WEBVTT - What's Happening to the Retail Industry? 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 --> 0:00:32.199 Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. Well, 0:00:32.280 --> 0:00:34.000 let's turn our attention out to an area of the 0:00:34.040 --> 0:00:38.239 economy which has not necessarily, let's say, been illuminated by 0:00:38.479 --> 0:00:41.839 Donald Trump's presidency, and that is the retail sector. And 0:00:41.920 --> 0:00:43.560 here to tell us more as Chris Fulkei is the 0:00:43.600 --> 0:00:47.680 chief executive Store Capital Chris, thanks very much for being here. 0:00:47.720 --> 0:00:50.280 Now I just want to read you one note. This 0:00:50.360 --> 0:00:54.120 comes actually from a Credit Suite report, and this has 0:00:54.200 --> 0:00:58.240 to do with the deterioration in real estate investment trust 0:00:58.280 --> 0:01:02.400 but specifically in the mall A segment. It says this 0:01:02.480 --> 0:01:04.920 has to do with the associated mortgage backed securities and 0:01:05.040 --> 0:01:10.560 CDs right swaps. Barely a quarter into seventeen, year to 0:01:10.640 --> 0:01:15.479 day retail store closings have already surpassed those of two 0:01:15.560 --> 0:01:20.759 thousand and eight. Is that scary? It is scary? There 0:01:20.800 --> 0:01:23.800 are probably close to nine thousand stores slated to be 0:01:23.959 --> 0:01:27.000 closed potentially this year. UM. Now, the good news for 0:01:27.120 --> 0:01:31.039 us is that we're into service space and manufacturing, so 0:01:31.080 --> 0:01:35.720 we have give or take exposure to retail, and of that, 0:01:36.000 --> 0:01:39.040 very few of our locations are anywhere close to any 0:01:39.040 --> 0:01:42.039 of the chains that are suffering the big closures. Well, 0:01:42.560 --> 0:01:45.840 so let's talk about your firm, your chief executive officers 0:01:45.840 --> 0:01:49.480 officer of store Capital, which is a middle market real 0:01:49.600 --> 0:01:54.080 estate capital solutions firm. Are you going into some of 0:01:54.120 --> 0:01:57.920 these mid tier retailers and these mid tier malls and 0:01:58.000 --> 0:02:01.880 trying to help them structure their debts and their businesses 0:02:02.040 --> 0:02:06.240 that they can emerge from this uh, this deterioration and 0:02:06.240 --> 0:02:10.000 credit worthiness that we've seen on a broad based level 0:02:10.040 --> 0:02:14.760 and retail. Uh No. So, so store is stands for 0:02:14.840 --> 0:02:17.480 single tenant operational real estate. So we focus on profit 0:02:17.520 --> 0:02:21.040 center properties. So we do business mostly in the service space. 0:02:21.040 --> 0:02:24.160 So think about health clubs and fitness or early childhood education, 0:02:24.720 --> 0:02:29.320 movie theaters, uh, you know, veterinary clinics, that kind of thing. 0:02:29.400 --> 0:02:31.360 So we do lots of lots of things in the 0:02:31.360 --> 0:02:34.880 service space. We do about in the retail space. And 0:02:35.240 --> 0:02:37.399 we started the company in two thousand and eleven, which 0:02:37.400 --> 0:02:40.040 meant we had a little bit of foresight to know that, hey, 0:02:40.200 --> 0:02:42.440 the Internet is here. We know that you have to 0:02:42.480 --> 0:02:46.040 be an experiential retailer. And clearly there are retailers that 0:02:46.080 --> 0:02:49.280 are expanding in today's economy. But uh, the the assets 0:02:49.320 --> 0:02:52.800 that we're owning would be let's say, in the furniture space, hunting, fishing, 0:02:53.040 --> 0:02:57.480 um uh, you know, home improvement, things like that hobby 0:02:57.760 --> 0:03:01.120 space uh and which is just a different kind of space, 0:03:01.160 --> 0:03:03.359 and and things that you would not typically buy over 0:03:03.400 --> 0:03:05.320 the internet, things you'd like to try out. Can you 0:03:05.360 --> 0:03:08.639 put numbers to just how different the fates of these 0:03:08.680 --> 0:03:17.640 experiential stores are to their retail they're like physical retail brethren. Well, 0:03:17.880 --> 0:03:20.880 I would say that our average retailer is probably growing 0:03:21.000 --> 