WEBVTT - Qualcomm's Dual Business Model Remains A Risk: Ovide 0:00:02.640 --> 0:00:05.320 Welcome to the Bloomberg Penl Podcast. I'm Paul swing you 0:00:05.360 --> 0:00:07.680 along with my co host Lisa Brahma wits. Each day 0:00:07.720 --> 0:00:10.240 we bring you the most noteworthy and useful interviews for 0:00:10.280 --> 0:00:12.520 you and your money, whether at the grocery store or 0:00:12.560 --> 0:00:15.480 the trading floor. Find a Bloomberg Penl podcast on Apple 0:00:15.520 --> 0:00:17.959 podcast or wherever you listen to podcasts, as well as 0:00:17.960 --> 0:00:27.520 at Bloomberg dot com. Qualcom is really a mysterious story 0:00:27.600 --> 0:00:29.520 right now, Shares down more than two and a half 0:00:29.560 --> 0:00:33.680 percent today after a nearly eleven percent tumble yesterday. A 0:00:33.840 --> 0:00:38.919 question is whether their business model is being fundamentally challenged 0:00:39.000 --> 0:00:42.519 right now in court and whether basically, uh, they have 0:00:42.600 --> 0:00:45.760 an existential threat that is looming down on them. I'm 0:00:45.800 --> 0:00:48.200 sure overday joining us here at our Bloomberg Interactive Broker 0:00:48.280 --> 0:00:51.800 Studios Technology calumnists with Bloomberg Opinion. So just lay out 0:00:51.800 --> 0:00:53.920 the issue here. There was a core case that was 0:00:53.960 --> 0:00:58.280 particularly punitive why Yes. So this was a court case 0:00:58.440 --> 0:01:01.120 that the US Federal Trade Mission brought. It was an 0:01:01.120 --> 0:01:06.280 antitrust case and then um overnight on Tuesday, uh U 0:01:06.360 --> 0:01:10.000 S District Court judge ruled that basically, um, the way 0:01:10.000 --> 0:01:13.840 that qualcomn has conducted business is in fact a violation 0:01:13.920 --> 0:01:17.600 of antitrust law. The way that the company basically, if 0:01:17.640 --> 0:01:22.640 you want Qualcomms chips, you need to license a set 0:01:22.720 --> 0:01:26.399 of of patent technologies from the company. So there's no license, 0:01:26.480 --> 0:01:29.959 no chips. And also, even if you're not using qualcoms chips, 0:01:30.240 --> 0:01:32.720 you still need to pay the company for these kind 0:01:32.720 --> 0:01:35.040 of collection of patents that are really essential to the 0:01:35.040 --> 0:01:38.600 functioning of modern smartphones and other computing devices. And the 0:01:38.640 --> 0:01:41.080 judge that that's not legal. Well, I had to admit 0:01:41.120 --> 0:01:43.679 I was very confused by the judges ruling today and surprised, 0:01:43.680 --> 0:01:45.559 and I guess so was the market. The stock sold 0:01:45.600 --> 0:01:48.480 off so much yesterday because when they had their Apple 0:01:48.680 --> 0:01:51.960 resolution um a couple of weeks ago, the stock rallied 0:01:52.000 --> 0:01:54.720 and I thought, Okay, that's it, the qual tom story. 0:01:54.720 --> 0:01:57.040 It's off to the races. But there was still the 0:01:57.040 --> 0:01:59.360 FTC issue out there, So this is something that's still 0:01:59.400 --> 0:02:02.480 fundamentally on the radar for this company. Yes, and frankly 0:02:02.480 --> 0:02:05.080 I thought the same thing about the Apple case. So 0:02:05.120 --> 0:02:08.840 the Apple brought suit against qualcom over almost exactly the 0:02:08.840 --> 0:02:12.320 same issues that the judge ruled on this week, and 0:02:12.400 --> 0:02:15.399 so you're right. When Qualcom and Apple reached a legal settlement, 0:02:15.560 --> 0:02:17.720 I think a lot of investors thought, well, that's behind them. 0:02:17.760 --> 0:02:22.000 But look, this issue about Qualcom's dual sided business model, 0:02:22.040 --> 0:02:24.760 the selling of chips and the licensing of its patents, 0:02:25.080 --> 0:02:28.200 and the links between them. It's been an issue over 0:02:28.320 --> 0:02:32.160 and over and over again and repeated litigation, in repeated 0:02:32.240 --> 0:02:36.440 regulatory um investigations and finds all over the world. It 0:02:36.639 --> 0:02:39.640 is kind of a fundamental aspect of Qualcoms business, but 0:02:39.680 --> 0:02:43.760 it's also under constant assault. Well, and so I guess 0:02:43.800 --> 0:02:48.040 that then the larger question