Speaker 1: Our new spinoff show Lots More. We'll be back next Friday,
Speaker 1: but for now, enjoy this bonus episode with Steve Radner.
Speaker 2: Hello, and welcome to another episode of the Odd Blots podcast.
Speaker 2: I'm Tracy Alloway.
Speaker 1: And I'm Joe Whysenthal.
Speaker 2: Joe, it is the first week of the United Auto Workers' strike.
Speaker 2: I feel confident predicting that by the time this episode
Speaker 2: comes out, it'll probably still be ongoing.
Speaker 1: Right so we are recording this September twentieth. I think
Speaker 1: you're listening to this Friday, September twenty second. Even in
Speaker 1: the off chance that they get a deal between now
Speaker 1: and then, there is a lot going on with autos
Speaker 1: right now, there's a lot going out with labor that
Speaker 1: even if they're by some miracle there's a deal in
Speaker 1: the next forty eight hours, it's worth having a deeper
Speaker 1: understanding of what's going on right now.
Speaker 2: Absolutely, and we've obviously recorded an episode on this previously.
Speaker 2: We spoke to one of theaw leader's Dan Vicente, talked
Speaker 2: about some of the concerns. But I think this whole
Speaker 2: saga is interesting from a sort of thematic perspective because
Speaker 2: it gets it all these big picture conversations that we've
Speaker 2: been having, you know, questions over the division of labor
Speaker 2: in the US economy, over productivity, over the future of
Speaker 2: the US car industry, and how it's responding to environmental
Speaker 2: pressures and concerns industrial policy. Even it sort of wraps
Speaker 2: all of these things up in one complicated package.
Speaker 3: Let's put it that way.
Speaker 1: Yeah, you nailed it. I mean, there's the question of
Speaker 1: labor costs and the tight labor markets and whether this
Speaker 1: is an opportunity for labor to get a greater share
Speaker 1: of the pie.
Speaker 4: So to speak.
Speaker 1: There is the transition which was already happening, is already underway,
Speaker 1: and that poses very unique opportunities and threats to the
Speaker 1: legacy industry. And then this idea of like, well, we're
Speaker 1: in an era of sort of industrial policy, and part
Speaker 1: of this is by design the Bidenomics and so forth,
Speaker 1: and so you know how all of these things play together.
Speaker 1: It really, as you said, it comes together in this
Speaker 1: one story in a unique way in.
Speaker 2: The strike, right, So we obviously need to talk more
Speaker 2: about it. I am very happy to say that we
Speaker 2: do indeed have the perfect guest. We're going to be
Speaker 2: speaking with Stephen Ratner, a very prominent American financier, as
Speaker 2: they say, and someone who was very much involved, in
Speaker 2: fact spearheaded the big auto bailout, the auto task. Cars
Speaker 2: are the cars are, That's exactly it under the Obama
Speaker 2: administration in circa two thousand and eight, two thousand and nine.
Speaker 2: Someone who can talk very authoritatively over some of the
Speaker 2: concerns from the car makers and the broader sort of
Speaker 2: financial state of those companies. So Stephen is currently the
Speaker 2: chairman and chief executive officer of Willett Advisors, that's the
Speaker 2: investment arm for the personal and philanthropic assets of Michael Bloomberg,
Speaker 2: who is, of course the majority owner of Bloomberg LP. Steve,
Speaker 2: welcome to the show.
Speaker 4: Thanks so much for having me.
Speaker 2: We're excited to have you here. I wanted to start
Speaker 2: out with something that the UAW representative that I mentioned
Speaker 2: in the intro told us, and it's the idea that
Speaker 2: the unions accepted a lot of concessions in the aftermath
Speaker 2: of two thousand and nine in order to get their
Speaker 2: respective employers, the car companies back up and running.
Speaker 3: Is that right?
Speaker 2: And was there an expectation that at some point those
Speaker 2: concessions would reverse.