0:03:23.840 year to year about eight percent top line in sales, 0:03:24.000 --> 0:03:26.400 so uh, and some of that same store sales growth, 0:03:26.400 --> 0:03:30.119 and some of that's adding new locations. Um So, these 0:03:30.120 --> 0:03:34.280 are vibrant retail companies. And again it's only about fift 0:03:34.680 --> 0:03:38.040 of what we do, but it's um uh. Typically people 0:03:38.120 --> 0:03:40.560 for example, want to try an mattress or they want 0:03:40.600 --> 0:03:42.960 to try a sofa there, and they have a hard 0:03:42.960 --> 0:03:45.800 time returning things if they're if they're delivered to them, 0:03:45.840 --> 0:03:48.280 and so on. So uh so these are the types 0:03:48.320 --> 0:03:51.960 of things that we think long term, uh will do well. 0:03:52.040 --> 0:03:53.760 We don't think that people will just stay in there 0:03:53.800 --> 0:03:56.040 on their sofa and order everything that they can. So 0:03:56.880 --> 0:03:59.000 would it be okay to classify you as an expert 0:03:59.000 --> 0:04:02.640 in credit? Uh? You know a little bit about it 0:04:02.840 --> 0:04:04.880 right well? And the reason because I'm wondering if you 0:04:04.880 --> 0:04:07.480 could just walk us through the credit landscape right now 0:04:07.800 --> 0:04:10.480 and give us your thoughts not just as a as 0:04:10.520 --> 0:04:14.280 an investor, but as someone that is a practitioner about 0:04:14.320 --> 0:04:16.920 the consent deals you're seeing and the kinds of investors 0:04:16.920 --> 0:04:22.760 that are being courted because yields are as still historically low. Well, 0:04:22.880 --> 0:04:24.760 I mean, I've I've always thought in our space the 0:04:24.760 --> 0:04:27.919 credits miss priced. People have a tendency to think that 0:04:28.120 --> 0:04:31.520 a strong credit equates to an investment grade contracts. So 0:04:31.600 --> 0:04:34.000 otherwise I have an investment grade tenant, I must have 0:04:34.040 --> 0:04:36.880 an investment grade contract. Um Uh. If I have a 0:04:36.880 --> 0:04:39.040 pretty piece of real estate, it must be a good investment. 0:04:39.040 --> 0:04:41.000 I mean, these are things that are not necessarily true. 0:04:41.440 --> 0:04:43.520 Good credit does not equate to a good contract. A 0:04:43.520 --> 0:04:45.080 pretty piece of real estate does not equate to a 0:04:45.120 --> 0:04:47.640 good investment. Just to give maybe given example so people 0:04:47.760 --> 0:04:51.480 understand how that works. Well, Uh, you could have a 0:04:51.480 --> 0:04:53.680 company that's an investment grade credit, but you could pay 0:04:53.720 --> 0:04:55.679 twice what the real estate would cost to build for 0:04:55.680 --> 0:04:59.600 for for example, you may not have proper allianments of interest, 0:04:59.640 --> 0:05:02.320 so leases allow the tenant to go dark. Anytime. You 0:05:02.320 --> 0:05:04.640 don't have master leases, you have no financial reporting. If 0:05:04.640 --> 0:05:08.360 you look at our company today, we get financial reporting 0:05:08.400 --> 0:05:10.960 from about nine percent of our talents, which is just 0:05:11.360 --> 0:05:13.520 staggering at the store level, not just the corporate level, 0:05:14.080 --> 0:05:18.240 the corporate level, but the store level. So that's just unbelievable. 0:05:18.920 --> 0:05:23.200 Where are the companies that you invest in the stores? 0:05:23.480 --> 0:05:27.360 Are they in a level malls sea level malls? Are 0:05:27.360 --> 0:05:30.200 they not in malls? I would say most of them 0:05:30.240 --> 0:05:33.120 are not in malls. Um, So let's if I if 0:05:33.160 --> 0:05:35.919 I have three of our properties that are within a 0:05:35.960 --> 0:05:39.560 quarter of a mile roughly of Macy's, a Kmart, a Pennies, 0:05:39.640 --> 0:05:43.120 a Sears. That tells you that we're not really in malls. 