Speaker 1: Welcome to the Bloomberg P and L Podcast. I'm Pim
Speaker 1: Fox along with my co host Lisa Abramowitz. Each day
Speaker 1: we bring you the most important, noteworthy, and useful interviews
Speaker 1: for you and your money, whether at the grocery store
Speaker 1: or the trading floor. Find the Bloomberg P L Podcast
Speaker 1: on iTunes, SoundCloud and at Bloomberg dot com. I want
Speaker 1: to bring in my colleague Brook Sutherland, a Bloomberg Gadfly
Speaker 1: columnist who wrote a piece that was really terrific yesterday
Speaker 1: about President elect Donald trumps celebration of a decision that
Speaker 1: he says he reached with Carrier UH to keep with
Speaker 1: Carriers Heating and air Conditioning unit to save about one
Speaker 1: thousand Indiana jobs. Brooke, thank you so much for being
Speaker 1: with us. So can you just talk first a little
Speaker 1: bit about what this agreement was and what this really
Speaker 1: does with respect to saving jobs in the US. Sure,
Speaker 1: you know, I think we're still waiting for all of
Speaker 1: the details. But United Technologies announced the decision earlier this
Speaker 1: year to shut down to Indiana plants actually and move
Speaker 1: the jobs to Mexico. So the agreement that Trump is
Speaker 1: talking about has to do with the facility in Indianapolis,
Speaker 1: um and they are planning on saving about a thousand
Speaker 1: jobs there. We don't know yet what's going to happen
Speaker 1: to the other Indiana factory, which was in Huntington's uh So,
Speaker 1: you know, at best, this is sort of a stop gap,
Speaker 1: half measure that maybe save some jobs, but not all
Speaker 1: of them. And it's just not really clear if it
Speaker 1: does much more beyond that. Um So, just real quick,
Speaker 1: what what exactly what kinds of jobs are we talking
Speaker 1: about that? Uh? United Technology was going to move to
Speaker 1: Mexico and you know, how long will they actually stay here?
Speaker 1: Why were they thinking of moving to Mexico? Sure? You know,
Speaker 1: so these are manufacturing jobs that typically play pay pretty all.
Speaker 1: I mean, you're talking about about twenty five dollars an hour,
Speaker 1: which is a lot more than somebody can make working
Speaker 1: in the service industry. But you can have those same
Speaker 1: jobs done in Mexico for a lot less, and so
Speaker 1: that's part of the appeal. The other part is that,
Speaker 1: you know, there have been significant regulations in the air
Speaker 1: conditioning and h VAC industry in terms of making the
Speaker 1: products more efficient, living up to sort of environmental standards,
Speaker 1: and those have a cost, and so to be competitive.
Speaker 1: What United Technologies has said is they need to lower
Speaker 1: labor costs, and a lot of its competitors have already
Speaker 1: made these moves to Mexico. And so that's really where
Speaker 1: it's coming from, not you know, we don't want to
Speaker 1: support America. Is it also the case that while these
Speaker 1: jobs may be saved, other factory jobs in Indiana in
Speaker 1: the geographical location where this United Technologies carrier plant is located,
Speaker 1: those layoffs and those moves to Mexico they're continuing exactly.
