WEBVTT - Bloomberg Surveillance TV: March 27, 2024 0:00:00.120 --> 0:00:06.760 Bloomberg Audio Studios, Podcasts, radio News. 0:00:11.640 --> 0:00:15.440 This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along 0:00:15.440 --> 0:00:18.400 with Lisa Bromwitz and a Marie Hortern. Join us each 0:00:18.480 --> 0:00:21.400 day for insight from the best in markets, economics, and 0:00:21.400 --> 0:00:24.720 geopolitics from our global headquarters in New York City. We 0:00:24.760 --> 0:00:27.440 are live on Bloomberg Television weekday mornings from six to 0:00:27.520 --> 0:00:31.000 nine am Eastern. Subscribe to the podcast on Apple, Spotify 0:00:31.200 --> 0:00:33.479 or anywhere else you listen, and as always on the 0:00:33.479 --> 0:00:37.400 Bloomberg Terminal and the Bloomberg Business App. Bruce Casman joins 0:00:37.479 --> 0:00:39.120 us now for more. Bruce, We're going to talk about 0:00:39.159 --> 0:00:41.800 management policy, the Fed, the boj Can we just start 0:00:42.040 --> 0:00:44.199 on this with America's debt pile? I know you and 0:00:44.240 --> 0:00:46.680 the team at JP Morgan have talked about the boiling 0:00:47.159 --> 0:00:49.159 of the frog, Bruce. When does it start to get 0:00:49.159 --> 0:00:50.000 a little bit too hot? 0:00:51.840 --> 0:00:53.720 Well, I think it will get too hot if we're 0:00:53.840 --> 0:00:55.920 right that the FED just doesn't have very much room 0:00:55.920 --> 0:00:59.959 to ease, and over time that begins to affect balance sheet. 0:01:00.200 --> 0:01:03.400 It keeps credit tight, it weighs on pricing power. It's 0:01:03.440 --> 0:01:05.520 a slow moving story, and I think we have to 0:01:05.600 --> 0:01:09.319 recognize that so far the effects of high interest rates 0:01:09.400 --> 0:01:11.720 just haven't done nearly as much damage as we would 0:01:11.720 --> 0:01:14.360 have thought to the private sector. So this story is 0:01:14.400 --> 0:01:17.720 playing out against another narrative, which is to say the 0:01:17.760 --> 0:01:20.640 private sector is healthy, we're getting supply side improvement, and 0:01:20.760 --> 0:01:23.400 maybe we can live with high interest rates and actually 0:01:23.440 --> 0:01:25.600 generate a soft landing. We've kind of moved from being 0:01:25.720 --> 0:01:28.919 very much in the boiler frog stands to being agnostic 0:01:28.959 --> 0:01:31.200 about where this story is going to lead us. 0:01:31.440 --> 0:01:33.000 Can you talk to me, Bruce then, about the supply 0:01:33.080 --> 0:01:35.600 side narrative that the chairman seemed to endorse in the 0:01:35.680 --> 0:01:38.200 news conference last week. What's the question? Do you have 0:01:38.560 --> 0:01:41.000 the sort of linger before fully embracing it. 0:01:42.680 --> 0:01:45.000 Well, I think we should embrace it. There's an immigration 0:01:45.120 --> 0:01:47.480 story which is playing out right now and is boosting 0:01:47.560 --> 0:01:51.760 labor force growth. It's limiting the pressure on labor markets 0:01:51.760 --> 0:01:55.800 and inflation from rising jobs. I think we've also generated 0:01:55.840 --> 0:01:58.680 some pretty strong productivity growth, and that seemed to me 0:01:58.760 --> 0:02:00.920 to be linked with what we've been doing on spending 0:02:00.920 --> 0:02:04.440 an R and D and intellectual property. The question is, 0:02:04.520 --> 0:02:07.520 though we still have a tight label market, we have 0:02:07.720 --> 0:02:10.720 elevated inflation, which I think is sticky. I think, as 0:02:10.720 --> 0:02:13.600 you mentioned a minute ago, the goods price story globally 0:02:13.680 --> 0:02:16.640 is shifting gear. I'm just not convinced that's going to 0:02:16.639 --> 0:02:18.600 be enough to get inflation all the way down to 0:02:18.639 --> 0:02:21.000 what will make the FED comfortable over the next year 0:02:21.080 --> 0:02:21.280 or so. 0:02:21.680 --> 0:02:24.160 Bruce, we've been talking a lot about the bridge collapse 0:02:24.280 --> 0:02:28.520 in Baltimore and understanding that it's just one particular port 0:02:28.560 --> 0:02:30.960 and that potentially other ports can take in. 0:02:31.080 --> 0:02:32.079 Some of that traffic. 