0:05:42.600 --> 0:05:45.160 Where in strip center is more or less in front 0:05:45.160 --> 0:05:48.320 of Walmart's, in front of targets. Uh. Sometimes if it's 0:05:48.320 --> 0:05:51.400 a if it's a restaurant, or if it's another retail store, 0:05:51.400 --> 0:05:53.880 we might be adjacent to one of those kinds of properties. Well, 0:05:54.040 --> 0:05:55.760 I guess I I What I'm trying to get at 0:05:55.839 --> 0:05:57.680 is we've heard a lot of hedge fund managers say 0:05:57.760 --> 0:06:03.080 that shorting mall related debt is the next big short, 0:06:03.160 --> 0:06:05.400 and we've seen a lot of big investors who are 0:06:05.480 --> 0:06:08.760 very respected go in and try to do this via 0:06:08.960 --> 0:06:12.480 derivative wagers, among others. Do you think that they're onto 0:06:12.520 --> 0:06:15.000 something based on what you have seen in your personal 0:06:15.040 --> 0:06:18.880 investing experience. I think if you could find a pure 0:06:18.920 --> 0:06:21.960 way to short more related debt, it might be an 0:06:22.000 --> 0:06:24.760 interesting investment. Uh, it's it's far moved from what I 0:06:24.800 --> 0:06:26.799 do for a living, but it might be interesting investment. 0:06:26.839 --> 0:06:29.080 But what I've seen is that things that people are 0:06:29.080 --> 0:06:31.480 shorting tend to be somewhat blunt instruments, so they're not 0:06:31.560 --> 0:06:34.480 exactly pure more related debt. There is no pure thing 0:06:34.520 --> 0:06:37.320 to short in CDs as there was in residential real 0:06:37.440 --> 0:06:40.680 estate prior to the Great Recession. Some of your customers 0:06:40.760 --> 0:06:44.440 might be restaurants, for example, right, like for Burger King Right. 0:06:44.480 --> 0:06:47.480 If you need some financing or some help with the franchise, 0:06:47.600 --> 0:06:50.160 then you're going to lend your expertise to that. You're 0:06:50.200 --> 0:06:53.480 in Scottsdale, Arizona. When I thought when I saw that, 0:06:53.560 --> 0:06:55.719 and I remembered, of course, what you have to live 0:06:55.760 --> 0:06:58.320 through it to be in Scottsdale, Arizona. Let's say, back 0:06:58.320 --> 0:07:00.800 in two thousand and eight, if you can give us 0:07:00.839 --> 0:07:05.800 a little perspective as to why this cycle appears the 0:07:05.800 --> 0:07:07.760 way it does, and not to confuse it with what 0:07:07.839 --> 0:07:09.640 happened in two thousand and eight, right, well, to put 0:07:09.680 --> 0:07:12.000 it in perspective. We've been in this business for about 0:07:12.040 --> 0:07:15.400 thirty five years UM, and this is our third public company, 0:07:15.480 --> 0:07:19.000 so this is not my first rodeo. And every company 0:07:19.000 --> 0:07:21.200 we've run is outperformed the benchmark. So it didn't matter 0:07:21.240 --> 0:07:23.720 whether a ten year treasury with six fifty four fifty. 0:07:23.800 --> 0:07:26.440 Today we're a two thirty, So we've always out performed 0:07:26.480 --> 0:07:30.400 the benchmarks. Um Our Stores, the assets that we own 0:07:30.760 --> 0:07:33.920 are today in forty eight states, UH, the biggest state 0:07:33.960 --> 0:07:37.360 being Texas, at no other states north of ten UM, 0:07:37.520 --> 0:07:41.000 so we're all over the country and we're providing UH 0:07:41.080 --> 0:07:44.120 financial real estate net least solutions to middle market and 0:07:44.200 --> 0:07:47.400 larger companies and for them we're providing a financial solution 0:07:47.440 --> 0:07:49.760 for our investors, were providing them with the opportunity to 0:07:49.800 --> 0:07:52.480 own some really good quality real estate investments. How many 0:07:52.480 --> 0:07:54.360 competitors do you have if you noticed that the field 0:07:54.360 --> 0:07:56.880 has gotten more crowded as an investment firms to look 0:07:56.880 --> 0:08:00.320 for new opportunities so far, I would say no, um 0:08:00.560 --> 0:08:03.440 uh and and I we sold our first public company 0:08:03.480 --> 0:08:06.680 in two thousand one to GE Capital. Uh. Today my 0:08:06.760 --> 0:08:09.400 office is actually in UH space that used to be 0:08:09.440 --> 0:08:12.320 occupied by the successor company to the first company were created. 0:08:12.640 --> 0:08:15.480 G must have bought ten people in our space, so 0:08:15.560 --> 0:08:18.040 they almost like the oxygen out of the room, buying 0:08:18.160 --> 0:08:21.200 people and growing it in. Today G Capital has has 0:08:21.200 --> 0:08:24.040 ceased to exist, So I would say that there it's 0:08:24.320 --> 0:08:27.280 very very hard to create an institutional player in the space. 