fund has thirty four hold things across the globe. UM. 0:09:02.200 --> 0:09:05.600 The number of opportunities and target companies I think will 0:09:05.600 --> 0:09:10.120 continue to grow as again there's more regulatory certainty around 0:09:10.200 --> 0:09:15.040 the space and more companies UH start to enter. So 0:09:15.120 --> 0:09:17.280 I think the universe of stocks is just going to 0:09:17.400 --> 0:09:19.319 keep growing. I mean, how do you define a marijuana 0:09:19.760 --> 0:09:23.559 marijuana stock when a company like Coca Cola is thinking 0:09:23.600 --> 0:09:26.839 about creating a drink that uses one of the ingredients 0:09:26.920 --> 0:09:32.680 in cannabis to provide certain benefits or effects, and when 0:09:32.720 --> 0:09:35.040 the big tobacco companies are behind the scenes trying to 0:09:35.080 --> 0:09:39.400 lobby for legalization and create throw networks. So what we 0:09:39.520 --> 0:09:41.599 do is we UM And by the way, this is 0:09:41.640 --> 0:09:44.920 an index based fund. The index is produced by Prime 0:09:44.960 --> 0:09:47.720 Indexes and we manage the portfolio to mass the index. 0:09:48.240 --> 0:09:52.400 But the index is actually split up between pure marijuana 0:09:52.400 --> 0:09:56.640 plays as well as companies that are becoming very involved. 0:09:56.679 --> 0:09:59.280 But it's not their core business. I think Scott's Miracle 0:09:59.320 --> 0:10:01.280 could grow, which is one of our holdings, is a 0:10:01.280 --> 0:10:04.960 good example of that. Philip Morris is another. So it 0:10:05.160 --> 0:10:07.320 is unique in that it is a pure play. It 0:10:07.400 --> 0:10:11.280 does offer access to companies that are not UM only 0:10:11.360 --> 0:10:13.520 in the cannabis space, as I said, in like a 0:10:13.559 --> 0:10:17.240 Scots or a uh you know, some of these other 0:10:17.240 --> 0:10:20.160 funds Philip Mars. But it does offer this kind of 0:10:20.200 --> 0:10:23.320 access that benefits from the growth in this space, investor 0:10:23.400 --> 0:10:28.120 demand and certainty around regulations. So, Sam, you are the 0:10:28.120 --> 0:10:31.520 first cannabis et F in the US. Are you seeing 0:10:31.600 --> 0:10:34.000 a lot of other E t F providers follow on 0:10:34.160 --> 0:10:38.080 and try to get in the game as well recently? Um, 0:10:38.120 --> 0:10:40.280 I'm not. I mean we're the only pure play in 0:10:40.320 --> 0:10:43.920 the US. UM, there is a pure play in Canada. UM. 0:10:43.960 --> 0:10:47.199 We have the benefit of having first mover advantage as 0:10:48.000 --> 0:10:50.440 of all of our funds, our first mover UM and 0:10:50.559 --> 0:10:55.040 so this is a very first mover driven business E 0:10:55.120 --> 0:10:58.720 t F thematic ets in particular. So it's not to 0:10:58.720 --> 0:11:01.160 say that others might not get in all, but you know, 0:11:01.200 --> 0:11:03.600 we have that space. How concerned aregue that this is 0:11:03.640 --> 0:11:05.720 just a passing fad? That this sort of is a 0:11:05.880 --> 0:11:08.719 rolling ball of money that will roll out of the 0:11:08.800 --> 0:11:11.960 cannabis space as we get more certainty around regulations and 0:11:12.000 --> 0:11:15.280 get a clear sense of the winners and losers here. Um, 0:11:15.400 --> 0:11:17.200 I don't think it is. I think it is an 0:11:17.240 --> 0:11:21.480 industry and really within its infancy and again around the globe, 0:11:21.480 --> 0:11:26.200 people