here is what is Qualcom 0:02:48.240 --> 0:02:51.800 as a business without the stream of patent revenues. Because 0:02:51.800 --> 0:02:54.360 you were saying, we were speaking earlier this morning, that 0:02:54.440 --> 0:02:58.040 those patent revenues account for more than fifty percent of 0:02:58.520 --> 0:03:03.320 the firm's income. Well, I guess we may see what 0:03:03.320 --> 0:03:06.040 what Qualcom looks like if if you sort of untangle 0:03:06.160 --> 0:03:08.840 the two halves of the company's business. But we should 0:03:08.919 --> 0:03:11.400 say that, look, this may not be kind of the 0:03:11.520 --> 0:03:15.560 nuclear option in this in this legal ruling that Qualcom 0:03:15.560 --> 0:03:19.280 hasn't disagrees with the judges' decision. Of course, the company 0:03:19.320 --> 0:03:23.079 has asked for an expedited appeal. I assume the litigation 0:03:23.240 --> 0:03:25.239 is going to the appeal process is going to take 0:03:25.240 --> 0:03:29.440 many years to resolve. They are there may be ways 0:03:29.440 --> 0:03:33.600 for Qualcom to sort of adjust its relationships with customers 0:03:33.840 --> 0:03:37.640 in a way that doesn't mean dumping one or or 0:03:37.760 --> 0:03:39.920 or the other half of its business model. So there 0:03:39.960 --> 0:03:42.560 could be some kind of middle ground that is not 0:03:42.720 --> 0:03:45.760 kind of Qualcom blowing up how it does business. Is 0:03:45.800 --> 0:03:48.920 there any chance for a settlement or the fact or 0:03:48.960 --> 0:03:51.240 have we just passed that point now? Between the you 0:03:51.280 --> 0:03:55.520 know Qualcom in the FTC, I I mean, I think 0:03:55.560 --> 0:03:57.800 the f you know since the FTC one this case, 0:03:57.960 --> 0:04:01.680 I can't. I mean, I don't know, is the short answer. 0:04:01.720 --> 0:04:03.280 But I find it hard to believe there would be 0:04:03.280 --> 0:04:06.120 a settlement. But again, there could be um some kind 0:04:06.120 --> 0:04:10.200 of resolution assuming the judges judges decision holds up on appeal, 0:04:10.560 --> 0:04:13.560 that falls short of Qualcom having to blow up everything 0:04:13.600 --> 0:04:17.480 and subject itself to government scrutiny, government oversight for seven years. 0:04:17.560 --> 0:04:20.560 So we were talking about how Apple had their lawsuit 0:04:20.640 --> 0:04:24.080 against Qualcom. Who is the biggest sort of I don't 0:04:24.080 --> 0:04:26.320 want to use the word victims since that's loaded, But 0:04:26.360 --> 0:04:28.719 who's on the other side of some of these suits. 0:04:28.720 --> 0:04:34.440 Who's most angry, Well, certainly the customers, including UM, including 0:04:35.240 --> 0:04:40.120 smartphone makers like Samsung and Apple and Huawei. The latter 0:04:40.160 --> 0:04:46.800 two had various litigation pending against Qualcom. And look, I 0:04:46.800 --> 0:04:50.160 think what the FTC argued in its litigation was that 0:04:50.279 --> 0:04:55.440 the ultimate victim is the competitiveness of of the US 0:04:55.520 --> 0:04:59.000 chip industry. That the judge agreed that the way the 0:04:59.080 --> 0:05:01.080 Qualcom does bus nous of the way was able to 0:05:01.080 --> 0:05:04.520 sort of leverage its power in the chip market to 0:05:04.720 --> 0:05:09.120 sort of overcharge basically for its patents. It forced other 0:05:09.240 --> 0:05:13.960 companies either out of business, other potential competitors to Qualcom 0:05:14.040 --> 0:05:16.960 force them out of business, or kind of hindered their 0:05:17.000 --> 0:05:20.479 ability to compete. So ultimately, you know, the competitive the 0:05:20.560 --> 0:05:24.600 competitiveness of US technology may have been the ultimate victim here. 0:05:24.800 --> 0:05:26.200 And one of the things I remember, if I can 0:05:26.240 --> 0:05:28.200 think all the way back to the Apple settlement just 0:05:28.240 --> 0:05:30.480 a few weeks ago, Uh, they were hailing it as 0:05:30.560 --> 0:05:34.479 you know, this kind of pro five G or pro technology. UM. 0:05:35.160 --> 0:05:37.080 Is that an argument you think Qualcom is gonna make 0:05:37.120 --> 0:05:39.880 here as they try to, you know, fight back against 0:05:39.920 --> 0:05:42.640 this