Speaker 1: I mean, it's not even that all of the United
Speaker 1: Technologies jobs are going to be saved, they're only saving
Speaker 1: some of them. So but there are you know, other
Speaker 1: manufacturers who have had to make these same decisions. And
Speaker 1: I don't think that manufacturers like making these decisions, but
Speaker 1: a lot of times it's just sort of the reality
Speaker 1: of the economic situation they find themselves in. And to
Speaker 1: your point, Rex Nerd, which is another industrial manufacturer, is
Speaker 1: also in Indiana, not too far from where the United
Speaker 1: Technologies plant is actually, and they are looking at shutting
Speaker 1: down that facility and moving those jobs to Mexico. And
Speaker 1: we haven't really heard as much about rex Nerd, and
Speaker 1: I have to wonder if that's because there's no viral
Speaker 1: video about the rex nerd layoffs the way that there
Speaker 1: was with Carrier. It hasn't gotten as much public attention,
Speaker 1: It hasn't drawn as much pushback, it hasn't really been
Speaker 1: talked about about by President Trump. Um So I just
Speaker 1: sort of wonder if we're going to see anything there,
Speaker 1: if he's just sort of picking and choosing the ones
Speaker 1: that might bring good publicity. I love the lead Donald
Speaker 1: Trump can't micromanage his way to a man manufacturing revival
Speaker 1: in America. Perhaps he can't micromanage his way to a
Speaker 1: manufacturing revival. But is there something on a policy level
Speaker 1: that he could do to keep manufacturing jobs in the
Speaker 1: US or these jobs just going away because of automation. Well,
Speaker 1: I think that's sort of a tough question. You know,
Speaker 1: he's talked about leveling hefty tariffs at these companies that
Speaker 1: manufacture products in Mexico and then bring them back to
Speaker 1: the US. He's talked about doing this on an individual basis,
Speaker 1: which I think would be very hard to implement without
Speaker 1: looking like you're picking and choosing who wins in this country.
Speaker 1: And you know which businesses do well and if they
Speaker 1: don't do exactly what you tell them to do, you're
Speaker 1: going to punish them. That's a very dangerous precedent to set.
Speaker 1: I don't know if you want to have a mass
Speaker 1: tariff because that could spark trade war. So I don't
Speaker 1: really know what you do on a national scale to
Speaker 1: stop this from happening. And even if you put those
Speaker 1: types of policies in place, you're not going to change
Speaker 1: sort of the broader trends that are driving this momentum.
Speaker 1: A lot of it is technology. You know, these jobs
Speaker 1: are being replaced by machines because they don't need people
Speaker 1: to do them, or there's excess manufacturing capacity because these
Speaker 1: companies have merged, or their products just aren't into and anymore.
Speaker 1: If you're Caterpillar or Joy Global. People just aren't buying
Speaker 1: mining equipment right now because commodity prices have eroded so much.
Speaker 1: I just want to note that another new store. You
Speaker 1: mentioned technology, but something called the Internet Archive. They preserve
Speaker 1: the digital records of billions of web pages, indeed, even
Speaker 1: cash pages of websites that no longer exist. They are
Speaker 1: moving their backup data to Canada because they fear potential
Speaker 1: changes in legislation due to a Trump administration could maybe
Speaker 1: put the archives at at risk. All different a lot
Speaker 1: of moving pieces there is, and you know, I think
Speaker 1: that's what makes it hard to tackle these sort of
Speaker 1: job decisions on a national level. And that's one of
Speaker 1: the points I was trying to make is that typically
Speaker 1: this is a conversation that happens on the state level,
Speaker 1: where you have state governors or legislators talking to companies
Speaker 1: about specific facilities within their state and what they can
Speaker 1: do to preserve jobs. But it's hard to translate that
Speaker 1: on the national level. I want to bring in Eric Marshall,
Speaker 1: portfolio manager with Hodges Funds, to talk a little bit
Speaker 1: about what to look for in small cap stocks. And
Speaker 1: we've just seen an amazing run in the Russell two
Speaker 1: thousand and other small small cap indexes, the Russell two
Speaker 1: thousand gaining almost eleven percent since the US election. Thank
Speaker 1: you for being with us, Eric. Do you think that
Speaker 1: this can continue? We think that there's a good case
Speaker 1: that we'll see the bull market and small caps continue,
Speaker 1: and there's a couple of things that make us encouraged
Speaker 1: in this space. You know, it's been a very bifurcated
Speaker 1: market within small caps. This year where a lot of
Speaker 1: the things having to do with reads and utilities and
Speaker 1: a lot of the defensive areas have really carried very
Speaker 1: high multiples, while a lot of areas within consumer discretionary
Speaker 1: industrials have not. And you know, as we look at
Speaker 1: the prospects for higher interest rates, lower taxes, US regulation
Speaker 1: and it continued pick up in merger and acquisition activity,
Speaker 1: we think you could still see room to run in
Speaker 1: this bull market for small cap stocks. All right, can
Speaker 1: you give us some specific industry groups or even names?