are learning more about the medicinal properties. It's being 0:11:26.280 --> 0:11:29.800 used for things like the treatment of children's epileptic seizures, 0:11:29.880 --> 0:11:33.880 chrone disease, It's weaning people off of opioids. So certainly 0:11:33.920 --> 0:11:36.280 the medicinal side of it will continue to grow as 0:11:36.280 --> 0:11:38.840 we better understand the science and the benefits. One thing 0:11:38.840 --> 0:11:40.839 I don't understand, though, is that's not where the real 0:11:40.840 --> 0:11:43.240 growth opportunity comes from, right, I mean the real growth 0:11:43.240 --> 0:11:46.600 here could be from recreational use, where it puts the 0:11:46.640 --> 0:11:51.120 cannabis industry on par with the alcohol industry or the 0:11:51.160 --> 0:11:54.800 tobacco industry. Correct. Well, well, I I don't know that 0:11:54.840 --> 0:11:56.600 I agree with that. I think there's there There are 0:11:56.640 --> 0:11:59.720 is two pronged growth, which is a benefit to investing 0:11:59.760 --> 0:12:03.120 in this space. Sure, there is a recreational side. There's 0:12:03.200 --> 0:12:06.520 less acceptance of recreational certainly within the US and globally 0:12:06.559 --> 0:12:10.080 than medicinal, but there were very large companies doing some 0:12:10.120 --> 0:12:15.239 tremendous work in the medicinal space, all benefiting from marijuana, 0:12:15.240 --> 0:12:19.280 particularly the CBD components of the cannabis plant. So now 0:12:19.440 --> 0:12:21.199 I think you're gonna see a lot of growth both 0:12:21.280 --> 0:12:25.280 in both sections, which benefits the fund either way. Sam, 0:12:25.400 --> 0:12:27.839 who are the investors that you're seeing put money into 0:12:27.880 --> 0:12:31.680 your fund for the most partment, institutions, individuals, all of 0:12:31.679 --> 0:12:34.720 the above. I mean we literally have hundreds of thousands 0:12:34.760 --> 0:12:37.120 of investors in the fund. The ticker, by the way, 0:12:37.160 --> 0:12:40.240 is m j UM. It's a stock that that you 0:12:40.240 --> 0:12:42.560 know today. It's a you know, it's a forty four 0:12:42.640 --> 0:12:45.920 dollar and thirty cent stock. So I think what it's 0:12:45.960 --> 0:12:48.880 benefiting from is a lot of people wanted to invest 0:12:48.880 --> 0:12:51.040 in this space, but they wanted to get away from 0:12:51.160 --> 0:12:55.920 single stock risk. When you buy a portfolio of thirty 0:12:55.960 --> 0:12:59.760 four thirty six stocks, it's giving you access to the theme, 0:13:00.280 --> 0:13:02.480 but they're not having to do the research to pick 0:13:02.559 --> 0:13:05.360 the right horse. This is a fund that does that 0:13:05.480 --> 0:13:08.200 for you. Thank you so much for joining us. Really 0:13:08.800 --> 0:13:11.360 a good time for for mj for your fund, UH 0:13:11.400 --> 0:13:13.840 in a really compelling time as we watched the shift 0:13:14.040 --> 0:13:18.920 from illegal to select legality and potentially beyond. Sama Succi, 0:13:19.080 --> 0:13:22.040 founder and chief executive officer of et F Managers Group 0:13:22.080 --> 0:13:26.000 in Summit, New Jersey. MJ invests in a range of 0:13:26.240 --> 0:13:30.040 cannabis focused companies, UH, and it's just interesting to see 0:13:30.120 --> 0:13:35.400 just how much these stocks have absolutely skyrocketed this year. 0:13:35.559 --> 0:13:39.199 M J up nearly thirty seven percent year to date. 0:13:39.320 --> 