Speaker 5: No question that the unions made concessions as part of
Speaker 5: what we like to call not the bailout, but the
Speaker 5: rescue of the auto companies. It was important, it was
Speaker 5: an important part of committing what ultimately became eighty two
Speaker 5: billion dollars of tax payer money to this industry that
Speaker 5: they be shared sacrifice, that all the different constituents around
Speaker 5: the industry, whether it be labor, whether it be shareholders,
Speaker 5: whether it be suppliers, whether it be management, all participated
Speaker 5: in making shared sacrifice. So yes, that definitely was the case.
Speaker 5: But as I'm sure we'll get into, as you asked
Speaker 5: me some more questions, the concessions that the automaker the
Speaker 5: auto workers made back in two thousand and nine were
Speaker 5: relatively small compared to what they're asking for today, And
Speaker 5: what they're asking for today would not just restore whatever
Speaker 5: it is, whatever they gave up back in two thousand
Speaker 5: and nine, but add a bunch of other stuff on
Speaker 5: top of that.
Speaker 1: What did they give up in two thousand and nine.
Speaker 1: The main thing that came up in our previous conversation
Speaker 1: on the strike was just this idea of tiered labor,
Speaker 1: a teering system. Certain employees sort of grandfathered into one
Speaker 1: pay scale and then an acceptance that new employees would
Speaker 1: not be on that scale. But what did you give
Speaker 1: your comparison of your characterization of what the UAW gave
Speaker 1: up or was willing to concede to in two thousand
Speaker 1: and nine versus what we know about what the UAW
Speaker 1: is asking for now.
Speaker 5: Some of the things that were given up in two
Speaker 5: thousand and nine were actually given up just before the
Speaker 5: auto rescue because of the problems that the industry had.
Speaker 5: So I'm going to lump all that together into what
Speaker 5: really happened around those couple of years, both right before
Speaker 5: and right after as part of the auto rescue. It's
Speaker 5: important to say that no full time Tier one as
Speaker 5: we called them, member of the UAW took any reduction
Speaker 5: in their cash compensation. That was a part of the understanding.
Speaker 5: There were concessions around things like the Tier two workers,
Speaker 5: who are workers who get newly hired workers who started
Speaker 5: out at roughly half of the cash compensation of the
Speaker 5: established workers. I don't want to get into a huge
Speaker 5: fight with the UAW, but it's important to note that
Speaker 5: the way the concession, the types of concessions that the
Speaker 5: UAW was willing to make mostly affected these newer workers
Speaker 5: rather than the established workers. It was a case of
Speaker 5: the UAW and effect. Think of it as there was
Speaker 5: a big pot of money and how does it get allocated?
Speaker 5: And the uaw's attitude is that the existing workers should
Speaker 5: be protected and the new workers should in effect take
Speaker 5: a lot of the pain. But there were other changes
Speaker 5: made around healthcare, especially for retirees, around the so called
Speaker 5: jobs bank, in which workers were getting paid even if
Speaker 5: they were laid off during a downturn, they could get
Speaker 5: ninety percent of their wages for actually working. And so
Speaker 5: it was a very complicated package of a lot of stuff,
Speaker 5: but we did think that in total it reduced the
Speaker 5: automaker's labor costs by a meaningful amount.
Speaker 2: What was it like negotiating with the unions back then?
Speaker 5: It was very different than today, and I think it
Speaker 5: was different for a couple of reasons. First, there was
Speaker 5: a crisis, and as Ram Emmanuel, President Obama's chief of STEFF,
Speaker 5: liked to say, never let a good crisis go to waste,
Speaker 5: and so the UIW got it. They understood that without
Speaker 5: this shared sacrifice, these companies would go bankrupt and perhaps
Speaker 5: even disappear and lose all of those jobs, and so
Speaker 5: they got the message in that. Secondly, they had a president,
Speaker 5: Ron Gettelfinger, who I dealt with extensively, who was a
Speaker 5: very reasonable guy. He had an agenda, he had members
Speaker 5: he wanted to take care of. We respected that, he
Speaker 5: respected us. The discussions are always very cordial. Nobody, at
Speaker 5: least in the meetings I was in, ever started yelling
Speaker 5: and screaming or pounding the table or any of that
Speaker 5: kind of stuff. And in contrast, today, for a variety
Speaker 5: of reasons, the UAW has a leader, Sean Fame, who
Speaker 5: is much more of a firebrand, who's put these rather
Speaker 5: large demands on the table, who's actually conducted a lot
Speaker 5: of these negotiations publicly, which is not the way it
Speaker 5: worked certainly when I was involved with it, or the
Speaker 5: way I think it's worked most times in the past.