Speaker 1: I know, for example, we're looking at a potential infrastructure
Speaker 1: spending plan coming from President elect Donald Trump administration. Is
Speaker 1: that going to help small cap stocks? Yeah, And that's
Speaker 1: one of the areas in the Hodges Small Cap Fund
Speaker 1: that we've really been focused on is companies that can
Speaker 1: benefit from that infrastructure spend and it leads us to
Speaker 1: own a lot of the materials, uh, including concrete and
Speaker 1: cement companies. One that we like is a relatively new
Speaker 1: I p o Ra and this is a company that
Speaker 1: makes large diameter concrete pipes and so forth that are
Speaker 1: used for water infrastructure, which is UH, there's a huge
Speaker 1: upgrade cycle going on. The stock trades at a very
Speaker 1: reasonable valuation and very much still underneath the radar. They
Speaker 1: went public a couple of months ago, and uh, not
Speaker 1: exactly a great time for small cap I p o s,
Speaker 1: but we like things like that. We're seeing opportunities in
Speaker 1: some of the steel companies and a lot of these
Speaker 1: material companies that will benefit from a multi year spending
Speaker 1: cycle for infrastructure. Just tell us the name of the company. Again,
Speaker 1: people may not have heard, uh, Fonterra Fontera indeed. And
Speaker 1: did you buy it at the IP or did you
Speaker 1: wait for it to come out? We bought some of
Speaker 1: the I p O and it broke that I p
Speaker 1: O price and actually traded off and we've added to
Speaker 1: it since. Um, you have a fund, the Pure Contrarian Fund.
Speaker 1: What's your most contrarian bet within that fund? Um Our
Speaker 1: founder of our firm, Craig Hodges, manages that fund, and
Speaker 1: I would say one of the pure contrarian funds. UH
Speaker 1: biggest moves was in some of the steel and iron
Speaker 1: ore companies which were kind of left for dead, probably
Speaker 1: doably a year or two ago, and we found some
Speaker 1: very deep value opportunities and several companies there that have
Speaker 1: done very well so you know, when US Steel got
Speaker 1: down to eight dollars of share, that fund took a
Speaker 1: large position in that stock, as well as things like
Speaker 1: Cleveland Cliffs and some of the those more commodity type
Speaker 1: companies that people had really just kind of thrown away
Speaker 1: with the bathwater. Do you think that, given the rally
Speaker 1: that we've seen recently, that there's still more room to
Speaker 1: run with the steel and metals companies. I think that
Speaker 1: there is. When you look at overall consumption of steel
Speaker 1: in in the United States, Uh, it's relicatively good. The
Speaker 1: capacity utilization of a lot of domestic steel companies has
Speaker 1: been running in the sixty six percent area now for
Speaker 1: the past couple of years because of so much cheap
Speaker 1: imports of steel coming out of Southeast Asia and Turkey,
Speaker 1: places like this. And I think as you see some
Speaker 1: of the trade regulations tighten up a little bit, if
Speaker 1: you mean tariffs, I mean, because that's what's not the
Speaker 1: steel industry, right. I mean, they put sanctions on imported steel,
Speaker 1: making it more expensive and or more competitive with US
Speaker 1: produced products. And you've seen US steel new core all
Speaker 1: move higher, absolutely and PIM A lot of people don't
Speaker 1: realize we don't have enough steel capacity in our country.
Speaker 1: We need to import of our steel just to meet
Speaker 1: our needs. The problem is we've been importing thirty percent
Speaker 1: or thirty five percent of that steel and that's really
Speaker 1: caused pricing not to recover while demand has recovered for
Speaker 1: things like auto and infrastructure and construction. Let me just
Speaker 1: turn your attention Hodges small cap fund. Right, you're up
Speaker 1: more than thirteen and a half percent so far this year.
Speaker 1: Good on't you? U? J C. Penny is in the
Speaker 1: portfolio small cap? How does that end up being? What's
Speaker 1: your definition of small cap? It seems to change no
Speaker 1: matter you know who portfolio manager. Well, believe it or not.