0:02:32.240 --> 0:02:34.359 But does this highlight to you that supply shocks have 0:02:34.440 --> 0:02:37.360 not gone away and that there are these vulnerabilities that 0:02:37.440 --> 0:02:40.880 will kind of put some sort of floor under this 0:02:41.040 --> 0:02:44.200 goods disinflation that we've seen for the past couple of years. 0:02:46.120 --> 0:02:48.840 Yeah, I think what you're seeing in some senses is 0:02:48.880 --> 0:02:51.160 a little bit of that, with the idea that there's 0:02:51.160 --> 0:02:54.639 some new pressures and shipping costs and this port closure 0:02:54.720 --> 0:02:57.120 might be part of that. But also you're just losing 0:02:57.160 --> 0:03:01.320 the benefits of having unwound this locations. You know, you've 0:03:01.360 --> 0:03:04.560 had over the last six seven months, US goods pricing 0:03:05.400 --> 0:03:07.200 X food and energy falling at two two and a 0:03:07.280 --> 0:03:10.040 half percent base. I think most of the indicators, both 0:03:10.080 --> 0:03:12.720 domestically and globally are saying that's going back at a 0:03:12.760 --> 0:03:16.040 minimum to zero here, you know, So when Chair Pal 0:03:16.200 --> 0:03:19.320 talks about shelter inflation coming down, I think there's an 0:03:19.360 --> 0:03:23.120 offset here, quite substantial, maybe even complete, of what's happening 0:03:23.160 --> 0:03:25.480 in the goods price story. And then that leaves the focus, 0:03:25.520 --> 0:03:27.800 of course on inflation very much on how you think 0:03:27.800 --> 0:03:30.720 about labor markets and other service price inflation, which I 0:03:30.720 --> 0:03:32.400 think we're going to see is pretty firm when we 0:03:32.440 --> 0:03:35.000 get the PCE report on prices on Friday. 0:03:35.200 --> 0:03:37.600 So taking a step back, this raises the question, and 0:03:37.600 --> 0:03:39.840 we were talking about it with Muhammad al Arian about 0:03:39.840 --> 0:03:42.040 whether this is sort of a tipping point for this 0:03:42.120 --> 0:03:45.400 Federal Reserve intacitly accepting a two point something or a 0:03:45.440 --> 0:03:48.560 two to three percent inflation rate for the foreseeable future. 0:03:49.080 --> 0:03:51.720 Do you think that we have shifted that This past 0:03:51.960 --> 0:03:54.720 press conference from the Federal Reserve was really the key 0:03:54.800 --> 0:03:56.240 moment in that transition. 0:03:57.760 --> 0:03:59.680 I think what the Fed is telling us it wants 0:03:59.720 --> 0:04:01.760 to are at the easing process in the middle of 0:04:01.760 --> 0:04:04.200 the year, and it's willing to do so even if 0:04:04.200 --> 0:04:06.440 in the first half of this year it's getting uncomfortably 0:04:06.520 --> 0:04:10.160 high inflation performance. What I don't think this means is 0:04:10.200 --> 0:04:12.600 that the FED is willing to accept on a sustained 0:04:12.600 --> 0:04:16.120 basis inflation close to or higher than three percent. And 0:04:16.160 --> 0:04:18.400 what we think is going to happen here is that 0:04:18.440 --> 0:04:20.640 you are going to see a pivot sometime around the 0:04:20.680 --> 0:04:23.320 middle of the year where the FED maybe delivers one 0:04:23.520 --> 0:04:26.440 or two easing, but it really then starts to shift 0:04:26.440 --> 0:04:29.040 its guidance. The market today has over one hundred and 0:04:29.080 --> 0:04:32.040 fifty basis points a FED easing price through the end 0:04:32.040 --> 0:04:34.880 of twenty five. Unless the economy gets into trouble. I 0:04:34.920 --> 0:04:36.600 don't think we're going to see that delivered. 