ruling. Yeah, I think the five G argument is 0:05:42.680 --> 0:05:45.320 going to be very interesting. So we saw last year 0:05:45.920 --> 0:05:52.240 the US government stepped into essentially block Broadcoms proposed um 0:05:52.360 --> 0:05:54.880 takeover offer of Qualcom that would have been a hundred 0:05:54.880 --> 0:05:57.760 billion dollar plus deal, and the government. The US government's 0:05:57.800 --> 0:06:02.080 reasoning was, if Broadcom succeeds in this takeover, Qualcom is 0:06:02.120 --> 0:06:05.840 gonna be gutted. They're gonna slash costs, and that's gonna 0:06:05.920 --> 0:06:09.680 hurt qual Comms competitiveness in five G, this next generation 0:06:09.760 --> 0:06:14.120 of wireless standard that is considered sort of this essential 0:06:14.360 --> 0:06:18.360 national security priority, which is weird because I mean, look, 0:06:18.400 --> 0:06:22.200 it's a technology standard, but the US government and the 0:06:22.279 --> 0:06:26.120 Chinese government to have now basically made five G this 0:06:26.240 --> 0:06:29.719 political football. And so one thing that I wonder is 0:06:29.720 --> 0:06:33.200 will the US government step in uh in this litigation 0:06:33.240 --> 0:06:36.400 that the FTC one and basically seek to blunt it 0:06:37.080 --> 0:06:40.400 against citing the ability of Qualcom to remain competitive in 0:06:40.720 --> 0:06:44.280 five G. I have to wonder what qual Comms side 0:06:44.320 --> 0:06:46.400 of this is, because I hear what you're saying, and 0:06:46.440 --> 0:06:48.359 I thought that it was a really salient comment that 0:06:48.400 --> 0:06:50.760 you made. The competitiveness of US technology may have been 0:06:50.760 --> 0:06:53.720 the biggest victim here. What does Qualcomms say to that 0:06:54.000 --> 0:06:56.839 what qual Comms argument is the opposite that it says, 0:06:57.279 --> 0:07:00.839 look that their business model is not unusual, that the 0:07:00.920 --> 0:07:04.719 chip industry is competitive, and if you look at some 0:07:04.720 --> 0:07:08.240 some estimates of market share, Qualcom is losing some market share, 0:07:08.240 --> 0:07:12.320 which shows that there is competition out there. And Qualcom's 0:07:12.360 --> 0:07:16.360 basic fundamental point is, look the way that we have 0:07:16.440 --> 0:07:20.040 set up our business model, including this patent licensing stream, 0:07:20.320 --> 0:07:24.520 we plow that back into tens of billions of dollars 0:07:24.560 --> 0:07:27.840 in research and development spending to come up with the 0:07:27.880 --> 0:07:31.120 next big technologies in the future. And look, it is 0:07:31.160 --> 0:07:36.840 true that particularly in areas around cellular internet technology, Qualcom 0:07:36.840 --> 0:07:39.840 has been a leader, and there would be no smartphone 0:07:39.880 --> 0:07:43.520 industry without Qualcom. It's interesting. I think if I'm a guess, 0:07:43.520 --> 0:07:45.280 if I'm a Qualcom investor, I just have to live 0:07:45.320 --> 0:07:47.280 with this litigation risk going forward. I guess kind of 0:07:47.280 --> 0:07:50.400 the business model just licensing technology, and you're always gonna 0:07:50.400 --> 0:07:52.200 have that issue. I think, are you're gonna bett in 0:07:52.240 --> 0:07:54.320 the Trump put with five G and that I think 0:07:54.360 --> 0:07:56.920 it's really going to be a big bet underpitting some 0:07:56.920 --> 0:07:59.440 people who might dive in and buy the shares as 0:07:59.480 --> 0:08:01.680 they fall to day. Yeah. Interesting share of a day. 0:08:01.680 --> 0:08:04.000 Thank you so much for joining us once again. Shearer's 0:08:04.040 --> 0:08:06.720 Technology Comms for Bloomberg Opinion. Joining us here in our 0:08:06.720 --> 0:08:26.920 Bloomberg Interactive Broker studio, Paul. We like to laugh when 0:08:27.000 --> 0:08:31.800 company after company blames the weather for disappointing earnings. But 0:08:31.880 --> 0:08:34.400 it turns out they may not have that same excuse 0:08:34.480 --> 0:08:37.240 going forward, at least if Cameron Clayton has anything to 0:08:37.280 --> 0:08:39.240 do with it. He joins us here in our Blooberator 0:08:39.240 --> 0:08:42.559 Active broker studios. He's