Speaker 1: J C. Penny's is down to about a three billion
Speaker 1: dollar market cap, and when we bought the stock, I
Speaker 1: think it was about two and a half billion dollar
Speaker 1: market cap, so well within the definition of the Russell
Speaker 1: two thousand market cap range. But it's really a turnaround
Speaker 1: situation where we see, uh, some good underlying assets in
Speaker 1: the former real estate and so forth, and we think
Speaker 1: that the management's new plan to kind of reinvent the
Speaker 1: business through the house wares and Sephora brand, some of
Speaker 1: these new things that they're doing and kind of cater
Speaker 1: to a younger generation as well as gain back some
Speaker 1: of those core customers. We think that there's a very
Speaker 1: good risk award there. What's your concern about the rise
Speaker 1: in benchmark borrowing costs and how that could affect some
Speaker 1: of these smaller companies which are going to need to
Speaker 1: borrow and might not be able to borrow at higher rates. Well,
Speaker 1: I think if you look at um, you know, corporate
Speaker 1: balance sheets in general roll uh, they're in really relatively
Speaker 1: good good shape right now. And I do think that
Speaker 1: you definitely need to be more aware in a higher
Speaker 1: interest rate environment about the uh, you know, interest burden
Speaker 1: that smaller companies have with their balance sheets as the
Speaker 1: cost of capital goes up. But I think, you know,
Speaker 1: everybody's had a very long period of time of low
Speaker 1: interest rates to refinance get their balance sheets in order.
Speaker 1: And I think that the in general, um, you know,
Speaker 1: that a lot of the concerns there could be offset
Speaker 1: by you know, a lower lower tax corporate tax rate. Transports,
Speaker 1: I noticed you got a Jet Blue holding in there.
Speaker 1: I mean Warren Buffett recently going in and buying shares
Speaker 1: of airline companies Delta United, you know, and that that's
Speaker 1: another one. You missed our Kntrian fund earlier. That's one
Speaker 1: of the big bets we made a couple of years ago,
Speaker 1: and no one liked airlines. We were buying airlines, and
Speaker 1: we what we see going on in the airline industry
Speaker 1: is not that much different than what happened in the
Speaker 1: railroad industry ten years ago, where they had kind of
Speaker 1: come out of a decade's worth of consolidation and you
Speaker 1: started to see an environment where now I think the
Speaker 1: top four airlines control about seventy of the domestic capacity,
Speaker 1: so you're getting a more rational pricing environment. People are
Speaker 1: being more careful about how they add capacity, how they
Speaker 1: manage that, and we think that we're in an environment
Speaker 1: now where airlines, for the first time in about thirty years,
Speaker 1: will actually generate respectable shareholder returns. So I want to
Speaker 1: thank you there. Eric Marshall, portfolio manager Hodges Funds. Two
Speaker 1: asset classes want to focus on right now our private
Speaker 1: equity and venture capital, and joining us is Greg Stento.
Speaker 1: He is managing director at Harbor Vest Are based in Boston,
Speaker 1: home to Bloomberg. Greg, thanks very much for being here much.
Speaker 1: I appreciate it. Let me just give you a headline
Speaker 1: though that Brent crude is rising to the highest this
Speaker 1: year after the agreement in Vienna by OPEC to hold
Speaker 1: production levels flat. And one if you could speak a
Speaker 1: little bit about increases in the price of almost everything,
Speaker 1: including money, and what would that do to private equity
Speaker 1: and venture capital markets. Sure well. Harbor Vest is a
Speaker 1: global private equity asset manager focused on providing solutions to
Speaker 1: investors around the globe seeking to access the private markets.
Speaker 1: Solutions being money like a lot of mezzanine financing, solutions
Speaker 1: being uh, ways in which investors can access the asset class,
Speaker 1: whether that be through a co mingle fund, through a
Speaker 1: dedicated account, or through some type of a specialized vehicle. Uh.