Speaker 5: And that reflects a couple of things I think. I
Speaker 5: don't know Sean Fayne, but I think it reflects a
Speaker 5: couple of things. One that, in fact, as I'm sure
Speaker 5: we'll get into, the auto workers haven't really done that
Speaker 5: well in the last fifteen years, and so they do
Speaker 5: have legitimate concerns, grievances, whatever you want to call it
Speaker 5: around that. Secondly, the UAW, as i'm sure you know,
Speaker 5: has been through a variety of corruption scandals in the
Speaker 5: last few years, had a whole succession of presidents. These
Speaker 5: are not ron Gettholfinger kinds of guys. And I think
Speaker 5: the membership is just angry and frustrated and disappointed in
Speaker 5: their union. And I think Sean Fain has been able
Speaker 5: to capitalize that. He's really more of a firebrand than
Speaker 5: he is a dispassionate negotiator.
Speaker 1: You mentioned the tiering system, one argument that the union
Speaker 1: makes that tiering is bad for the It's just bad
Speaker 1: for the union. It creates divisions. The union is supposed
Speaker 1: to be sort of one family or one team. And
Speaker 1: then if you say, as you put tier one tier
Speaker 1: two workers, that inherently weakens the union in your view,
Speaker 1: Is it sort of plausible or reasonable that it goes
Speaker 1: back to a single tier people doing this getting the
Speaker 1: same pace goal for the same job. And then what
Speaker 1: else you said in the beginning that the demands are
Speaker 1: above and beyond what that sacrifice was like roughly fourteen
Speaker 1: years ago. So talk to you about what you perceive
Speaker 1: as being further beyond that.
Speaker 5: Well, let's take that in pieces, and you can remind
Speaker 5: me of a couple of the questions that I'm not
Speaker 5: going to remember, but because I'm focused on your first question. Yeah,
Speaker 5: there's no doubt that it is odd, I think unfair
Speaker 5: in many respects, a bad dynamic to have two people
Speaker 5: working on the same assembly line performing essentially similar functions.
Speaker 5: Maybe one is putting on windshield wipers and one is
Speaker 5: putting on door handles, and one is getting paid literally,
Speaker 5: at least back then, was getting paid literally half as
Speaker 5: much in cash and a much reduced benefits package relative
Speaker 5: to the guy or a woman who was standing next
Speaker 5: to him doing essentially the same job. That's a bad dynamic.
Speaker 5: But it occurred in part for the reason I said
Speaker 5: that the union was unwilling to have the existing members
Speaker 5: make a significant and more significant sacrifice. Sacrifice I actually
Speaker 5: reduced their cash compensation. And so again you think of
Speaker 5: it as a pot of money and has to get allocated,
Speaker 5: and a disproportionate amount of it got allocated the existing
Speaker 5: workers at the expense of these knew what we used
Speaker 5: to call here too now they call them temp workers
Speaker 5: who had just started at the company were getting paid
Speaker 5: a lot less, all.
Speaker 2: Right, I'm going to take up the second portion of
Speaker 2: Joe's question then, And you've pointed out in an op
Speaker 2: ed that you think there's no way the automakers will
Speaker 2: be able to meet some of the asks or all
Speaker 2: of the asks, rather that the UAW is making. Can
Speaker 2: you explain that a little bit more. What's the thinking
Speaker 2: behind that statement.
Speaker 5: The auto companies are making very very good profits at
Speaker 5: the moment. There's no nobody can argue about that. But
Speaker 5: this is a tough business. The profit margins are relatively thin,
Speaker 5: the capital expenditures required are large. The transition to EVS
Speaker 5: is going to be very expensive and painful for these companies.
