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Speaker 1: Here to take us through the auto industry as we

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Speaker 1: find it today is Stephen Rattner. He is the chairman

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Speaker 1: and CEO of Willet Advisors, which invests the personal and

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Speaker 1: film topic assets of Michael R. Bernberg. He is our

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Speaker 1: founder and majority share over. Steve, thanks so much for

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Speaker 1: being back with us. You know a little bit about cars,

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Speaker 1: goodness knows, given your service in the obomam inustration putting

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Speaker 1: the industry back together beforehand. Is there a way out

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Speaker 1: of this impast right now? Because I sure don't see it.

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Speaker 2: Look, it does certainly look tougher than I've ever seen

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Speaker 2: in any of these contract negotiations. First of all, the

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Speaker 2: uaw's demands are, even by the standard of opening demands,

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Speaker 2: pretty extreme. Secondly, they're conducting this negotiation largely in public,

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Speaker 2: which makes it harder for the union in particular to

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Speaker 2: back off their positions if and when they need to.

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Speaker 2: But all that said, there's never been a strike that

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Speaker 2: I know of that hasn't gotten resolved one way or another,

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Speaker 2: and it's not hard to see a resolution here. But

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Speaker 2: I think the mood is that it's going to take

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Speaker 2: a good while.

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Speaker 1: You have written in the New York Times that you

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Speaker 1: certainly can understand why there needs to be more wages

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Speaker 1: for autoworkers. They've left bagged behind for various reason. It's inflation,

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Speaker 1: but also the contract that they had. At the same time,

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Speaker 1: it's about more than just money, is it not. Because

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Speaker 1: the autoworkers say, you're going to electric vehicles will require

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Speaker 1: fewer of us than the other side the auto industry stage,

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Speaker 1: we have to go to electric vehicles or we're not

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Speaker 1: going to be in business anymore.

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Speaker 2: The classic Harvard Business School case is that a company

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Speaker 2: or an industry that tries to protect protect an old

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Speaker 2: business model when there's a new one coming ends up failing.

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Speaker 2: If the Detroit companies want to be competitive, if we

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Speaker 2: as a country want to have a viable domestic auto industry,

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Speaker 2: and by the way, it's the government's policy to encourage

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Speaker 2: electric vehicles, then we have to welcome this change, and

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Speaker 2: there will be displacements and we have to deal with those.

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Speaker 1: I guess I'm asking how much of this do you

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Speaker 1: think in the end is about money? How much of

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Speaker 1: a raise people get because everyone agrees they're going to

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Speaker 1: get a significant raise, and how much it is more

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Speaker 1: fundamental things about the way the companies actually run their businesses.

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Speaker 2: I think it's mostly about money or money related things.

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Speaker 2: I think, yes, there's a lot of concern about the

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Speaker 2: future number of jobs and so on and so forth.

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Speaker 2: But I'm sympathetic to the union in the sense that

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Speaker 2: if you look at the last fifteen years, auto workers

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Speaker 2: as a whole in this country have basically stayed flat

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Speaker 2: after inflation, whereas other workers have gotten some after inflation

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Speaker 2: real income increases. And they are good reasons for good reasons.

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Speaker 2: There are reasons for that, which is the fundamental competitiveness

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Speaker 2: of the auto industry on a global scale. But nonetheless,

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Speaker 2: in a world of three point eight percent unemployment and

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Speaker 2: one and a half jobs for every American, I can

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Speaker 2: understand why these workers feel like it's time for them

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Speaker 2: to get a bigger share.

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Speaker 1: Last week, President Biden weighed in on the issue, and

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Speaker 1: at least to my hearing, weighed in pretty heavily on

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Speaker 1: the UAW side, saying there have been record profits out

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Speaker 1: of the car industries and there should be a record deal.

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Speaker 1: I think he called it basically, is he making the

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Speaker 1: situation better or worse? In the port situation, I don't

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Speaker 1: recall him weighing in that heavily on the workers side.

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Speaker 2: I think that's fair. I think we are closer to

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Speaker 2: an election. I think we're talking about the Midwest, which

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Speaker 2: are swinging states. I don't think California is ever going

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Speaker 2: to be a swing state. But I have to say

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Speaker 2: I don't think it's overly helpful for him to put

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Speaker 2: his finger on the scale. Look, the politics are what

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Speaker 2: they are, and I get that. But this is a

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Speaker 2: tough situation, and I think there are equities on both sides.

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Speaker 1: Whenever we have a very large conflict like this, in

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Speaker 1: my experience, at least, there are unintended consequences. There are

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Speaker 1: the principal players and who does well who doesn't. But

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Speaker 1: there are people who are on the side. I can

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Speaker 1: think of people like Tesla, other automakers around the world.

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Speaker 1: Certain states they're right to work states. What are the

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Speaker 1: unintended consequences you think perhaps of this dispute.

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Speaker 2: Look, the unintended consequences are what happened is to the

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Speaker 2: number of jobs, not the price paid for each job.

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Speaker 2: The yin and the yang of this, and it's a

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Speaker 2: tough one, is that the more the autoworkers get paid.