Speaker 1: And so that those are ways in which investors are
Speaker 1: coming into the asset class. You know, with regards to
Speaker 1: the pricing environment that you speak about, uh, you know,
Speaker 1: we're focused on long term investing and so uh, no question,
Speaker 1: the valuations over the past year have been pretty full
Speaker 1: around the board, but you know, in all parts of
Speaker 1: the business, uh, And so investors have got to work
Speaker 1: hard to find those special opportunities where there's growth, where
Speaker 1: there's very strong secular long term trends to be able
Speaker 1: to overcome the full prices that that folks have had
Speaker 1: to pay here in the short term. But again, this
Speaker 1: is all about long term investing, uh, And that's what
Speaker 1: you know, brings it back to our firms that we've
Speaker 1: been doing this for thirty five years and have the
Speaker 1: access to those types of opportunities where we can see
Speaker 1: long term value and long term creation of growth. You know, Greg,
Speaker 1: there's been a lot of discussion about how pensions and
Speaker 1: insurance companies have moved away from hedge funds um just
Speaker 1: because of how high the fees are. I'm one ring
Speaker 1: whether that holds in the private equity world as well.
Speaker 1: I saw a story in the Boston Globe last night
Speaker 1: about the Massachusetts State pension fund paying one point five
Speaker 1: billion dollars to more than one hundred private equity firms
Speaker 1: of the past five years, and that that's sort of
Speaker 1: that's the headline, even though the returns were, uh, we're
Speaker 1: remarkable eighteen percent annualized from two thousand elements. So no question,
Speaker 1: there's a focus on fees within the private markets that
Speaker 1: are being paid. But what we think is that the
Speaker 1: real focus needs to be on the net returns. As
Speaker 1: you just talked about. I mean that has been the
Speaker 1: best performing part of the Massachusetts State portfolio. Um, the
Speaker 1: returns that you can earn in the private markets have
Speaker 1: consistently exceeded what you can earn in the private the
Speaker 1: public equity markets, or other other asset classes over a
Speaker 1: long period of time. Why can you demystify that for us? Sure?
Speaker 1: So there's a number of reasons. UM. First of all,
Speaker 1: when you operate in the private markets, you haven't you
Speaker 1: operate out of the glare of the public investors, and
Speaker 1: you have an opportunity to really think long term about
Speaker 1: building a business and growing a business. You know, in
Speaker 1: the venture capital space, for instance, UH, there's the creation
Speaker 1: of new business ideas, you know, something like an uber
Speaker 1: that never existed ten years ago, that when you have
Speaker 1: the right entrepreneur um, the right product market fit, in
Speaker 1: the right risk capital, you can bring that together to
Speaker 1: create solutions to to meet unmet needs and create very
Speaker 1: scale businesses. As a company that's been you know, UH
Speaker 1: quoted in the press is being worth more than sixty
Speaker 1: billion dollars today, UH and UH I land up. So
Speaker 1: there are those opportunities to develop um UH solutions for
Speaker 1: unmet needs, whether they be in technology or in healthcare
Speaker 1: or other markets. Uh, and finding those right globally diversified
Speaker 1: ideas or what we what we're focused on at Harper Ust.
Speaker 1: You've got a lot of investments in Canada. I understand
Speaker 1: also it's global, right. I wonder if you could just
Speaker 1: speak a little bit about how the change in the
Speaker 1: price of energy affects the decision making process for places
Speaker 1: is like Canada, Because if you've got an overall economy
Speaker 1: that is driven by commodity prices, what is that? How
Speaker 1: does that sort of inform your view? Sure? So we
Speaker 1: have a specialized fund that we put in place in
Speaker 1: Canada in conjunction with a Kittian government, and I think
Speaker 1: it was very much to diversify away from what you're discussing.
Speaker 1: So the idea was to generate new business formation in
Speaker 1: Canada's focused on the venture capital market. So it's trying
Speaker 1: to find those Canadian venture capital firms and other other
Speaker 1: global investment firms investing in Canada that can help drive
Speaker 1: new business creation and new industries in Canada to to
Speaker 1: somewhat diversify away from an economy that has written its
Speaker 1: natural resource base. How has fundraising been so far this
Speaker 1: year and what do you expect it to be like
Speaker 1: next year? Well, for Harvarvest, it's been a it's been
Speaker 1: a record year. For us, We've had a phenomenal year
Speaker 1: in terms of the reception that we've had from investors
Speaker 1: seeking UM commingle funds, UH, specialized funds like our Canadian
Speaker 1: fund or are messing income fund or also looking at
Speaker 1: you know, dedicated separate accounts that want a very specific
Speaker 1: and bespoke solution. So for US has been a record year.