the general manager for the IBM 0:08:42.720 --> 0:08:47.480 Wattson Media and Weather Unit with IBM and Cameron. Can 0:08:47.520 --> 0:08:51.360 you just first start by how IBM and the Weather 0:08:51.440 --> 0:08:56.000 Channel are using artificial intelligence to help these executives get 0:08:56.040 --> 0:09:00.600 away from just simply blaming the whims of weather. Well, 0:09:00.640 --> 0:09:06.280 thanks for having me, Watson. An artificial intelligence is really 0:09:06.280 --> 0:09:09.360 about a big data and so just give you a 0:09:09.440 --> 0:09:13.400 sense of the scale of the data. So on Wednesday, uh, 0:09:13.760 --> 0:09:18.000 we had thirty four billion data requests of our infrastructure 0:09:18.200 --> 0:09:21.760 asking about weather. And the reason that number is so 0:09:21.880 --> 0:09:24.000 large is because of all the tornadic activity we had 0:09:24.320 --> 0:09:27.520 you know this week in the in the Midwest. But 0:09:27.640 --> 0:09:31.560 when there is that much data being generated every single day. 0:09:32.120 --> 0:09:35.240 The only way to sort of get insights out of 0:09:35.240 --> 0:09:38.360 that data to help people make better decisions, to help 0:09:38.360 --> 0:09:42.400 integrate into their supply chain, et cetera, is using artificial intelligence. 0:09:42.440 --> 0:09:45.680 And so that's where Watson has come to bear and 0:09:45.679 --> 0:09:48.920 and it's just something that wouldn't be possible without official intelligence. 0:09:48.920 --> 0:09:51.920 Al Right, So let's talk about this weather signals product. 0:09:52.040 --> 0:09:55.680 What is it and who are you trying to sell 0:09:55.720 --> 0:09:58.920 it to? I guess yeah, So we're basically selling it 0:09:59.000 --> 0:10:03.920 to prizes around the world by industry, and so whether 0:10:03.960 --> 0:10:08.440 you're a retailer trying to sell inventory, So I'll use 0:10:08.480 --> 0:10:11.200 home depot as an example, right, and and the torn 0:10:11.240 --> 0:10:15.120 netic activity this week. Uh, they've got inventory of top holands, 0:10:15.720 --> 0:10:18.360 but they might be in Los Angeles or in Florida. 0:10:18.600 --> 0:10:21.280 They're not in Kansas and Oklahoma where they need to be, 0:10:21.640 --> 0:10:23.280 and so we can tell them a hit of time 0:10:23.640 --> 0:10:27.600 where to deploy their stock. Uh. Similarly, you know, we 0:10:27.679 --> 0:10:31.120 help drive consumption, right, so weeks in advance, we can say, 0:10:31.520 --> 0:10:36.040 you know, beer sales are going to increase by when 0:10:36.120 --> 0:10:41.239 weather conditions are X and so that ends up integrating 0:10:41.240 --> 0:10:44.960 into all kinds of companies into the supply chain. For 0:10:45.000 --> 0:10:47.920 the logistics as well as the stock but also how 0:10:47.920 --> 0:10:51.320 to staff your company. Right, So I guess that one 0:10:51.360 --> 0:10:54.040 thing that as you talk sort of surprises to me. 0:10:54.240 --> 0:10:57.360 It surprises me. How is this so much different than 0:10:57.440 --> 0:10:59.559 looking at the weather and saying, oh, there's going to 0:10:59.600 --> 0:11:01.679 be a big storm, it's going to be forecast to come. 0:11:01.800 --> 0:11:04.040 Everyone's going to go to the local grocery store and 0:11:04.080 --> 0:11:06.839 buy off, you know, everything that they possibly can. I mean, 0:11:06.920 --> 0:11:10.400 haven't companies been able to do that forever or not forever, 0:11:10.520 --> 0:11:14.480 but for you know decades. So companies have had access 0:11:14.520 --> 0:11:17.840 to weather data from US and others for you know, decades. 