0:04:37.160 --> 0:04:37.720 You say they. 0:04:38.040 --> 0:04:40.039 Want to cut, which echoes a lot of individuals that 0:04:40.080 --> 0:04:43.160 come on the program, But they also continuously how data 0:04:43.200 --> 0:04:45.359 dependent they are. What would they need to see in 0:04:45.400 --> 0:04:48.760 the data to actually say, you know what, we're waiting, 0:04:48.839 --> 0:04:50.000 we're not going to cut this year. 0:04:51.360 --> 0:04:53.599 I think that's an interesting point because as they're talking 0:04:53.720 --> 0:04:57.240 data dependent, you could see Chairpal in his press conference 0:04:57.320 --> 0:05:00.280 really talk as if the bar is pretty high event 0:05:00.360 --> 0:05:03.440 in easing. So I'm not sure I have the numbers. 0:05:03.440 --> 0:05:05.640 I'd want to be confident about where that is. But 0:05:05.680 --> 0:05:08.080 I think what they've told us at least to start 0:05:08.120 --> 0:05:12.120 the easing process around mid year that they're fairly comfortable 0:05:12.160 --> 0:05:15.560 they've made enough progress. Yeah, there are data prints here 0:05:15.560 --> 0:05:17.600 that could take them off of that, and I would 0:05:17.680 --> 0:05:20.720 argue the committee, as you look at the projections, are 0:05:20.760 --> 0:05:23.679 probably more evenly divided on this issue. But I think 0:05:24.320 --> 0:05:26.279 the bar is pretty high here. I'm not even sure 0:05:26.320 --> 0:05:28.359 that if we get a couple of point threes on 0:05:28.480 --> 0:05:31.200 core inflation, which i'd say a high numbers, that that's 0:05:31.240 --> 0:05:33.880 going to be enough to prevent a June easing. I 0:05:33.880 --> 0:05:36.280 think it'll stop them from doing much, but I'm not 0:05:36.320 --> 0:05:38.159 sure it'll stop them from easing in June. 0:05:38.480 --> 0:05:40.760 Brace this one inconsistency that jumps out to me, perhaps 0:05:40.800 --> 0:05:43.719 we should finish it. How can the FEDS simultaneously say 0:05:43.720 --> 0:05:46.440 we're restrictive and then at the same time embrace the 0:05:46.480 --> 0:05:49.440 supply side narrative of the labor market, but also points 0:05:49.480 --> 0:05:52.120 the labor market as evidence of being restrictive. How does 0:05:52.160 --> 0:05:52.800 that ant up. 0:05:54.200 --> 0:05:56.920 Well, I think there's a level issue of how tight 0:05:57.000 --> 0:06:00.159 the labor market is, and then there's an issue how 0:06:00.240 --> 0:06:02.600 much supply side performance is helping it. But I think 0:06:02.600 --> 0:06:05.279 you are raising an important point, which is that the 0:06:05.320 --> 0:06:08.400 supply side is improving and helping the FED, but it 0:06:08.520 --> 0:06:11.599 is also a signal that the neutral rate is higher. 0:06:11.600 --> 0:06:14.200 And I think when you look at financial market performance here, 0:06:14.560 --> 0:06:18.480 it is embedding this idea that some combination of supply 0:06:18.600 --> 0:06:22.400 side performance, a friendly FED, and some other things going 0:06:22.440 --> 0:06:24.880 on here is allowing us to do a lot better 0:06:24.880 --> 0:06:27.680 with higher interest rates than we might have expected. So 0:06:27.720 --> 0:06:30.520 I do think you're one hundred percent right here. Policy 0:06:30.640 --> 0:06:33.599 is not as restrictive as the FED seems to be suggesting. 0:06:34.080 --> 0:06:36.160 I think growth will do better if we're right. Then 0:06:36.160 --> 0:06:38.400 inflation is sticky. I think they are going to have 0:06:38.400 --> 0:06:40.760 to change their tunes somewhat here, but it still looks 0:06:40.800 --> 0:06:42.480 to us like they're getting ready to at least start 0:06:42.520 --> 0:06:44.360 an easing process around mid year. 0:06:44.560 --> 0:06:47.039 It's hard to disagree at the moment. Bruce. Thank you, Sir, 0:06:47.080 --> 0:06:54.160 Bruce Kunsman of JP Morgan Economic Tanks on Friday morning 0:07:00.680 --> 0:07:02.800 AM under line of a black Rock, expecting cuts to 0:07:02.800 --> 0:07:05.080 start in the second half and writing this while a 0:07:05.120 --> 0:07:08.520 high for longer cost of capital environment poses fundamental pressure 0:07:08.720 --> 0:07:13.080 for some floating rate borrowers with limited financial flexibility. Competition 0:07:13.160 --> 0:07:16.440 between syndicated and private markets, coupled with ample private debt. 0:07:16.520 --> 0:07:20.720 Dry powder has encouraged tighter pricing, especially for large borrowers 0:07:20.800 --> 0:07:24.120 who have access to both markets. A Mandarin places say 0:07:24.360 --> 0:07:26.040 joined us now for more a man, good morning to 0:07:26.080 --> 0:07:28.240 you morning. Thank you for the MP parabobble with us 0:07:28.320 --> 0:07:31.240 yesterday and they were talking about a soft landing in credit. 