0:08:27.720 --> 0:08:30.400 Most of the people that are competitors of ours are 0:08:30.680 --> 0:08:34.640 small to medium sized landlords. They're privately held. They're very 0:08:34.720 --> 0:08:38.559 few of you know, good quality public you know landlords. 0:08:38.760 --> 0:08:40.880 And in the marketplace. By the way, that our our 0:08:40.920 --> 0:08:42.559 market alone is about two and a half treeion dollars 0:08:42.600 --> 0:08:44.760 in size, so uh and and here we are with 0:08:45.000 --> 0:08:49.319 an equity capitalization that's just north of four bayon acquisitions, 0:08:49.400 --> 0:08:52.040 what are you looking for? Well, our guidance this year 0:08:52.120 --> 0:08:55.080 so far is to do nine million dollars net of sales, 0:08:55.120 --> 0:08:57.360 so we'll sell properties from time to time. Last year 0:08:57.440 --> 0:08:59.839 we did about a b in one fifty uh so 0:09:00.320 --> 0:09:03.000 the year before that we did about the same. We've 0:09:03.000 --> 0:09:05.719 been in general doing somewhere around a hunter million hours 0:09:05.760 --> 0:09:08.559 a month worth of business. We've been doing thirty to 0:09:08.640 --> 0:09:11.800 forty transactions every quarter. We've been adding to our customer base, 0:09:12.200 --> 0:09:13.600 and about a third of the business we do is 0:09:13.640 --> 0:09:17.520 repeat business with existing tenants. What do you think will 0:09:17.559 --> 0:09:22.320 be the hallmark to look for to indicate that the 0:09:22.360 --> 0:09:25.200 retail armageddon iss some people have been calling it with 0:09:25.240 --> 0:09:27.760 the incredible rush of stores that have been closed, that 0:09:27.800 --> 0:09:31.680 this that this retail blood bath is reaching a crescendo. 0:09:34.280 --> 0:09:36.960 You know, I think that the retail blood bath that 0:09:37.000 --> 0:09:40.040 you're talking about is mostly going to affect malls where 0:09:40.040 --> 0:09:43.800 you're dealing with large anchors that are having issues, which 0:09:44.120 --> 0:09:46.680 can cause a lot of smaller retailers to also close 0:09:46.760 --> 0:09:49.000 down their shops. And some of those smaller retailers are 0:09:49.040 --> 0:09:51.719 also closing down their shops on their own. Um, if 0:09:51.720 --> 0:09:54.560 you look at strip malls, for example, most of those 0:09:54.559 --> 0:09:57.840 malls are filled with you know, a Walmart, and then 0:09:57.880 --> 0:10:00.640 lots of service providers could be taxed for fighters, could 0:10:00.640 --> 0:10:03.800 be yoga studios, um. And I think that a lot 0:10:03.840 --> 0:10:06.680 of those malls are doing great. So but a lot 0:10:06.720 --> 0:10:08.520 of people say that we're not in the ninth inning, 0:10:08.520 --> 0:10:10.960 if you're going to use a baseball analogy, We're not 0:10:11.000 --> 0:10:14.600 necessarily nearing the end of the pain that we've seen 0:10:14.600 --> 0:10:17.440 in the retail industry. I mean, would you agree, I 0:10:17.480 --> 0:10:20.920 do agree. I think that you know, we're going to 0:10:20.960 --> 0:10:25.280 see the demise of some very old and um storied 0:10:25.360 --> 0:10:30.040 names and retail over time. Thank you so much, truly 0:10:30.080 --> 0:10:32.640 fascinating to speak with you, and thank you so much 0:10:32.679 --> 0:10:35.480 for coming to the studios. Chris Volki is chief executive 0:10:35.520 --> 0:10:40.040 officer of Store Capital, talking about middle market investing in 0:10:40.840 --> 0:10:58.679 retail spaces but really focusing on experiences, not just selling stuff. Well, yesterday, 0:10:58.880 --> 0:11:03.600 Home Capital Group, which is Canada's biggest alternative mortgage lender, 0:11:04.040 --> 0:11:07.960 plunged more than sixty percent after disclosing that it needed 0:11:07.960 --> 0:11:11.880 emergency financing that was done and secured at very un 0:11:12.520 --> 0:11:16.959 uh financially unpleasant terms. Let's just say now the stock 0:11:17.040 --> 0:11:19.320 