0:13:42.280 Till Ray, of course, is rocketing past some of the 0:13:42.400 --> 0:13:45.360 hundred year old companies that are mainstays in the broader 0:13:45.480 --> 0:14:00.360 US equity in disease. We have the chief ex oecative 0:14:00.400 --> 0:14:04.720 officer of Auto Nation who started as a mechanic at 0:14:04.760 --> 0:14:08.000 a mar Cities Benz dealership and has risen through the 0:14:08.080 --> 0:14:11.560 ranks steadily to become the CEO, and he joins us 0:14:11.559 --> 0:14:13.960 here in our eleven three studios as well, of course 0:14:14.080 --> 0:14:17.720 as Craig Trudel, us Auto's team leader based in New York. 0:14:17.760 --> 0:14:21.000 Here for us at Bloomberg News, Mike, thank you so 0:14:21.080 --> 0:14:24.640 much for being with us. Mike Jackson, UH, executive Chairman 0:14:25.320 --> 0:14:28.640 of Auto Nation. The announcement today that you are going 0:14:28.760 --> 0:14:32.800 to retire as CEO and help find the next leader, 0:14:33.640 --> 0:14:36.720 was this decession hard for you? To do now. I've 0:14:36.720 --> 0:14:41.200 been thinking about it for us some years. Uh. The 0:14:41.280 --> 0:14:44.720 company is in a great position, so there's a good 0:14:44.720 --> 0:14:49.800 window for a transition. And next year I'll be seventy 0:14:49.880 --> 0:14:54.200 years old and we'll have been CEO then for twenty years, 0:14:54.240 --> 0:14:57.480 always sort of like breaking the rule of ninety and 0:14:58.400 --> 0:15:01.320 so I think it's uh uh the right moment to 0:15:01.680 --> 0:15:06.560 uh kick off a transition to an exciting new CEO 0:15:06.920 --> 0:15:12.200 and UM the boards taking responsibility for the recruitment and 0:15:12.280 --> 0:15:16.120 selection of the next CEO. I'm sure it will be 0:15:16.160 --> 0:15:20.920 an outstanding, exciting, vibrant UH leader to join Auto Nation. 0:15:21.440 --> 0:15:27.560 And my contract has been extended uh through as executive chairman. 0:15:27.600 --> 0:15:30.960 So I'm excited myself to start an exciting new chapter 0:15:31.040 --> 0:15:34.200 with the company. So, Mike, before we get into all 0:15:34.240 --> 0:15:37.800 of the succession planning, I'm just wondering going forward, you know, 0:15:38.200 --> 0:15:42.160 is the used car sales business going forward going to 0:15:42.200 --> 0:15:45.480 look very different from the one that you grew up in. Well, 0:15:45.520 --> 0:15:48.600 there's no question that's very different, and we've had a 0:15:48.680 --> 0:15:52.360 part in changing it. We've branded the company Auto Nation 0:15:53.400 --> 0:15:56.520 uh coast to coast, and we moved to one price 0:15:56.560 --> 0:16:00.280 in all our pre owned operations across the comp ay 0:16:00.480 --> 0:16:05.840 and our customers absolutely love it. It's how they want 0:16:05.880 --> 0:16:11.160 to buy cars. It's and and our associates love eliminating 0:16:11.240 --> 0:16:14.160 all the negotiation and haggle and be able to do 0:16:14.200 --> 0:16:16.200 it much quicker. So if I look at our second 0:16:16.280 --> 0:16:19.800 quarter for pre owned, uh, we're in that wonderful quadrant 0:16:19.880 --> 0:16:24.200 where we have higher volumes at higher gross margins. Yeah, Greig, 0:16:24.280 --> 0:16:26.480 come on in here. Yeah. And it's hard to talk 0:16:26.480 --> 0:16:29.240 about all the change on the used car side without 0:16:29.360 --> 0:16:33.080 talking as well about all of the changes on I'm sorry, 0:16:33.080 --> 0:16:36.440 I'm the used car side without changes on the new side. Uh. 0:16:36.480 --> 0:16:39.720 And maybe the biggest story in that respect for some 0:16:39.840 --> 0:16:43.040 years now has been Tesla for a lot of people, 0:16:43.080 --> 0:16:46.920 and this idea that can the the automaker sort of 0:16:47.000 --> 0:16:50.600 circumvent the franchise model that we've come to know in 0:16:50.640 --> 0:16:53.360 the US. How is that going for Tesla at this point? 