0:07:31.320 --> 0:07:32.880 Is that your kind of world you're view on things 0:07:32.920 --> 0:07:33.400 at a moment? 0:07:33.880 --> 0:07:35.440 And good morning, thank you for having me I did 0:07:35.480 --> 0:07:37.000 see that interview with Megan yesterday. 0:07:37.040 --> 0:07:38.960 I think I would agree with that. 0:07:39.320 --> 0:07:43.080 I think the bar for significant disruption is really high 0:07:43.160 --> 0:07:46.560 in the corporate credit market. We do, though, expect dispersion, 0:07:46.920 --> 0:07:49.680 and we are actually seeing that to a pretty significant 0:07:49.720 --> 0:07:54.160 extent more recently in the US, European and Asian credit markets. 0:07:54.680 --> 0:07:57.440 Two things I would note on the point of kind 0:07:57.440 --> 0:07:59.920 of competition between public and private, I think the way 0:08:00.040 --> 0:08:02.720 we're viewing it as maybe several years ago, if you 0:08:02.760 --> 0:08:04.600 were a corporate and left finn you would have made 0:08:04.640 --> 0:08:07.320 the decision between issuing a bond and issuing a leverage loan. 0:08:07.480 --> 0:08:10.600 Now there's a third option, and so you've actually seen 0:08:10.800 --> 0:08:14.160 private credit become a viable option for the opportunity set 0:08:14.160 --> 0:08:16.520 for a lot of corporates, not every corporate. Not every 0:08:16.560 --> 0:08:20.040 corporate needs the size to become index eligible in that market, 0:08:20.120 --> 0:08:21.920 but it is a viable third option. 0:08:22.160 --> 0:08:24.280 The other point is, I think on just the terms. 0:08:24.000 --> 0:08:27.000 Of having more access outside of the banking channel and 0:08:27.040 --> 0:08:29.400 the public markets, we believe has been a good thing 0:08:29.600 --> 0:08:31.480 for corporates. And you actually see that in what I 0:08:31.480 --> 0:08:34.680 would argue as a pretty muted default rate given the 0:08:34.720 --> 0:08:37.719 interest hikes that we've had since March of twenty twenty two. 0:08:37.720 --> 0:08:39.120 And I think that that shows that it's working. 0:08:39.200 --> 0:08:41.360 And Bob Michael of Jpmorgo was talking about that the 0:08:41.440 --> 0:08:45.200 ballast kind of to some of the credit sphere. I do, though, 0:08:45.240 --> 0:08:47.120 want to just sit on this idea of frost, and 0:08:47.120 --> 0:08:49.320 that's something that Megan was talking about, that there is 0:08:49.360 --> 0:08:51.719 this frost developing and tighter credit speds because of. 0:08:51.640 --> 0:08:52.679 The increased competition. 0:08:53.720 --> 0:08:56.160 Sounds a lot like the equity market exuberance, but it 0:08:56.200 --> 0:08:57.679 makes sense so it can go on. 0:08:57.679 --> 0:08:58.720 For a long period of time. 0:08:58.840 --> 0:08:59.920 Is that kind of what you see. 0:09:00.400 --> 0:09:02.440 We see it, and I would say it's not exclusively 0:09:02.480 --> 0:09:04.680 limited to the lift fin market where there's overlap with 0:09:04.720 --> 0:09:07.040 private credit. You also see super tight credit spreads and 0:09:07.120 --> 0:09:10.600 investment grade. To me actually it reflects a few things. 0:09:10.640 --> 0:09:14.120 One is fundamentals are pretty good. Economic backdrop is pretty strong, 0:09:14.679 --> 0:09:17.880 but if you look at spreads, they look really tight optically, 0:09:18.160 --> 0:09:20.160 if you look at all in yields. However, if you 0:09:20.400 --> 0:09:22.800 going back to the post financial crisis period, we're talking 0:09:23.080 --> 0:09:26.080 really cheap levels on a percentile basis. 