0:11:18.600 --> 0:11:22.000 But this is really about making very specific recommendations of 0:11:22.080 --> 0:11:26.160 decisions that they should make specifically for their business. And 0:11:26.280 --> 0:11:30.280 so it integrates into the different software they use. Already 0:11:30.440 --> 0:11:33.360 in retails, a lot of retailers use Tableau as a 0:11:33.360 --> 0:11:36.320 as a software tool. Uh, it integrates into that and 0:11:36.360 --> 0:11:39.880 it makes specific recommendations of exactly what to do. How 0:11:39.920 --> 0:11:43.240 many people should you have come into work in your 0:11:43.320 --> 0:11:48.320 office tomorrow, how many people should not come to work 0:11:48.679 --> 0:11:52.480 on Saturday? Um, and so you know, use this weekend 0:11:52.559 --> 0:11:55.440 is a long weekend for for travel, for example, So 0:11:55.800 --> 0:11:59.840 we will actually in advance, help airlines change their flights 0:12:00.000 --> 0:12:02.720 a jules to accommodate the what we know is an 0:12:02.760 --> 0:12:06.200 increase in traffic UH that's coming. Tie that to the 0:12:06.240 --> 0:12:09.600 weather data and make it very prescriptive. Right, this flight 0:12:09.760 --> 0:12:13.720 going out of this airport to this destination needs to 0:12:13.720 --> 0:12:16.319 be adjusted by thirty minutes, you know, a week or 0:12:16.360 --> 0:12:18.800 two in advance. So give us a sense that this 0:12:18.880 --> 0:12:21.480 weather signals product that you're talking about that incorporates AI, 0:12:21.559 --> 0:12:24.080 it's a relatively new product for you guys. What's been 0:12:24.080 --> 0:12:26.280 the uptake And just give us some examples of maybe 0:12:26.280 --> 0:12:29.200 some companies who who have you know, chosen go this 0:12:29.280 --> 0:12:32.240 round and kind of what they use it for specifically. Yeah, 0:12:32.280 --> 0:12:37.840 so you know, uh, the biggest retailers uh the probably 0:12:38.000 --> 0:12:43.720 shouldn't name, but uh essentially using it today. Uh. And 0:12:43.760 --> 0:12:46.440 so retail is probably the largest category for where the 0:12:46.440 --> 0:12:52.120 signals specifically right now. The second big category is aviation, right, 0:12:52.160 --> 0:12:55.440 so they're adding it to existing solutions that we provide 0:12:55.440 --> 0:12:58.640 an aviation uh. And then you know, we're also bringing 0:12:58.640 --> 0:13:00.960 it all the way up all the way down the 0:13:01.000 --> 0:13:04.160 supply chain, if you like, uh, to agriculture as well. 0:13:04.559 --> 0:13:07.360 And so we're starting to see large scale farms UH 0:13:07.600 --> 0:13:11.760 using it to help make decisions on the farm UH 0:13:11.880 --> 0:13:16.400 in addition to retailers and transportation company. It's so interesting 0:13:16.440 --> 0:13:19.160 to me because most recently you're a chief executive officer 0:13:19.200 --> 0:13:23.120 and general manager of the Weather Company UH and including 0:13:23.160 --> 0:13:25.880 Weather Underground, which I check every morning when I have 0:13:26.000 --> 0:13:28.160 to take the kids to school and have to figure 0:13:28.160 --> 0:13:30.360 out how painful it's going to be. And I guess 0:13:30.400 --> 0:13:34.880 that I'm wondering whether you see the future of weather 0:13:34.960 --> 0:13:38.440 forecasts as being part of this is a sort of 0:13:38.559 --> 0:13:43.640 generating revenue from actually helping the prescriptive to businesses UH 0:13:43.679 --> 0:13:46.120 in a way that perhaps is different than just looking 0:13:46.120 --> 0:13:49.080 at the hourly weather forecast. What I think one of 0:13:49.120 --> 0:13:51.960 the one of the things that's you know, interesting to 0:13:52.000 --> 0:13:54.800 me and I asked about all the time, is accuracy, right, 0:13:55.240 --> 0:13:59.640 And so fifteen years ago, where the forecasting was about 0:13:59.679 --> 0:14:03.959 a not much better than a coin flip, it's about accuracy. 0:14:04.480 --> 0:14:09.360 Jump forward to today, it's about accurate. In the last 0:14:09.400 --> 0:14:11.640 year with the accuracy is improved more than in ten 0:14:11.720 --> 0:14:15.120 years prior. AI is a huge part of that, and 0:14:15.240 --> 0:14:17.600 so we hope that we're gonna be able to take 0:14:17.679 --> 0:14:21.120 these recommendations for decisions all the way down to individuals 0:14:21.200 --> 0:14:23.720 like you write is literal leagu practice is going to 0:14:23.760 --> 0:14:26.280 be canceled. And you know this in the morning. You 0:14:26.320 --> 0:14:29.400 don't find out thirty minutes before you You have to 0:14:29.440 --> 0:14:33.640 adjust your schedule h and every decision in between. Cameron Clayton, 0:14:33.640 --> 0:14:35.880 thanks so much for joining us. Cameron's a general manager 0:14:36.040 --> 