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Speaker 2: And I'm in favor of them getting paid more, the

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Speaker 2: fewer jobs they're going to be. That's just the inevitable

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Speaker 2: result of this. If you look, for example, back since

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Speaker 2: two thousand and nine at the number of jobs that

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Speaker 2: have moved to Mexico and the fact that there are

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Speaker 2: now more auto jobs in Mexico than there are in

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Speaker 2: the United States, it tells you something about how capitalism

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Speaker 2: and free enterprise works. It finds the lowest costs locale

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Speaker 2: that can meet its needs.

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Speaker 1: Other potential consequences for the transition to evs. I mean,

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Speaker 1: I think most people think we're going to make the transition,

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Speaker 1: but could it slow it down.

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Speaker 2: I don't think on an overall basis, it slows it

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Speaker 2: down because there's so many players in the EV market.

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Speaker 2: I think it affects who the winners and who the

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Speaker 2: losers are. I think for the Detroit companies to be

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Speaker 2: winners in ev they need help from the unions. They

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Speaker 2: need cooperation from the unions, and we'll have to see

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Speaker 2: how that unfolds. But if the unions make it tougher

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Speaker 2: for them to produce evs on some economically rational basis,

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Speaker 2: then the Detroit companies are going to end up being

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Speaker 2: the losers in the EV race.

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Speaker 1: In your piece in the New York Times, you point

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Speaker 1: out the ratio of the CEO's payment to wages to

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Speaker 1: infect the average rage and how much it has gone up.

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Speaker 1: I think it was something like from sixty times to

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Speaker 1: four hundred times over the period of time, right, I.

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Speaker 2: Think it was even four hundred and sixty times. But

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Speaker 2: as someone I thought about, yes.

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Speaker 1: Exactly, which raises a broader issue that goes beyond the

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Speaker 1: auto companies. As you point out on the piece, it's

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Speaker 1: not just the auto companies where that's true. And that

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Speaker 1: is in my mind at least, the question about how

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Speaker 1: much goes to capital and how much goes to labor.

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Speaker 1: There has been a shift, without a doubt, toward capital

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Speaker 1: in recent decades.

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Speaker 2: Well there has been, But I think this is a

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Speaker 2: question of how much ceo should get paid. They're not

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Speaker 2: necessarily the capitalists, their employees actually, And I think I

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Speaker 2: think you can argue that the autoworkers ought to get

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Speaker 2: paid more because the CEOs are getting paid more. I

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Speaker 2: think you could also make an argument the CEO should

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Speaker 2: get paid less because these numbers have have become crazy.

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Speaker 2: Have become crazy in nineteen seventy nine, I think I

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Speaker 2: used in the piece. The CEO of General Motors made

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Speaker 2: less than a million dollars a year. Now today we're

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Speaker 2: in the twenty five to thirty million dollar range. That's

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Speaker 2: a huge increase. And as you point out, that's happening

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Speaker 2: all across the economy. And that's a whole other subject,

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Speaker 2: perhaps for another day, but CEO pay and c suite

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Speaker 2: pay is a real issue.

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Speaker 1: What is this safe potential to investors like you making investments,

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Speaker 1: not just in the auto industry, but whether you investing audustry,

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Speaker 1: but more broadly, it's in fact, there is a shift

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Speaker 1: back toward labor that's got to squeeze margins. It's a

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Speaker 1: practical matter. Does that mean that the prospects for equities

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Speaker 1: come down some.

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Speaker 2: If all that happens. The answer is sure, I don't

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Speaker 2: think we know yet. Yes, there are a lot of

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Speaker 2: strikes and a lot of high would look like big

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Speaker 2: pay packages coming through. But you also have an economy

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Speaker 2: on the other side where companies have more pricing power

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Speaker 2: and they used to there's less competition, frankly, less anti

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Speaker 2: trust enforcement, fewer unions in general and so forth, and

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Speaker 2: so profit margins. Companies have stayed surprisingly robust. Corporate corporate

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Speaker 2: profits are far higher right now than I think most

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Speaker 2: people thought they would be at this point in a cycle.

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Speaker 2: And so, yeah, sure corporate profits could get squeezed a bit,

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Speaker 2: Maybe they should get squeezed a bit, but I don't

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Speaker 2: think that's not what keeps me awakening.

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Speaker 1: What does keep you awake?

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Speaker 2: Good night, Well, if you want to talk about this area,

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Speaker 2: I think the whole future of manufacturing is a conversation

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Speaker 2: to have. President Biden has been clear, and so have

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Speaker 2: a lot of other people that they would like to

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Speaker 2: see a manufacturing renaissance in this country. The IRA and

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Speaker 2: some of the infrastructure bill and other things are heavily

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Speaker 2: tilted toward making things here rather than elsewhere. But we

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Speaker 2: have to recognize that we cannot produce most things on

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Speaker 2: a globally competitive cost basis. We just have too high

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Speaker 2: of wage structure, we have too high of an overall

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Speaker 2: cost structure. We have much tougher environmental restrictions, which we

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Speaker 2: should have in my opinion, but which add to cost.

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Speaker 2: We have permitting problems which add to cost, and now

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Speaker 2: those are unnecessary. And so I expect that So people

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Speaker 2: who basically say we're going to have this big manufacturing Renaissance.

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Speaker 2: I think are kidding themselves and frankly kidding the American people.

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Speaker 1: Steve, it's always great to have you on. Thank you

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Speaker 1: so much that Stephen Ranner of Willet Advisors, and he

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Speaker 1: is fortunately a regular contributor who will Streetweight