is rebounding rebounding a bit, but I really want to 0:11:19.320 --> 0:11:22.160 get a sense of how much this company serves as 0:11:22.160 --> 0:11:25.440 a harbinger for the broader Canadian mortgage market which has 0:11:25.480 --> 0:11:29.240 been on fire. Doug Alexander, please join us and make 0:11:29.320 --> 0:11:31.880 sense of this. Doug Alexander is a Canadian financial service 0:11:32.320 --> 0:11:36.480 services reporter with Bloomberg and he comes to us from Toronto. Doug, 0:11:37.040 --> 0:11:39.520 can you just put this into broader context? I mean, 0:11:39.840 --> 0:11:44.680 is Home Capital Group considered UH sort of a red 0:11:44.720 --> 0:11:48.280 flag a Canary uh that sort of signifies some deeper, 0:11:48.320 --> 0:11:52.240 broader pain in the mortgage market in Canada. Yes, good morning, UM, 0:11:52.559 --> 0:11:57.280 Home Capital H. A short answer would be uh no, Um. 0:11:57.679 --> 0:12:01.920 They are actually, UH, as you point out, the largest 0:12:02.000 --> 0:12:06.079 alternative lender UH in Canada. They do. They've been around 0:12:06.080 --> 0:12:08.280 for like thirty one years, um. And what they really 0:12:08.320 --> 0:12:11.120 do is they do specialize in a certain kind of mortgage. 0:12:11.440 --> 0:12:13.839 It's not necessarily like the subprime that you'd see in 0:12:13.880 --> 0:12:16.360 the US that has what caused so many problems during 0:12:16.400 --> 0:12:20.880 the financial crisis, but they do provide loans to people 0:12:20.880 --> 0:12:25.520 that may have a bit more difficulty UH getting qualifications 0:12:25.559 --> 0:12:29.280 through the major Canadian banks, whether it be because they 0:12:29.320 --> 0:12:33.120 have more complicated UM income streams, or they could be 0:12:33.160 --> 0:12:35.680 foreigners that have just moved into the country. But the 0:12:35.720 --> 0:12:39.599 bottom line, home capital has about twenty billion dollars or 0:12:39.679 --> 0:12:43.840 less than twenty billion dollars of loans UM mortgage loans, 0:12:44.000 --> 0:12:48.320 and the Canadian UH mortgage market essentially is about one 0:12:48.320 --> 0:12:51.200 point one trillion in Canadian Hey, hey, Doug, you know, 0:12:51.280 --> 0:12:52.840 I wonder if you could just step back into and 0:12:52.880 --> 0:12:55.920 explain a little bit about the real estate market, the 0:12:55.920 --> 0:13:00.600 residential real estate market in Canada, because, uh, the government 0:13:00.640 --> 0:13:07.040 has I believed already proposed a tax on foreign purchases. Also, 0:13:07.559 --> 0:13:12.360 you've seen explosive increases in real estate values in cities 0:13:12.400 --> 0:13:14.800 like Vancouver and also in Toronto. You got a lot 0:13:14.840 --> 0:13:16.760 of speculators. What if you could just kind of pull 0:13:16.800 --> 0:13:19.680 it all together for Yeah, it's a very interesting market. 0:13:19.720 --> 0:13:21.480 So when it comes to real estate in Canada, UM 0:13:21.520 --> 0:13:23.920 and really, as you point out, there has been a 0:13:24.000 --> 0:13:29.520 huge price appreciation as of late. It's really am It's 0:13:29.559 --> 0:13:32.280 really a market that is very, very lumpy. There are 0:13:32.320 --> 0:13:35.280 two areas in the country where you could argue that 0:13:35.280 --> 0:13:39.360 there's an overheated housing market, which is UH Toronto currently 0:13:39.920 --> 0:13:43.000 UM and Vancouver Vancouver is UM kind of eased off 0:13:43.000 --> 0:13:46.040 a little bit, but as you point out, in UM 0:13:46.559 --> 0:13:52.320 Vancouver last year, there were UH measures taken to curb 0:13:53.040 --> 0:13:56.240 UH some of that demand UM by targeting UH foreign 0:13:56.240 --> 0:13:59.680 investors with a with a tax UM that's been in 0:13:59.760 --> 0:14:03.400 pos is now in to cover the Toronto market as well. 0:14:03.600 --> 0:14:06.559 But either very two very specific markets in the country. 