0:14:39.040 IBM Watson Media and Weather. Joining us here in our 0:14:39.040 --> 0:14:58.600 Bloomberg Interactive Broker studio. Well, I really can't get over 0:14:58.600 --> 0:15:02.480 the statistics that this statistic that automakers globally have it 0:15:02.760 --> 0:15:06.440 announced at least thirty eight thousand job cuts in the 0:15:06.480 --> 0:15:09.760 past six months, and I really I wonder what this 0:15:09.840 --> 0:15:12.800 says about auto sales going forward and how much they 0:15:12.800 --> 0:15:15.920 are poised to decline. Joining us now, Michelle Krabs, executive 0:15:15.920 --> 0:15:20.120 analyst at auto trader dot Com based in Detroit. Michelle, 0:15:20.160 --> 0:15:22.520 thank you so much for joining us. Let's start there. 0:15:22.880 --> 0:15:26.080 How much do you expect auto sales to decline going forward? 0:15:26.080 --> 0:15:29.400 And we're talking on a global basis, Um, Well, we 0:15:29.560 --> 0:15:32.280 expect them to slip a little bit. We do not 0:15:32.480 --> 0:15:35.560 expect any kind of collapse in the market, but we 0:15:35.640 --> 0:15:38.360 do expect it to edge downward. You know, We've been 0:15:38.400 --> 0:15:41.720 on a great run here, almost ten years of a 0:15:41.800 --> 0:15:45.280 year over year increases, and you know it's the market's 0:15:45.320 --> 0:15:49.040 kind of peaked. We expect sales for in the US 0:15:49.120 --> 0:15:53.040 to be down two or three percent. So, Michelle, what's 0:15:53.080 --> 0:15:55.200 the impact. I know it's probably early, but what are 0:15:55.200 --> 0:15:57.760 you hearing from some of the manufacturers and some of 0:15:57.760 --> 0:16:00.240 the dealers that you talk with about terror of It 0:16:00.280 --> 0:16:04.120 seemed to be on again, off again for the automobile sector. Well, yes, 0:16:04.480 --> 0:16:07.160 you know, I think everyone would like certainty and they 0:16:07.160 --> 0:16:10.240 would like certainty that there there are no terroriffs. Um, 0:16:10.280 --> 0:16:13.000 we see interesting patterns when there's a lot of talk 0:16:13.080 --> 0:16:15.160 leading up to it, like last summer, we saw a 0:16:15.200 --> 0:16:19.080 little bit of stockpiling of inventory, stockpiling of used cars 0:16:19.120 --> 0:16:22.920 by dealers as they thought that tariffs would happen, and 0:16:22.920 --> 0:16:24.840 then they didn't. And again here we are in a 0:16:24.840 --> 0:16:28.160 waiting period for six months, and we if it really 0:16:28.200 --> 0:16:31.480 becomes looks like they will happen, we expect we'll see 0:16:31.520 --> 0:16:34.480 some more of that stockpiling of inventory, both new and 0:16:34.640 --> 0:16:40.360 used vehicles going forward. So Memorial Day weekend is definitely 0:16:40.600 --> 0:16:44.000 a big one for selling cars. And I'm just wondering 0:16:44.360 --> 0:16:47.040 what kind of discounts you're expecting this year because this 0:16:47.080 --> 0:16:50.160 has sort of been one big point of contention for 0:16:50.400 --> 0:16:52.760 the big automakers. How much do you give incentives to 0:16:52.840 --> 0:16:55.760 people to get in the door versus give up profits 0:16:56.520 --> 0:16:58.800 and rather than just sort of sell things at full 0:16:58.800 --> 0:17:03.320 price your right. Memorial Day weekend traditionally has been a 0:17:03.320 --> 0:17:06.119 big sales lift weekend for automakers. We don't think it 0:17:06.119 --> 0:17:08.840 will be as much so this year because of that 0:17:08.960 --> 0:17:12.320 overall decline in the market and the fact that car 0:17:12.400 --> 0:17:16.040 prices are at their highest level. UM, auto loan rates 0:17:16.040 --> 0:17:18.640 are at a nine year high, and UM we are 0:17:18.720 --> 0:17:22.400 not seeing a lot of uh laboring on of incentives. 0:17:22.400 --> 0:17:26.200 They're very targeted, and automakers have been showing a lot 0:17:26.240 --> 0:17:30.720 of restraint in terms of going for profit versus incentives. 0:17:30.720 --> 0:17:34.200 So there aren't going to be fabulous deals out there, 0:17:34.560 --> 0:17:39.240 uh for consumers. So we'll see how the weekend ends up. So, Michelle, 0:17:39.240 --> 0:17:41.240 talk to us a little bit about the used car market. 