WEBVTT - Ford CEO Jim Farley Talks Earnings, EV Offerings, Tariffs

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<v Speaker 1>Bloomberg Audio Studios, podcasts, radio news. You want to welcome

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<v Speaker 1>our Bloomberg TV and radio audiences back to our coverage

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<v Speaker 1>a closer look at earnings out of Ford. They crossed

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<v Speaker 1>the wire just a while ago, second quarter results showing

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<v Speaker 1>a justed ebit coming in at about two point one

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<v Speaker 1>billion dollars revenue at fifty billion dollars, but more importantly,

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<v Speaker 1>the company reinstating the guidance it had pulled earlier, saying

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<v Speaker 1>that it is adjusted profit for the year a six

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<v Speaker 1>point five to seven point five billion dollars, the low

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<v Speaker 1>end of that range, slightly below the average of analysts estimates.

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<v Speaker 2>Joining us right.

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<v Speaker 1>Now here in Studio two is Matt Miller. He is

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<v Speaker 1>the co host of Open Interest, and he joins us

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<v Speaker 1>for a very special interview with the CEO of Ford,

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<v Speaker 1>Jim Farley.

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<v Speaker 3>Matt, thanks very much, Romaine, Jim, thanks for joining us.

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<v Speaker 3>I want to ask first about how you're offsetting these tariffs.

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<v Speaker 3>I was on a call with Sherry House, your c earlier.

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<v Speaker 3>She said the hit to growth would be about three

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<v Speaker 3>billion dollars this year from TERRAFS, but you're able to

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<v Speaker 3>recover about a third of that. How are you doing

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<v Speaker 3>that is it through pricing? Are you able to get

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<v Speaker 3>it out of suppliers? What are you doing to get

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<v Speaker 3>that back?

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<v Speaker 2>It's all of it.

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<v Speaker 4>But the biggest strength for us is ford Pro, our

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<v Speaker 4>commercial business.

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<v Speaker 2>And it's not just vehicles, it's also software and our

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<v Speaker 2>parts business on Pro.

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<v Speaker 4>That's where the strength of our businesses and that's why

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<v Speaker 4>we increased our guidance net of the tariffs by about

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<v Speaker 4>a half a billion dollars.

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<v Speaker 2>It's pro.

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<v Speaker 4>We expect flat pricing for the rest of the year,

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<v Speaker 4>so it's really pro.

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<v Speaker 2>It's driving our results.

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<v Speaker 3>Hopefully investors know the story already, Jim, but I don't

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<v Speaker 3>think everyone understands the breadth of service as you offer

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<v Speaker 3>through ford Pro and the kind of growth you're seeing.

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<v Speaker 3>You've added two billion dollars to revenue year over year,

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<v Speaker 3>well over three billion dollars to revenue quarter over quarter.

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<v Speaker 2>And I was looking at.

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<v Speaker 3>The valuations of some of the competing businesses like writer, Geotab,

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<v Speaker 3>Sam Sara. They all blow away your evaluation. I feel

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<v Speaker 3>like ford Pro would get a much higher multiple if

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<v Speaker 3>it was trading outside of the legacy automaker. Have you

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<v Speaker 3>thought about spinning that off.

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<v Speaker 2>But we don't want to do that.

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<v Speaker 4>That's why we broke it out as a separate segment, Matt,

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<v Speaker 4>so everyone could see the profitability. Double digit's margins again,

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<v Speaker 4>you know, really strong results. We have almost eight hundred

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<v Speaker 4>thousand monthly subscribers for our software. As you said, we're

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<v Speaker 4>beating now the third party software providers because we can

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<v Speaker 4>control the vehicle speed, we can control access to the

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<v Speaker 4>vehicle now third party can't do that. We also have

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<v Speaker 4>a very strong parts business. Our dealers have invested two

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<v Speaker 4>billion dollars in large repair facilities. We've never really been

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<v Speaker 4>in that business in a big time to compete with

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<v Speaker 4>third party. Now we are, and almost twenty percent of

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<v Speaker 4>the profits now for pron vehicle so it's a great

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<v Speaker 4>ecosystem is something our competitors do not have. That's why

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<v Speaker 4>we broke it out separately so all the investors can

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<v Speaker 4>value just that.

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<v Speaker 1>I certainly was the bright spot. I am curious, Jim

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<v Speaker 1>about the strategy going forward with regards to the electric

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<v Speaker 1>vehicle business. When we talk about the commitment to new

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<v Speaker 1>models and more importantly, commitment to the infrastructure to support that,

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<v Speaker 1>what's the plan.

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<v Speaker 2>Well, that's a great question.

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<v Speaker 4>First of all, Ford is number three in hybrids, but

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<v Speaker 4>we're number one in truck hybrids, so we're going to

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<v Speaker 4>expand our hybrid offering across our internal combustion engine lineup

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<v Speaker 4>and that's going to really distinguish up. But we're starting

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<v Speaker 4>to see different kinds of hybrids that customers are excited about. Erevs,

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<v Speaker 4>which you go about one hundred miles all electric, but

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<v Speaker 4>then you could take a seven hundred.