0:09:26.120 --> 0:09:26.960 If you were to look at. 0:09:26.880 --> 0:09:30.640 Just daily spreads, daily yields back to twenty ten, yield 0:09:30.720 --> 0:09:34.920 screen really cheap and spread screen really rich. So I 0:09:34.920 --> 0:09:37.760 think that's part of it is that the marginal buyer 0:09:37.800 --> 0:09:41.160 in credit is actually yield based, so when they're coming 0:09:41.200 --> 0:09:43.560 to deploy capital, they're not looking at it on a 0:09:43.600 --> 0:09:45.760 spread versus index. They're looking at where can I lock 0:09:45.800 --> 0:09:47.600 in all in yields? And I think it's fueling some 0:09:47.760 --> 0:09:51.280 of that optically tight spread measures and credit as opposed 0:09:51.280 --> 0:09:54.400 to it's not indiscriminate because again we. 0:09:54.400 --> 0:09:56.240 Are actually seeing triple c's lag. 0:09:56.559 --> 0:09:59.360 We're seeing actually a pretty significant share of credits that 0:09:59.360 --> 0:10:02.760 are trading above thousand basis points in spread. You are 0:10:02.800 --> 0:10:05.800 seeing dispersion in the single name capital structure over leverage 0:10:05.800 --> 0:10:07.360 capital structures that are. 0:10:07.200 --> 0:10:08.400 Doing liability management. 0:10:08.559 --> 0:10:10.240 So I would say if it were kind of a 0:10:10.360 --> 0:10:12.920 rising tide lifts, all boats and everything was rallying. I 0:10:12.920 --> 0:10:15.360 would say we are entering into kind of maybe possible 0:10:15.360 --> 0:10:17.600 over exuberants, but we're not seeing that. We are actually 0:10:17.640 --> 0:10:19.880 seeing some discrimination under the surface. 0:10:19.960 --> 0:10:21.280 That's what I really wanted to get into. If I 0:10:21.400 --> 0:10:22.880 just go over a part of that quote again and 0:10:22.920 --> 0:10:25.400 just read it out loud for the audience, competition between 0:10:25.440 --> 0:10:28.400 syndicated and private markets, coupled with ample private debt dry 0:10:28.440 --> 0:10:33.280 powder has encouraged types of pricing, especially for larger borrowers. 0:10:33.559 --> 0:10:35.640 Is it just the larger borrowers who's getting left for 0:10:35.760 --> 0:10:36.160 debt here? 0:10:36.360 --> 0:10:39.560 I think it's it's largely in the high end of 0:10:39.559 --> 0:10:42.320 the size spectrum, where companies have the ability to run 0:10:42.400 --> 0:10:45.240 dual track processes so they can actually see Okay, again, 0:10:45.280 --> 0:10:47.120 going back to that point of I've now got this 0:10:47.200 --> 0:10:50.480 other third viable option, where am I getting best execution? 0:10:50.600 --> 0:10:52.920 I think the pricing is most competitive at that end. 0:10:53.720 --> 0:10:58.640 But again it's it's not I do think it's it's 0:10:58.160 --> 0:11:01.560 there's not a sense thatolks are being left behind in 0:11:01.600 --> 0:11:04.600 the sense that that competition is pricing them out. I 0:11:04.600 --> 0:11:06.840 think what it is doing is it's just changing that 0:11:06.960 --> 0:11:09.840 mix shift in link twenty twenty three, we saw a 0:11:09.880 --> 0:11:13.079 lot of public debt being refinanced with private debt. That 0:11:13.280 --> 0:11:15.680 shifted in the first quarter. Now that the syndicated markets 0:11:15.720 --> 0:11:18.079 are open and we're seeing a lot of private debt 0:11:18.120 --> 0:11:20.640 actually getting refinance in the public markets, but those companies 0:11:20.640 --> 0:11:21.920 need to be ready to be public market. 0:11:22.080 --> 0:11:24.280 Just falling up on Megan's point, how concerned are you 0:11:24.320 --> 0:11:27.400 about weakening covenants weakening deal terms? Is this something that 0:11:27.440 --> 0:11:29.320 you see sowing the seeds for something that might not 0:11:29.360 --> 0:11:31.880 come home to rust this year, Maybe not in twenty five, 0:11:32.000 --> 0:11:33.000 but maybe twenty six. 0:11:33.360 --> 0:11:36.360 Well, most of the syndicated market is covlight, as you know, 0:11:36.440 --> 0:11:38.720 on the leverage loan side, and as the high old 0:11:38.760 --> 0:11:43.040 bond market has become more institutionalized, covenants have become less 0:11:43.040 --> 0:11:45.840 of a binding constraint in that market too. It's really 0:11:45.840 --> 0:11:47.240 the private market that has a. 0:11:47.160 --> 0:11:48.480 Lot of the covenant protections. 