0:16:53.400 --> 0:16:56.240 In your view? Well, how how's it going for Tesla? Period? 0:16:56.880 --> 0:16:59.000 I mean I have to you have to tip your hat. 0:16:59.640 --> 0:17:05.080 The is is good for a luxury all electric vehicle, 0:17:05.280 --> 0:17:08.280 and they were there first, and they've built a brand 0:17:08.320 --> 0:17:12.760 that almost as a cult following They've never been able 0:17:12.760 --> 0:17:16.919 to make money doing that. And their capital structure is 0:17:17.000 --> 0:17:23.639 absolutely scary. Uh So the sustainability and viability is very 0:17:23.680 --> 0:17:26.639 much open to question. Now. As far as their distribution model, 0:17:27.240 --> 0:17:31.080 it's not what I would have chosen, but this is America. 0:17:31.119 --> 0:17:33.640 I believe in free enterprise. If that's how they want 0:17:33.680 --> 0:17:39.640 to do it, fine, I would observe that the rest 0:17:39.640 --> 0:17:43.440 of us have electric vehicles coming in big numbers over 0:17:43.480 --> 0:17:47.560 the next several years. Um Audi just launched its Etron 0:17:47.640 --> 0:17:52.320 yesterday in San Francisco. It's absolutely sensational. So these are 0:17:52.680 --> 0:17:56.080 very compelling electric vehicles and for the first time, on 0:17:56.160 --> 0:17:59.480 top of everything else, Tesla is going to have real 0:17:59.640 --> 0:18:03.159 company Titian and Elon Musk said that he was in 0:18:03.280 --> 0:18:07.160 production hell last year. He recently said he's in deliveries hell. 0:18:07.680 --> 0:18:09.720 Is that a hell that could have been avoided had 0:18:09.760 --> 0:18:12.480 he not sort of snubbed his nose at the franchise dealer. 0:18:12.760 --> 0:18:15.320 Greg I said this years ago. I said it for 0:18:15.400 --> 0:18:19.000 a boutique model. What he's doing is fine. As soon 0:18:19.040 --> 0:18:21.720 as he wants to do value, it's going to be 0:18:21.800 --> 0:18:25.080 an issue. Well, here we are. We're now at the issue. 0:18:25.200 --> 0:18:29.679 It is hell and um you know, all you have 0:18:29.720 --> 0:18:32.560 to do is see these Model three sitting all over California. 0:18:32.760 --> 0:18:36.560 And yeah, so, Mike, I do want to get your 0:18:36.600 --> 0:18:39.359 your thoughts. The automation shares are down quite a bit 0:18:39.400 --> 0:18:41.439 this year, but down about and there's been a lot 0:18:41.480 --> 0:18:45.159 of concern raised about how we've reached peak autos and 0:18:45.240 --> 0:18:47.680 we've turned to the corner and we're starting to see 0:18:47.960 --> 0:18:50.760 some wobbly sales. What's your view there and do you 0:18:50.800 --> 0:18:52.600 think that it's going to be a rocky road forward 0:18:52.640 --> 0:18:55.720 for the entire auto industry? Well, I was always very 0:18:55.760 --> 0:18:58.800 frank that I think I said it coming out of 0:18:58.800 --> 0:19:05.040 the Auto show in something like that, that uh, auto 0:19:05.200 --> 0:19:07.880 new vehicle sales are