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<v Speaker 2>Mile trip once in a while.

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<v Speaker 4>Those look really promising for a three row crossover like

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<v Speaker 4>Explore or some of our trucks. Our EV strategy, we've

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<v Speaker 4>been number two to Tesla in the US for about

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<v Speaker 4>three years. We've really changed that a couple of years ago,

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<v Speaker 4>and now those products are close to market. First one,

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<v Speaker 4>we're going to show everyone in Kentucky the platform. We're

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<v Speaker 4>going very low end, super affordable ease for urban duty

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<v Speaker 4>cycles and for commercial Our each brands have been very

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<v Speaker 4>successful with people who have, you know, schedule routes, they

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<v Speaker 4>don't have to worry about public charging on the fly.

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<v Speaker 4>That's where we're seeing traction with their EV business. The

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<v Speaker 4>real low end for people who just want a commuter

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<v Speaker 4>vehicle that's really cheap to operate, and then EV is

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<v Speaker 4>cheaper than ice and commercial.

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<v Speaker 2>We're not going to.

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<v Speaker 4>Invest in a lot of the very expensive crossovers for

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<v Speaker 4>pure EV.

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<v Speaker 2>We think that's going to be a hybrid business.

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<v Speaker 1>What does the supply chain look like specifically for the

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<v Speaker 1>EV and hybrid business right now? Are some of the

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<v Speaker 1>kinks that we saw last year at the start of

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<v Speaker 1>this year. Has that been worked out?

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<v Speaker 2>It has?

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<v Speaker 4>You know, we're really excited about our new affordable battery.

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<v Speaker 4>We have a plant Marshall, Michigan that's going to be

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<v Speaker 4>one of the first to make in the US LFP battery.

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<v Speaker 4>That battery supply chain has really react did to this

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<v Speaker 4>change in the market. We're looking to repurpose our unused

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<v Speaker 4>battery pant assets and more to come on that. I

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<v Speaker 4>think the supply chain has been very difficult because the

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<v Speaker 4>demand is so much lower than everyone thought. The growth

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<v Speaker 4>has been there, but lower than everyone thought, and we've

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<v Speaker 4>all adjusted to that. We've moved out our cycle plans.

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<v Speaker 4>We focused on affordable and commercial. You know, a lot

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<v Speaker 4>of people are fully pregnant with their a lot of

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<v Speaker 4>OEMs are fully pregnant with their existing lineup.

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<v Speaker 2>Of these very expensive evs.

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<v Speaker 4>We're fortunate we moved three or four years ago and

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<v Speaker 4>we could, we could tilt to hybrid and a specific

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<v Speaker 4>kind of EV and the supply chain has been able

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<v Speaker 4>to move with us so far.

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<v Speaker 3>I want to ask, first of all, I'm excited when

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<v Speaker 3>you when you come out with a three ro row

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<v Speaker 3>e E rev call me up because I'm in the

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<v Speaker 3>market for one of those. I want to ask about

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<v Speaker 3>the unintended consequences of this administration's terrorists, Jim, because the

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<v Speaker 3>Japanese or the Europeans, maybe the South Koreans, they're getting

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<v Speaker 3>away with a fifteen percent flat tariff now, but you

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<v Speaker 3>and other American automakers producing here have fifty percent tariffs

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<v Speaker 3>on steel, fifty on aluminum, twenty five percent on foreign parts,

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<v Speaker 3>up to eighty stacked eighty percent stacked tariffs on Chinese parts,

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<v Speaker 3>to the extent that it's got to really disadvantage you

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<v Speaker 3>when you're competing against a Toyota built in Japan or

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<v Speaker 3>a General Motors vehicle built in South Korea. Can you

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<v Speaker 3>quantify that disadvantage?

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<v Speaker 4>Yeah, I mean we studied it very carefully. If you

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<v Speaker 4>look at labor, if you look at the material costs

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<v Speaker 4>as you mentioned, Matt, and you look at the currency,

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<v Speaker 4>you know a lot of these countries have currencies that

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<v Speaker 4>really advantage their export. We think it's five thousand dollars

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<v Speaker 4>on like say Wrap four versus a Kentucky built Escape,

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<v Speaker 4>and maybe as much as ten thousand dollars on a

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<v Speaker 4>Japanese built for Runner or a Super U versus you know,

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<v Speaker 4>a Bronco built here in Michigan. So it's really meaningful

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<v Speaker 4>working with the administration is to take that layered tariff

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<v Speaker 4>because the autos have their own tear plus or subject

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<v Speaker 4>to all these other tariffs. We're working with Commerce and

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<v Speaker 4>the Trump administration to minimize our tariff expense so that

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<v Speaker 4>we can get more competitive. But the bottom line is

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<v Speaker 4>our plan forward is not to compete in those commodity segments.