0:17:41.240 --> 0:17:43.119 I'm always surprised when I see, like you know, the 0:17:43.200 --> 0:17:46.200 number of like sixty or six people are leaning towards 0:17:46.200 --> 0:17:48.600 a used car versus a new car. What's the status 0:17:48.600 --> 0:17:51.520 of that market? Well, it is an interesting market. We 0:17:51.720 --> 0:17:54.640 focus all our energy on the new car market, which 0:17:54.680 --> 0:17:58.680 is about seventeen million sales a year. Typically used car 0:17:58.720 --> 0:18:01.919 sales are almost four million every year and a pretty 0:18:01.920 --> 0:18:05.159 consistent UM. There's a lot of interest in used cars 0:18:05.200 --> 0:18:07.640 for some of the reasons I mentioned before. New car 0:18:07.720 --> 0:18:11.520 prices are at record highs uh and there are a 0:18:11.600 --> 0:18:16.040 huge number of fabulous used cars because we had record leasing, 0:18:16.240 --> 0:18:18.679 those cars are coming back onto the used car market, 0:18:19.080 --> 0:18:22.000 and there's a richer mix of the kinds of vehicles, 0:18:22.040 --> 0:18:24.399 so there's not only cars which used to be the 0:18:24.440 --> 0:18:27.560 only thing that was leased released and then UH sport 0:18:27.640 --> 0:18:30.560 utili vehicles which are really in favor with consumers and 0:18:30.560 --> 0:18:34.240 and a hugely discounted prices because they're three years old. 0:18:34.560 --> 0:18:36.480 That's what I was going to ask, is the used 0:18:36.480 --> 0:18:38.720 car values. I know this was something that was really 0:18:39.080 --> 0:18:42.680 UH sinking Hurts and Avis a couple of years ago 0:18:42.760 --> 0:18:45.119 because of the glut of leasing and then the cars 0:18:45.160 --> 0:18:47.880 that went into the used car market. I'm just wondering 0:18:48.080 --> 0:18:50.480 whether we've seen a real firming up there of those 0:18:50.520 --> 0:18:54.760 resale values. Yes, we have and UH and interestingly, you know, 0:18:54.840 --> 0:18:56.920 cars are kind of about a favor on the new 0:18:56.920 --> 0:18:59.560 car side, uh, and so we've seen a lot of 0:18:59.560 --> 0:19:02.040 discount there, but if you look at the used car side, 0:19:02.040 --> 0:19:06.479 there's that used car prices I've actually risen higher because 0:19:06.480 --> 0:19:08.760 there's such high demand. And of course some of the 0:19:08.760 --> 0:19:11.359 automakers have gotten out of the traditional car business and 0:19:11.440 --> 0:19:16.040 so there's uh, there's less availability there, so tremendous interest 0:19:16.080 --> 0:19:19.959 and use cars and that keeps prices strong. So, Michelle, 0:19:19.960 --> 0:19:22.440 you mentioned that the you know, the market has really moved, 0:19:22.480 --> 0:19:24.600 certainly in the US and new car markets and trucks 0:19:24.640 --> 0:19:27.760 and SUVs, and UM, it give us a sense of 0:19:27.880 --> 0:19:32.679 how sensitive those sales are too. Changes in gasoline prices 0:19:32.680 --> 0:19:35.200 were just noting earlier today that oil is down about 0:19:35.240 --> 0:19:38.200 five percent today, So it's kind of fluctuating. But boy, 0:19:38.200 --> 0:19:41.400 it just seems like the U s consumers trucks and SUVs. 0:19:41.400 --> 0:19:44.280 But that's not just the US. Globally, the shift is 0:19:44.320 --> 0:19:47.640 more towards sport utility vehicles. That's true in China, that's 0:19:47.640 --> 0:19:51.280 true true in uh Europe as well. UM. I think 0:19:51.600 --> 0:19:54.280 the automakers don't get enough credit that they have done 0:19:54.320 --> 0:19:59.280 an amazing job of improving fuel economy of sport utility vehicles. 0:19:59.320 --> 0:20:02.000 It used to be that was the reason people didn't 0:20:02.000 --> 0:20:04.800 buy them. That's kind of gone away. There's there's not 0:20:04.960 --> 0:20:10.000 this huge penalty for in terms of fuel price at 0:20:10.000 --> 0:20:13.080 fuel efficiency, and yet there's a ton of other advantage 0:20:13.080 --> 0:20:19.760 of you know, various combinations of passengers and cargo and 0:20:19.800 --> 0:20:22.840 that higher seating position, which is what everybody likes because 0:20:22.840 --> 0:20:26.080 they feel safer, they can see better, So it offsets 0:20:26.119 --> 0:20:29.239 the advantages understood. Michelle Krebs, thanks so much for joining us. 0:20:29.240 --> 0:20:47.560 Michelle's executive analyst at auto trader dot com based in Detroit. Well, 0:20:47.600 --> 0:20:50.439 the FED seemingly has navigated the US economy to what 0:20:50.560 --> 0:20:54.040 can be described as perhaps a soft landing with modest 0:20:54.280 --> 0:20:57.160 economic growth and limited inflation. To get some insight as 0:20:57.160 --> 0:21:00.000 to the FEDS thinking, returned to Danielle di Martino Booth. 