0:11:48.720 --> 0:11:50.960 I think the big risks that I'm concerned about for 0:11:51.040 --> 0:11:55.600 risk asset valuations is a sustained reacceleration and inflation that 0:11:56.120 --> 0:11:59.000 the Fed cannot deliver at some point in twenty twenty 0:11:59.080 --> 0:12:03.040 four on rate not that that rate cut in the 0:12:03.080 --> 0:12:06.080 form of rate relief is so game changing for those credits. 0:12:06.240 --> 0:12:08.640 But I do think that it's really important for sentiment, 0:12:08.679 --> 0:12:11.240 and I think that's where you might start to see 0:12:11.240 --> 0:12:14.560 things really unravel from a risk asset side, is that 0:12:14.760 --> 0:12:17.040 we don't get any rate cuts in twenty twenty four. 0:12:17.679 --> 0:12:20.280 We're in this extended high for longer into twenty twenty five, 0:12:20.320 --> 0:12:22.439 and I think the key there is if that's happening 0:12:22.440 --> 0:12:26.480 because inflation is sticky, that is problematic. If rate cuts 0:12:26.520 --> 0:12:29.360 are very shallow and twenty twenty four because of high growth, 0:12:29.600 --> 0:12:31.360 I would view that it's less of a problem. But 0:12:31.600 --> 0:12:33.480 if that gets postponed, I think that's an issue. 0:12:33.520 --> 0:12:36.240 Just quickly maturity will red hair and go no big 0:12:36.280 --> 0:12:37.360 issue of something to ignore. 0:12:37.840 --> 0:12:39.760 I was very concerned about it in the fall of 0:12:39.760 --> 0:12:41.880 twenty twenty three. I think the fact that the capital 0:12:41.920 --> 0:12:44.520 markets have remained open to lower rated issuers to allow 0:12:44.559 --> 0:12:47.200 them to get that refinancing done, it's relieved a lot 0:12:47.240 --> 0:12:49.040 of pressure pressure in European hig yield. 0:12:49.080 --> 0:12:50.920 It's a steeper maturity wall than the US. So I'm 0:12:50.960 --> 0:12:51.679 watching there. 0:12:51.600 --> 0:13:03.599 Interesting thanks for that. With some making a pivot to 0:13:03.679 --> 0:13:06.880 hybrid vehicles in China, chares with BYD falling in Hong 0:13:06.960 --> 0:13:10.200 Kong trading after the ev makers earnings missed estimates amid 0:13:10.240 --> 0:13:13.800 aggressive price cuts, competitive Volkswagen saying it expects to fall 0:13:13.840 --> 0:13:16.640 behind in China. Quote along with our value over volume 0:13:16.679 --> 0:13:19.880 growth strategy, we are deliberately prepared to give up market 0:13:19.920 --> 0:13:23.679 share in order to find a sound compromise between margins 0:13:23.720 --> 0:13:27.200 and volume. For more. Pablo de c, Volkswagen Group of 0:13:27.240 --> 0:13:30.319 America President and CEO, joined us Now, Pablo, good to 0:13:30.320 --> 0:13:32.760 see you, Good morning. Thank you for coming into the studio. 0:13:32.800 --> 0:13:34.240 I know it's an important couple of days for you 0:13:34.280 --> 0:13:35.720 and the team here in New York City. I just 0:13:35.720 --> 0:13:38.119 want to reflect on the events of yesterday in Baltimore, 0:13:38.440 --> 0:13:41.079 important hub for auto makers. Can you walk us through 0:13:41.080 --> 0:13:44.000 the potential disruptions for you, the team, and the company. 0:13:44.400 --> 0:13:46.920 Yeah. First of all, regarding yesterday, our hard goes to 0:13:46.960 --> 0:13:50.760 the families. Yeah, it's quite unfortunately, and everybody's putting. But 0:13:51.320 --> 0:13:54.120 looking at this from a business point of view, we 0:13:54.160 --> 0:13:57.840 are on the side of the sea level, so you know, 0:13:57.880 --> 0:14:00.520 when the ships come into Baltimore are not going to 0:14:00.520 --> 0:14:03.200 be affected by this event. Obviously we're going to have 0:14:03.240 --> 0:14:05.520 some disruption because of the trucks, but it's not going 0:14:05.520 --> 0:14:07.319 to be a disruptive as other automakers. 