0:14:06.679 --> 0:14:09.360 If you look across the country and that there are 0:14:09.360 --> 0:14:13.640 other markets that are are UH seeing a slowdown UM 0:14:13.720 --> 0:14:17.880 for whatever UM economic reasons, Calary being one of them. 0:14:18.000 --> 0:14:20.400 UM and other major cities like Much we all that 0:14:20.440 --> 0:14:24.160 really just haven't seen that UM that that same level 0:14:24.160 --> 0:14:28.320 of appreciation. So it's really a a country that has 0:14:28.400 --> 0:14:32.800 two overheated housing markets. And let's be clear that's actually 0:14:32.880 --> 0:14:37.400 concerned policymakers UM and you know those in the financial 0:14:37.440 --> 0:14:41.280 services industry and UH and UH you know politicians at 0:14:41.320 --> 0:14:43.600 the local level as well well. I just want to 0:14:43.600 --> 0:14:46.840 bring this back to Home Capital Group because this UH 0:14:47.120 --> 0:14:49.520 is this company is based in Toronto, which is one 0:14:49.520 --> 0:14:52.240 of the overheated markets that you point to, and they 0:14:52.240 --> 0:14:56.120 have been the subject of a regulatory probe basically looking 0:14:56.160 --> 0:15:00.320 into whether their lending standards were overly lax. Another words, 0:15:00.400 --> 0:15:02.760 they were letting me perhaps money to people who couldn't 0:15:02.760 --> 0:15:04.720 afford to pay it back. I mean, I guess that 0:15:04.840 --> 0:15:09.000 from that perspective, you have to wonder, is this a problem. 0:15:09.040 --> 0:15:11.960 Are we seeing a repeat, perhaps on a smaller scale, 0:15:11.960 --> 0:15:13.680 of what we saw leading up to two thousand and 0:15:13.760 --> 0:15:16.400 eight in the US? Yeah, I don't think that's what's 0:15:16.680 --> 0:15:19.400 what the you know, the analysts and UH and other 0:15:19.520 --> 0:15:22.400 observers in the industry industry are looking at. They're looking at. 0:15:22.440 --> 0:15:25.600 Home Capital is really a very company specific issue, and 0:15:25.640 --> 0:15:27.920 I think to understand the current context that we're in 0:15:28.640 --> 0:15:30.480 with home Capital, we have to kind of go back 0:15:30.520 --> 0:15:34.000 a couple of years and really what their problem is 0:15:34.160 --> 0:15:38.640 is a problem of disclosure. UM. A couple of years ago, UH, 0:15:38.800 --> 0:15:45.479 they they had issues with some mortgages from outside brokers 0:15:45.760 --> 0:15:51.080 UH that UH that turned out to be approved by 0:15:51.480 --> 0:15:55.280 because some of the information on their income was falsified. Now, 0:15:55.320 --> 0:15:57.800 as far as we've been told since, there's been really 0:15:57.800 --> 0:16:00.640 no problems with those mortgages. But a time in two 0:16:00.640 --> 0:16:06.360 thousand and fifteen, UH, the company cuts hies with about 0:16:06.440 --> 0:16:10.360 forty brokers. The problem is that initially they kind of 0:16:10.400 --> 0:16:13.480 downplayed that, they kind of hid that information UH in 0:16:13.600 --> 0:16:16.560 their UM quarterly results and when they were asked about 0:16:16.560 --> 0:16:19.560 it during the conference calls with the Analyston investor community, 0:16:19.920 --> 0:16:24.440 they really kind of um sidestepped it. That brought concerns 0:16:24.560 --> 0:16:29.480 with the Canadian regulator, Ontario's regulator, and that's where their 0:16:29.520 --> 0:16:33.120 problems have surfaced as of late. Um Doug Alexander, I 0:16:33.120 --> 0:16:35.120 wish we could continue because it's a fascinating story. We're 0:16:35.160 --> 0:16:37.280 gonna have to leave it there. Doug Alexander is Canada's 0:16:37.440 --> 0:16:40.920 financial services reporter for Bloomberg. Coming to us from Toronto. 0:16:50.200 --> 0:16:51.680 We want to take a moment to let you know 0:16:51.760 --> 0:16:55.160 about something new from Bloomberg. Starting right now, you can 0:16:55.280 --> 0:16:59.000 use our iOS app or our new Google Chrome extension 0:16:59.360 --> 0:17:03.320 to scan any news story on any website, instantly revealing 0:17:03.400 --> 0:17:06.879 relevant news and market data from Bloomberg and other sources 0:17:06.920 --> 0:17:10.440 related to companies and people you're reading about. So no 0:17:10.480 --> 0:17:12.560 matter where you're reading the news, you can bring the 0:17:12.600 --> 0:17:16.000 power of Bloomberg's news and data with you. It's pretty amazing. 