0:21:00.320 --> 0:21:03.920 Danielle CEO and director of Intelligence for Quill Intelligence. She's 0:21:03.960 --> 0:21:06.679 also a former advisor that Dallas Fed to Reserve, and 0:21:06.720 --> 0:21:09.520 she's a Bloomberg opinion columnist. Danielle, thanks so much for 0:21:09.680 --> 0:21:13.879 being with us. What is your sense of what you 0:21:13.920 --> 0:21:16.080 think the FED will do next? I'm looking at the 0:21:16.280 --> 0:21:18.520 w I RP function and we just chatted about briefly 0:21:18.680 --> 0:21:22.400 before again a seventy nine, a chance for a rate 0:21:22.600 --> 0:21:24.359 rate cut by the end of the year. Do you 0:21:24.480 --> 0:21:27.000 agree with that, Well, it doesn't really matter if I 0:21:27.040 --> 0:21:29.600 agree with it. What matters is FED history, and FED 0:21:29.640 --> 0:21:32.560 history tells us really anytime you get over the line, 0:21:33.000 --> 0:21:35.760 they really start talking about whatever direction it's going to be, 0:21:35.760 --> 0:21:38.520 whether it's it's going to be easy or tightening. Once 0:21:38.600 --> 0:21:42.439 you get past sixty probability, it's kind of in the bag. 0:21:42.840 --> 0:21:46.119 So I would be surprised if between here and blackout, 0:21:46.240 --> 0:21:49.320 before the June fo MC, we didn't start to see 0:21:49.880 --> 0:21:52.399 a little bit more descent in terms of FED speak, 0:21:52.480 --> 0:21:57.080 because they have been so consistent across the entire committee 0:21:57.080 --> 0:22:00.520 they've had. They've all been towing the Clarita line about 0:22:01.040 --> 0:22:03.639 we're gonna let inflation run too hot. Right now, the 0:22:03.680 --> 0:22:06.520 market is telling us that there's there's nothing hot about it. 0:22:07.119 --> 0:22:10.240 Inflation needs a pachmina. It's running so cold, and it's 0:22:10.400 --> 0:22:12.520 looking more and more like and I think the bond 0:22:12.560 --> 0:22:14.840 market is telling us break evens are telling us that 0:22:15.000 --> 0:22:17.679 this is not transient and that the core PC is 0:22:17.680 --> 0:22:20.359 going to be pulled down further. So let's dig into 0:22:20.400 --> 0:22:23.200 that issue. Because according to the minutes that came out 0:22:23.320 --> 0:22:26.680 yesterday of the last for MC meeting. It does seem 0:22:26.760 --> 0:22:30.720 like members do believe that this is a transient sort 0:22:30.720 --> 0:22:35.800 of dipping inflation in a weakening Why does the market disagree. Well, 0:22:35.800 --> 0:22:39.280 it's interesting because not all participants on the Federal Open 0:22:39.320 --> 0:22:43.199 Market Committee agree. There was there's some fine print in 0:22:43.200 --> 0:22:46.879 the minutes yesterday that said several participants were concerned that 0:22:47.119 --> 0:22:49.879 inflation was not transitory, and then in fact CORPC was 0:22:50.000 --> 0:22:53.920 going to be pulled lower. But decoding FETE speak, participants 0:22:53.960 --> 0:22:58.840 mean non voting federals or of district presidents. So again, 0:22:59.000 --> 0:23:03.840 I think that the Fed wants for inflation to be transitory, 0:23:03.960 --> 0:23:06.439 but wanting and getting are two different things. When you 0:23:06.480 --> 0:23:09.960 start to see things like this morning's market composite data, 0:23:10.200 --> 0:23:13.399 it's a composite. It's at fifty point nine new orders 0:23:13.440 --> 0:23:16.680 in the manufacturing went negative for the first time. I mean, 0:23:16.680 --> 0:23:18.600 that's about the clearest signal you can get. We'll see 0:23:18.600 --> 0:23:21.800 if it's validated when the m numbers hit um. But 0:23:21.880 --> 0:23:24.840