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<v Speaker 4>We're really passion products like Bronco and Mustang, work vehicles

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<v Speaker 4>like Super Duty and our trucks, you know, and break

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<v Speaker 4>through evs which everyone will learn about in Kentucky in

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<v Speaker 4>a little bit.

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<v Speaker 2>That's where our capital's going.

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<v Speaker 4>So although it's a five to six thousand dollars, you know, disadvantage,

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<v Speaker 4>our capital really isn't going into those segments.

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<v Speaker 3>I get that, and I feel like, you know, Americans,

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<v Speaker 3>some Americans are willing to pay more to support a

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<v Speaker 3>seventy dollars an hour labor costs that we have here

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<v Speaker 3>versus you know, twenty to twenty five dollars labor costs

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<v Speaker 3>that the Japanese are working with. But it still seems,

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<v Speaker 3>you know, like General Motors could move more production to

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<v Speaker 3>South Korea if they get a fifteen percent flat rate

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<v Speaker 3>and have a huge advantage over you. They're the biggest

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<v Speaker 3>auto importer in America. Have you talked to the Trump

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<v Speaker 3>administration about working this out somehow?

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<v Speaker 4>Every day, every week, every month, every year, we have

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<v Speaker 4>daily conversations with our counterparts and government, and you know,

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<v Speaker 4>whether it's emissions, whether it's you know, tax policy, but

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<v Speaker 4>especially tarrat policy. They are very committed to minimizing this

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<v Speaker 4>disadvantage that we have making eighty percent of our vehicles

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<v Speaker 4>in the US. But you know, a lot of those

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<v Speaker 4>vehicles that we make in the US, you can't really

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<v Speaker 4>find ability a way to make those vehicles outside the US.

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<v Speaker 4>And just remember there is a chicken tax that's been

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<v Speaker 4>around for a long time on heavy trucks that would

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<v Speaker 4>be very difficult impossible to be competitive overseas. That really

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<v Speaker 4>affects the commodity segments like raft four and others, but

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<v Speaker 4>that's not our strategy afford to go after those segments.

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<v Speaker 4>I'm very hopeful that the Trump administration understands the predicament

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<v Speaker 4>that we are in as they make these bilateral trade agreements,

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<v Speaker 4>and they are going to work with us to do

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<v Speaker 4>the right thing for our US manufacturing companies.

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<v Speaker 1>So Jim, the President is actually speaking now at an

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<v Speaker 1>event in Washington on healthcare technology, but he's making a

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<v Speaker 1>lot of comments about bringing US manufacturing back here in

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<v Speaker 1>the US. He specifically says for factories for AI and

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<v Speaker 1>cars that he wants all that, of course to be

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<v Speaker 1>built here in the US. A reiteration of comments we've

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<v Speaker 1>heard in the past, based on the policies that at

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<v Speaker 1>least have been proposed and whatever policies have started to

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<v Speaker 1>be rolled out, are you seeing any sort of material

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<v Speaker 1>progress in bringing more auto manufacturing back to the US,

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<v Speaker 1>and I don't mean just cars but also parts two.

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<v Speaker 4>Yeah, We've been watching really carefully our competitors announcements in

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<v Speaker 4>auto and our suppliers announcements of what's getting reshort, the

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<v Speaker 4>realities of the fifteen percent and terraff for finished vehicles

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<v Speaker 4>that is not a high enough tariff you know, it'd

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<v Speaker 4>have to be in more like thirty to forty percent

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<v Speaker 4>to build a new factory in the US. Now, we've

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<v Speaker 4>seen a lot of our competitors, even our domestic competitors,

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<v Speaker 4>you know, fill open factories here where they have bridge production.

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<v Speaker 4>They may make it in Mexico and the US, the

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<v Speaker 4>same nameplate, and they are moving some of that back

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<v Speaker 4>to the US, which is good for our country and

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<v Speaker 4>good for our manufacturing. The key thing is going to

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<v Speaker 4>be the accumulation of effect of emissions policy, tax policy,

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<v Speaker 4>as well as this tariff policy. We have to work

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<v Speaker 4>out a solution for this tariff policy as the Trump

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<v Speaker 4>administration works through those bilateral trade agreements.

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<v Speaker 2>And as I.

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<v Speaker 4>Said, the conversations so far have been very productive, and

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<v Speaker 4>we'll let everyone know when we make material progress.

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<v Speaker 1>All right, Well, I'll let you get back to work, Jim.

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<v Speaker 1>I appreciate you taking time for us on a really

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<v Speaker 1>busy day. Jim Farley, the President and CEO of Ford

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<v Speaker 1>and our thanks to Matt Miller, the co hosts of

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<v Speaker 1>Open Interests right here on Bloomberg Television,