0:17:16.119 --> 0:17:19.160 Download our io s app or search for the Bloomberg 0:17:19.200 --> 0:17:21.760 extension on the Chrome Store to try it out. Learn 0:17:21.840 --> 0:17:32.159 more at Bloomberg dot com. Slash lens Board is quote, 0:17:32.200 --> 0:17:35.520 having one foot in today and one foot in tomorrow. 0:17:35.520 --> 0:17:39.359 That's according to Chief executive officer Mark Fields. Today after 0:17:39.640 --> 0:17:44.720 Ford Motor Company reported earnings that underwhelmed UH certainly traders, 0:17:44.720 --> 0:17:48.080 the shares are down more than a percentage point based 0:17:48.160 --> 0:17:50.919 on the idea that the company is spending more on 0:17:51.280 --> 0:17:55.280 driver list technology now uh cost cutting more costs, and 0:17:55.320 --> 0:17:57.879 trying to prepare for the future. To sort of explain 0:17:57.960 --> 0:18:01.080 the road ahead, I am very pleased bringing Bob Shanks, 0:18:01.080 --> 0:18:05.000 executive vice president and chief financial officer of Ford Motor Company, 0:18:05.000 --> 0:18:08.320 coming to us from Dearborn, Michigan. Bob, thank you so 0:18:08.400 --> 0:18:11.040 much for joining us. First, I just wanted to gauge 0:18:11.040 --> 0:18:14.200 the mood inside Ford headquarters. I mean, do people feel 0:18:14.200 --> 0:18:16.040 like it's kind of not fair that Ford is now 0:18:16.320 --> 0:18:20.720 pouring money into too uh driver list technology and uh 0:18:20.960 --> 0:18:25.120 more electric cars and investors are not impressed. Whereas Tesla, 0:18:25.440 --> 0:18:28.280 all they have to do is say, you know, energy 0:18:28.320 --> 0:18:32.520 and everybody cheers. Well, I can tell you you know 0:18:32.520 --> 0:18:37.640 how I feel untrustrated frankly, because um, while we're creating 0:18:37.760 --> 0:18:40.919 value in terms of the core business today, uh and 0:18:40.920 --> 0:18:44.280 certainly our dividend is strong and it's sustainable even through 0:18:44.280 --> 0:18:47.720 a downturn. UM. We we have laid out a plan 0:18:47.840 --> 0:18:50.000 to participate in what's what's going to be a transformation 0:18:50.000 --> 0:18:52.880 of the industry that will pay off as it will 0:18:52.960 --> 0:18:57.159 for others that are working on similar technologies UM in 0:18:57.240 --> 0:19:00.080 the future. There doesn't seem to be a much of 0:19:00.080 --> 0:19:02.479 our recognition of that because I think deeper focused more 0:19:02.480 --> 0:19:05.439 on the nearer term. I would just say, we're not pouring, uh, 0:19:05.600 --> 0:19:07.800 you know, resources into that. The vast majority of the 0:19:07.840 --> 0:19:10.920 investments we're making are in the core business. But we 0:19:10.920 --> 0:19:15.760 we are investing appropriately imprudently in autonomy, electrification, mobility and 0:19:15.760 --> 0:19:18.159 so forth. That's that's true. But you know, we're going 0:19:18.200 --> 0:19:20.119 to continue to do what we're doing because we know 0:19:20.200 --> 0:19:22.000 it's right, and we know where the industry is heading 0:19:22.000 --> 0:19:23.800 and we have to be prepared for that, and we 0:19:23.800 --> 0:19:26.800 we plan to participate that and to create value by 0:19:26.840 --> 0:19:29.000 doing so. Bob, I want to talk a little bit 0:19:29.040 --> 0:19:30.800 about the here and now with you and just get 0:19:30.840 --> 0:19:34.320 your thoughts on Lincoln and the Lincoln Navigator and the 0:19:34.359 --> 0:19:38.199 refresh that's going on. Yeah, that is, uh, that's a 0:19:38.240 --> 0:19:40.879 really big opportunity for us, the Navigator as well as 0:19:40.920 --> 0:19:44.639 the Ford Expedition We just revealed those products of the 0:19:44.800 --> 0:19:47.720 Lincoln at the New York Auto Show expedition to a 0:19:47.720 --> 0:19:51.200 bit earlier. This is the first complete ground up redesign 0:19:51.359 --> 0:19:54.440 in a long time. It's gonna They're both going to 0:19:54.520 --> 0:19:56.440 take aluminum bodies. They're going to be on the same 0:19:56.440 --> 0:19:58.520 sort of platforms as the F one fifty, which has 0:19:58.560 --> 0:20:01.040 been usually successful and the re action to that product 0:20:01.040 --> 0:20:04.520 has been phenomenal. They'll be coming out. I think the 0:20:04.560 --> 0:20:07.119 launches are in the third quarter, probably hit the market 0:20:07.160 --> 0:20:09.560 in the fourth and they're very high margin products, so 0:20:09.560 --> 0:20:11.680 it's a big opportunity for us. Just quickly where they 0:20:11.720 --> 0:20:13.960 made are they say, in the same Kansas they're made 0:20:14.240 --> 0:20:17.560 the F as the F series. They're made at Kentucky 0:20:17.600 --> 0:20:19.359 Truck which is where we make the Super Duty. But 0:20:19.400 --> 0:20:21.880 they have their own body shop and their own paint shop, 0:20:22.440 --> 0:20:24.480 you know, Bob, I do want to just a touch 0:20:24.680 --> 0:20:28.719 on used car prices and that Ford did say today 0:20:28.720 --> 0:20:32.160 that they see use car prices falling six percent this year. 0:20:32.240 --> 0:20:35.920 Can you put that into perspective whether use car values 0:20:35.960 --> 0:20:39.520 are falling faster than you've been expecting and the road 0:20:39.520 --> 0:20:42.040 ahead for the rest of the year. That's a good question. 0:20:42.040 --> 0:20:44.720 I would say, they're not falling faster than what we 0:20:45.119 --> 0:20:47.800 have been expecting over the last number of months. What 0:20:47.920 --> 0:20:50.199 happened about a year ago actually this time, is that 0:20:50.240 --> 0:20:54.199 we started to talk about and guide to decline in 0:20:54.520 --> 0:20:57.919 use car values related to the fact that the industry 0:20:58.000 --> 0:21:00.320 has been leasing at the levels of you know, we've 0:21:00.359 --> 0:21:02.840 never seen before over the last number of years, and 0:21:02.880 --> 0:21:05.080 a rising industry and been you know, a lot of 0:21:05.080 --> 0:21:07.680 those vehicles. Now we're starting to come back off lease. 0:21:07.760 --> 0:21:11.280 So we we expected a decline. We adjusted our view 0:21:11.320 --> 0:21:13.560 of that decline in November last year, and everything that 0:21:13.600 --> 0:21:16.920 we see today suggests that everything's happening and unfolding as 0:21:16.920 --> 0:21:19.919 we had expected. So we have seen a year over 0:21:19.960 --> 0:21:22.760 year decline of seven percent at Ford. That's in align 0:21:22.840 --> 0:21:25.520 with what's happened overall across the industry. And what I 0:21:25.600 --> 0:21:28.200 mentioned in the call today is that we expect on average, 0:21:28.720 --> 0:21:31.720 used car values to decline about six percent over the 0:21:31.720 --> 0:21:35.800 full year. But what about the charge offs in Ford's 0:21:35.880 --> 0:21:40.320 credit unit. Have you seen delinquencies and write downs increase 0:21:40.359 --> 0:21:42.960 at a faster pace than you've been expecting. Well, they've 0:21:42.960 --> 0:21:45.879 been increasing from where they had been and they but 0:21:45.920 --> 0:21:48.120 they've been at historical lows. So when we look at 0:21:48.200 --> 0:21:53.560 the all the metrics around delinquencies, the frequency of defaults, 0:21:54.280 --> 0:21:57.919 the severity of those defaults, they're only approaching what you know, 0:21:57.960 --> 0:22:00.760 we would consider to be historical norms. So they were 0:22:00.800 --> 0:22:03.200 extremely low when we came out of the downturn for 0:22:03.240 --> 0:22:05.439 a number of years, or just approaching what you know, 0:22:05.480 --> 0:22:08.800 we would call normal. Uh. And in fact, in recent 0:22:08.880 --> 0:22:11.560 periods we've seen you know, some slow down if you will, 0:22:11.600 --> 0:22:14.800 in terms of the pace of that change. So we 0:22:14.840 --> 0:22:17.280 feel that we've captured that appropriately in the outlook for 0:22:17.359 --> 0:22:19.960 Ford Credit for the full year. Bob, just taking a 0:22:20.000 --> 0:22:22.320 look at the shares of Ford, I mean, they're down 0:22:22.320 --> 0:22:24.400 about five percent so far this year, but you're paying 0:22:24.400 --> 0:22:27.720 a five and a quarter percent dividend. And if you 0:22:27.760 --> 0:22:30.000