Speaker 1: It's been, it's been, it's been quite good at invest
Speaker 1: in the history UM Broadly across the industry, fundraising is
Speaker 1: up mildly over last year. Uh, it's something that we watch,
Speaker 1: you know, because those imbalances of capital in the market
Speaker 1: are are of concern in any market, but also in
Speaker 1: the private markets. Importantly, the reassuring thing has been that
Speaker 1: there hasn't been a proliferation of the number of new
Speaker 1: funds and the new managers coming into the business. So
Speaker 1: while the capital is up slightly year over year, the
Speaker 1: number of market participants is relatively steady h and so
Speaker 1: that keeps the competitive dynamic and the competitive balance in place.
Speaker 1: And again those are the types of things that are
Speaker 1: investors seek from us to try to make sure that
Speaker 1: we're finding those opportunities that despite the market environment, we're
Speaker 1: going to have good, good potential for long term success.
Speaker 1: We're speaking with Greg Stento, he is managing director at
Speaker 1: Harbor Vest the topic of an equity and venture capital.
Speaker 1: I believe it early in November, right, you just closed
Speaker 1: on a on a fund. I believe this was, what
Speaker 1: about a four point seven seven billion dollar fund? Tell
Speaker 1: us a little bit about this. This is a secondaries fund,
Speaker 1: it is, and that's correct. Secondaries is something that we've
Speaker 1: been doing since so we celebrated over thirty years of
Speaker 1: having been active in the market. Just to be clear,
Speaker 1: secondaries means people who want to sell their stake in
Speaker 1: a private equity fund can sell it to somebody else
Speaker 1: through this type of fund. Correct. That's right. It's an
Speaker 1: ill liquid market and it's it's done through private transactions,
Speaker 1: whether it be a fund position or a position in companies. UH.
Speaker 1: And again we've been one of the pioneers in that space,
Speaker 1: having done it now for more than thirty years, and
Speaker 1: we closed a close to fund in early November that
Speaker 1: is focused on that market, dedicated to that market. UH.
Speaker 1: In particular, I think where we've carved out a niche
Speaker 1: in the secondary market and is what we call the
Speaker 1: complex transactions. So um these are doing things that UM
Speaker 1: again we that are a little bit off the beaten
Speaker 1: half of the typical commodity like lp UM purchase. So
Speaker 1: these could be an end of fund life solution where
Speaker 1: a private equity fund has reached near the end of
Speaker 1: its life. The general partner still feels as though they've
Speaker 1: got assets that they like to manage and continue to
Speaker 1: grow for the next three to five years. But at
Speaker 1: the same point, their investors are tired and maybe want
Speaker 1: to some of them want to get out. So we
Speaker 1: can provide a special vehicle to bridge that solution. Greg Stento,
Speaker 1: managing director at Harbor Fest, speaking to us about the
Speaker 1: outlook for private equity and venture capital. This is Bloomberg
Speaker 1: Americans just loving their trucks. General Motors, Ford and other
Speaker 1: major automakers beat analysts estimates for US sales y because
Speaker 1: Americans just can't get enough pickups and SUVs. I want
Speaker 1: to bringing Kevin Tynan, senior auto analysts for Bloomberg Intelligence,
Speaker 1: talk a little bit about, uh, just how good these
Speaker 1: sales numbers really were, and whether they can last. So, Kevin,
Speaker 1: thanks so much for joining us, Hi Lisa. UM. Yeah,
Speaker 1: so very good numbers in the sense that UM, you know,
Speaker 1: consumer buying frenzy, end of the year, Black Friday through
Speaker 1: the end of the year, clearance sales UM incentives obviously
Speaker 1: higher and and very aggressive. UM. But I think the
Speaker 1: concern there is if incentives don't work, which obviously they
Speaker 1: are UM, and then what happens come January February you
Speaker 1: have a little bit of a hangover? UM. You know,
Speaker 1: the automakers are not as aggressive on on the incentive
Speaker 1: and lease deals because there's no real demand left. UM.