not going to climb forever, uh, 0:19:07.920 --> 0:19:09.800 and that they're going to level off somewhere in the 0:19:09.920 --> 0:19:14.840 high sixteen million units. And that's exactly what's happened. There's 0:19:14.880 --> 0:19:19.080 been a very major shift though towards trucks, which I 0:19:19.119 --> 0:19:22.359 think is permanent. In a month of August, the mix 0:19:22.520 --> 0:19:25.600 was as vehicles to find his truck. Do you think 0:19:25.640 --> 0:19:28.280 it's permanent? I think it's permanent, even with the concerns 0:19:28.280 --> 0:19:31.879 about at some point we're gonna talk about gas consumption again, 0:19:32.240 --> 0:19:35.639 now we're not, because alright, then, let me tell you 0:19:35.640 --> 0:19:39.920 why it's permanent. Uh So, First, it's what the consumer wants. 0:19:39.960 --> 0:19:43.680 They love the high seating position, they love the utility, 0:19:43.720 --> 0:19:45.719 and they love the panache that comes with the design. 0:19:45.960 --> 0:19:49.119 Step two, the fuel economy of these vehicles compared to 0:19:49.440 --> 0:19:53.720 ten years ago, has doubled. We have small SUVs that 0:19:53.760 --> 0:19:57.800 are as more fuel efficient than a sitan. It's absolutely amazing. 0:19:57.800 --> 0:20:00.119 We have pickup trucks that get thirty miles to a 0:20:00.160 --> 0:20:04.120 gown on the highway. So, and then you combine the 0:20:04.160 --> 0:20:09.040 fact that gasoline prices are very reasonable of adjusted for inflation, 0:20:09.160 --> 0:20:11.960 just under three dollars a gallon, and America is producing 0:20:12.000 --> 0:20:14.840 its own petroleum. Again, We're up to ten million barrels 0:20:14.840 --> 0:20:19.000 a day with fracking and it's sustainable. So what's going 0:20:19.080 --> 0:20:22.000 to happen to get the American consumer out of this rucket? 0:20:22.000 --> 0:20:25.920 Would take five six seven dollars a gallon gasoline to 0:20:25.920 --> 0:20:28.960 to to push them back into Sedan's. I don't see 0:20:28.960 --> 0:20:35.200 it happening. So that means um overall, Yeah, uh, it's 0:20:35.320 --> 0:20:38.640 leveled off, but at a very nice place. All right, Craig, 0:20:38.800 --> 0:20:40.600 just real quick here, I'd love to get your perspective. 0:20:40.640 --> 0:20:42.360 Do you ever see a world two people you talk 0:20:42.400 --> 0:20:45.200 to see a world in which the ride sharing industry 0:20:45.320 --> 0:20:48.439 overtakes the car ownership industry. Is that going to upset 0:20:48.440 --> 0:20:50.720 the model here? I think it's really hard to see 0:20:50.720 --> 0:20:53.520 that in most of America. And I think one of 0:20:53.560 --> 0:20:56.520 the things that Mike I've heard Mike talk about is 0:20:56.520 --> 0:20:59.600 is that being really a model that is applicable and 0:21:00.040 --> 0:21:03.240 useful in the cities, but so much of America, so 0:21:03.359 --> 0:21:05.720 much so much of the American car buyers are the 0:21:05.720 --> 0:21:09.320 folks in rural areas where Lift and Uber and the 0:21:09.359 --> 0:21:11.399 like just have not scaled and are going to have 0:21:11.440 --> 0:21:14.960 some real trouble, uh, scaling in any meaningful way. And 0:21:15.000 --> 0:21:17.200 we've seen these companies make a lot of noise and 0:21:17.280 --> 0:21:19.399 cities and and maybe pick off some buyers on the 0:21:19.440 --> 0:21:23.000 margin here and there. But uh, you know, we're quite 0:21:23.040 --> 0:21:25.840