0:14:07.440 --> 0:14:10.600 Supply certainly has been the problem in this industry. Unfortunately, 0:14:10.640 --> 0:14:12.679 it's been demand. Can you walk us through way youre 0:14:12.679 --> 0:14:16.040 seeing things wasteeing, things strengthened, and whether you're able to 0:14:16.120 --> 0:14:18.400 lean into what's handling with hybrids in the demand for 0:14:18.440 --> 0:14:19.560 it in America? 0:14:19.560 --> 0:14:23.640 Absolutely, so let me start talking about the industry February today. 0:14:23.720 --> 0:14:27.120 The demand is very strong as an industry. The North 0:14:27.160 --> 0:14:30.400 American market, which is Canada, US and Mexico grew eight 0:14:30.440 --> 0:14:34.080 percent feverruyear to date versus last year and we grew 0:14:34.200 --> 0:14:37.880 twenty one percent, so we're tripling the growth of the market. 0:14:38.200 --> 0:14:40.440 But still eight percent is quite strong, and what we're 0:14:40.480 --> 0:14:45.200 seeing the data from March is still strong. Having said that, 0:14:45.280 --> 0:14:49.280 the EVE has flattened, the curb remains around seven and 0:14:49.320 --> 0:14:53.120 a half eight percent of the total industry. But we 0:14:53.160 --> 0:14:56.080 as BW, we still have twelve percent of ourselves are 0:14:56.160 --> 0:14:58.880 in the eighty four in the electric vehicle space, so 0:14:59.160 --> 0:15:02.040 we're still having higher growth than the average market. 0:15:02.280 --> 0:15:05.160 Do you expect to ramp it up though more slowly 0:15:05.280 --> 0:15:08.240 and maybe put a greater emphasis on hybrids. Are you 0:15:08.280 --> 0:15:10.440 starting to sort of sow the seeds for that right now, 0:15:10.480 --> 0:15:13.520 because you have a couple of years or potentially months 0:15:13.520 --> 0:15:15.560 to really get that up and running. 0:15:15.880 --> 0:15:20.320 Yeah. So our factory is highly localized in the US, 0:15:20.600 --> 0:15:23.560 and we have both combustion engines and electric vehicles in 0:15:23.640 --> 0:15:27.600 Chattanooga in Tennessee, and we're the only foind automaker that 0:15:27.680 --> 0:15:30.240 qualifies for the seven thousand, five hundred dollars credit for 0:15:30.320 --> 0:15:33.360 the consumer, which means that we're localized within the vision. 0:15:33.480 --> 0:15:37.880 So that gives us our flexibility going forward. I think 0:15:38.000 --> 0:15:40.640 the pace of growth will be slower, but we still 0:15:40.800 --> 0:15:42.280 grow in the av space. 0:15:43.040 --> 0:15:44.280 Other power trends. 0:15:43.960 --> 0:15:46.160 Will be a good alternative for the consumers, so the 0:15:46.200 --> 0:15:49.560 consumers will be able to choose electric vehicles, planking hybrids, 0:15:49.720 --> 0:15:51.120 hybrids and combustion engines. 0:15:51.200 --> 0:15:53.760 How important was that subsidy to you to not only 0:15:53.800 --> 0:15:56.280 build a factory but also just in terms of your 0:15:56.320 --> 0:15:58.600 decision of the product mix to sell well. 0:15:58.720 --> 0:16:01.600 First, I think the ir Ed Inflation Reacting Act is 0:16:01.600 --> 0:16:05.040 a great piece of legislation for the US because it 0:16:05.160 --> 0:16:08.600 is transforming the industrial base of the US. So you 0:16:08.680 --> 0:16:11.880 see all these new factories and battery factories being built 0:16:11.920 --> 0:16:13.920 in the US over the next three or four years. 0:16:14.440 --> 0:16:16.680 So the benefit is not only for us, but also 0:16:16.680 --> 0:16:20.040 for the consumer by the fact that we're localizing and 0:16:20.080 --> 0:16:24.000 we're bringing all the jobs of Bozzagen and also the suppliers. 0:16:24.680 --> 0:16:27.200 You know, we create an ecosystem that provides more jobs 0:16:27.200 --> 0:16:29.720 here and then the consumer gets a seven thousand, five 0:16:29.760 --> 0:16:30.560 hundred dollar credit. 