Speaker 1: So very good here and now today. The question is
Speaker 1: what happens in If you care about what happens in
Speaker 1: at this point for now, you'll take this. There's there's
Speaker 1: talk of an eighteen point three seasonally adjusted rate, which
Speaker 1: would be the best since UM employee pricing programs of
Speaker 1: two thousand five h So all all things are coming
Speaker 1: along here, Hey, Kevin, what about all things coming along
Speaker 1: in the auto loan business? Yeah, I think there would be. Uh.
Speaker 1: Delinquencies are rising, yeah, right, supprise right, I mean? And
Speaker 1: third quarter of subprime auto loan balances became at least
Speaker 1: ninety days delinquent. That's up from one point six percent
Speaker 1: in the third quarter of four. And this is this
Speaker 1: a significant concern? Yeah, these are these are concerns. The
Speaker 1: length of the the average term getting longer, and the
Speaker 1: amount uh financed, you know, the loan to asset ratio,
Speaker 1: all those things are trending probably where where they would
Speaker 1: cause concern. Um. The other issue is that as long
Speaker 1: as money is cheap and easy, what you get is
Speaker 1: that negative equity of those longer loans flowing into new
Speaker 1: loans and people get more and more upside down, and
Speaker 1: that's really what crashed in you know that two periods.
Speaker 1: So what happens is you get consumers are drivers basically
Speaker 1: having to hold onto those vehicles till the term until
Speaker 1: there's at least close to some equity because they can't
Speaker 1: roll that that negative equity anymore. And aren't they longer
Speaker 1: term loans? Yeah, absolutely right, if not more so, the
Speaker 1: average is probably a little bit higher. But if you
Speaker 1: get people taken seventy two months loans, you don't have
Speaker 1: equity in that vehicle. Um, which is okay if there
Speaker 1: if if the finance company is gonna let you roll
Speaker 1: that negative equity into the next loan. Once they stop that,
Speaker 1: then that's where the real trouble starts. You know. I
Speaker 1: do have to think that one thing that a number
Speaker 1: of analysts have told us is that, UM, the auto
Speaker 1: companies have captive finance companies, so they can afford to
Speaker 1: take a little bit of a bigger risk keep extending
Speaker 1: loans to even sub prime borrowers because they're earning so
Speaker 1: much from selling the cars. How much does it put
Speaker 1: the captive financing companies of these auto companies at risk
Speaker 1: of making too many loans that are too speculative. Well,
Speaker 1: that's certainly a big risk lease to the Other thing
Speaker 1: you have to remember is um the leasing part of it,
Speaker 1: where the automakers rather than if you think about a
Speaker 1: cash or a finance deal with with cash incentive across
Speaker 1: the table, you're getting these sort of subsidized residual values
Speaker 1: that are being propped up. You know. And now those
Speaker 1: vehicles come back, which we've been leasing at record rates,
Speaker 1: starting to come down a little bit. UM. But as
Speaker 1: those off lease vehicles come back in the market, there's
Speaker 1: gonna be downward pressure on new price uh, new vehicle
Speaker 1: prices because you're gonna have this flood of low mileage
Speaker 1: off lease vehicles coming back to the market. It's not
Speaker 1: an industry that really looks too far into the future
Speaker 1: to worry about these things. But it's out there and
Speaker 1: it's coming all right. Just gonna give you ten seconds.
Speaker 1: The environmental protection age, see leaving in place those CEO
Speaker 1: two standards. Is that going to hurt the industry? You
Speaker 1: know what's going to happen PIM in ten seconds, is
Speaker 1: that they will produce the fuel efficient vehicles. Those will
Speaker 1: go into fleets, things like Lift Duber. There'll be really
Speaker 1: aggressive lease deals for those companies. They'll hit their marks
Speaker 1: and then they'll go ahead and turn around and sell
Speaker 1: what they want. Thanks for listening to the Bloomberg pen
Speaker 1: L podcast. You can subscribe and listen to interviews at iTunes, SoundCloud,
Speaker 1: or whatever podcast platform you prefer. I'm pim Fox. I'm
Speaker 1: out there on Twitter at pim Fox. I'm out there
Speaker 1: on Twitter at Lisa Abramo. It's one before the podcast.
Speaker 1: You can always catch us worldwide on Bloomberg Radio.