0:16:30.600 --> 0:16:32.280 If Trump were to come back in power, though, he 0:16:32.320 --> 0:16:35.640 can rewrite those Treasury laws which makes a subsidy, which 0:16:35.640 --> 0:16:38.800 could make the subsidy basically impossible to get. How are 0:16:38.840 --> 0:16:41.280 you thinking about that kind of impact when all this 0:16:41.440 --> 0:16:43.160 money has been put towards the evening market. 0:16:43.440 --> 0:16:46.400 Yeah, so we have a long term vision on these topics. 0:16:46.440 --> 0:16:49.680 I mean, we know that, and we believe where we 0:16:49.720 --> 0:16:52.560 amain committed to the EV strategy in the long term, 0:16:52.920 --> 0:16:55.920 and the pace will depend on the consumer. Now, is 0:16:55.960 --> 0:16:59.200 it possible that the rules will change. It's possible, but 0:16:59.360 --> 0:17:02.920 he would need a vast majority in the Congress and 0:17:02.960 --> 0:17:05.560 the Senate to change his laws. And also when you 0:17:05.600 --> 0:17:08.280 look at the map where all the factories have been built, 0:17:08.480 --> 0:17:11.680 they're not built only in states that are democratic or Republican, 0:17:11.680 --> 0:17:14.040 and they're being built all over the US. I think, 0:17:14.320 --> 0:17:18.520 you know, in the interest of jobs and growth, in technology. 0:17:18.560 --> 0:17:20.640 I think it would be wise to maintain this long 0:17:20.720 --> 0:17:21.240 term vision. 0:17:21.520 --> 0:17:23.400 Do you think it would be wise to wait until 0:17:23.400 --> 0:17:26.280 after the election before you make decisions about your manufacturing 0:17:26.280 --> 0:17:27.800 footprint in this country? 0:17:28.600 --> 0:17:30.200 I don't think so, and I give you an example 0:17:30.280 --> 0:17:33.600 at this are not only words. We decided to localize 0:17:33.800 --> 0:17:38.960 the ID four way before the Inflection Reaction Act, which 0:17:39.000 --> 0:17:41.240 goes back to your question. Right, So we believe so 0:17:41.400 --> 0:17:45.240 much in the transition to elective vehicles and in localizing 0:17:45.240 --> 0:17:48.120 our footprint in the US that we made decisions before 0:17:48.680 --> 0:17:50.880 and after that we're going to continue to localize. 0:17:51.000 --> 0:17:54.040 One push over the last year or so by this President, 0:17:54.359 --> 0:17:57.960 by this White House is to push and support union workers. 0:17:58.280 --> 0:18:00.879 You mentioned Chattanooga. There at that plant, there's going to 0:18:00.880 --> 0:18:03.240 be a vote on whether the workers joined UAW that 0:18:03.359 --> 0:18:05.200 specific union. Can you walk us through what that could 0:18:05.240 --> 0:18:06.280 do to your cosspace? 0:18:06.600 --> 0:18:09.640 Now, First of all, we respect the freedom of our 0:18:09.720 --> 0:18:13.480 workers to choose how they're represented. Having said that, we're 0:18:13.480 --> 0:18:17.040 constantly talking to our workers on how to improve, you know, 0:18:17.200 --> 0:18:20.760 the working conditions, the salaries, and the benefits. It would 0:18:20.760 --> 0:18:23.040 be up to them how they want to be represented 0:18:24.440 --> 0:18:26.400 in the future. So we will respect now and. 0:18:26.320 --> 0:18:28.639 The cost space, you just assume that it would increase 0:18:28.800 --> 0:18:29.400 of the bank of. 0:18:29.359 --> 0:18:31.760 That, I'm not so sure. I mean, we have a 0:18:31.880 --> 0:18:34.960 very competitive cost space, competitive in terms of the employees. 0:18:35.760 --> 0:18:38.960 We have wages around twenty three dollars an hour which 0:18:39.000 --> 0:18:42.960 are compatible to Michigan with the lower cost of living. 0:18:43.600 --> 0:18:47.359 So we will see Pablo. Thank you sir. Hopefully we 0:18:47.400 --> 0:18:49.360 can catch up against soon. I appreciate your time, thanks 0:18:49.400 --> 0:18:51.040 for the invitation. See you next time, Pablo, the s 0:18:51.520 --> 0:18:56.639 VW North America CEO. This is the Bloomberg Sevenans podcast, 0:18:56.760 --> 0:19:00.679 bringing you the best in markets, economics, and Giepolo. You 0:19:00.720 --> 0:19:03.479