Speaker 5: And so when you boil it all together, if you
Speaker 5: look at General Motors, for example, it's stock price. When
Speaker 5: it's stock price from when it went public, I think
Speaker 5: about twelve years ago it was twenty eleven, has not budged.
Speaker 5: The overall stock market is up two hundred and seventy
Speaker 5: five percent, and so Wall Street investors are basically saying,
Speaker 5: we don't think these companies are actually doing that great,
Speaker 5: and therefore they have limits as to what they can
Speaker 5: do and still have the resources and the profits they
Speaker 5: need to keep investors happy and do this transition. And
Speaker 5: so when you talk about things like getting paid for
Speaker 5: forty hours but working thirty two hours, when you talk
Speaker 5: about things like restoring the jobs bank where you get
Speaker 5: paid even if you're laid off. When you talk about
Speaker 5: going back to a defined benefit pension plan from defined contribution,
Speaker 5: which would be wonderful, but very few companies even have
Speaker 5: those anymore.
Speaker 4: From new workers, those.
Speaker 5: Are demands that the company simply can't meet. I think
Speaker 5: what this will hopefully come down to is a big
Speaker 5: ask on cash compensation. The union wants thirty five thirty
Speaker 5: six percent. The companies have offered twenty percent. This would
Speaker 5: be over four years and some other one time payments
Speaker 5: something like somewhere in there. There's a deal to be done,
Speaker 5: but all the rest of this stuff is mostly going
Speaker 5: to have to go away to have an outcome that
Speaker 5: I think is appropriate for these car companies.
Speaker 4: We're obviously going.
Speaker 1: To talk more about the negotiations, but I want to
Speaker 1: actually just pause the union component of the conversation for
Speaker 1: a second setting. Aside the UAW contract, This would be
Speaker 1: a major period of upheaval for the industry regardless, because
Speaker 1: the transition that we're talking about and the incredible investment
Speaker 1: that it's going to take to compete with Tesla, to
Speaker 1: compete potentially on a global scale with Chinese ev makers,
Speaker 1: you name it. Give us your review of just how challenging,
Speaker 1: setting aside the labor component, how challenging for the business
Speaker 1: models of the Big three, which make most of their
Speaker 1: profits from selling cars with internal combustion engines, How challenging
Speaker 1: is this ev trans.
Speaker 5: It's going to be significantly challenging. And we should talk
Speaker 5: about the labor piece of it, because that's very relevant.
Speaker 5: But let me, as you ask, let me talk about
Speaker 5: some of the other elements of it. Look, you have
Speaker 5: a whole bunch of new entrants coming into this industry
Speaker 5: starting from scratch. I'm reading at the moment Walter Isaacson's
Speaker 5: new biography of Elon Musk and Tesla. He started with
Speaker 5: a blank piece of paper when he did Tesla, and
Speaker 5: he was able to design a manufacturing system, a set
Speaker 5: of supply arrangements, not without a lot of commotion and
Speaker 5: difficulty and so forth, and with no unions, by the way,
Speaker 5: and build Tesla in effect from the ground up. The
Speaker 5: legacy companies have a way of doing things that's existed
Speaker 5: for now one hundred and twenty years plus or minus,
Speaker 5: and so they have to completely rethink a lot of
Speaker 5: how they operate a lot of their processes, and they
Speaker 5: have to compete against not just Tesla, but Rivian and
Speaker 5: Lucid and the Chinese companies you mentioned are not yet
Speaker 5: here because of the high tariffs that we have on
Speaker 5: auto imports, but sooner or later they probably will be here.
Speaker 5: And so what has been a tough business is getting
Speaker 5: even tougher. And it's important for these companies to have
Speaker 5: a cost structure that they can live with.
Speaker 2: You touched on it in that answer just then. But Tesla,
Speaker 2: of course is famously non unionized, and then of course
Speaker 2: there is the threat of the Chinese EV manufacturers and
Speaker 2: cheap labor over there. Could it not go the other
Speaker 2: way though? Could you not have a situation where instead
Speaker 2: of competing with non unionized EV companies that maybe some
Speaker 2: of those start to get unionized, Like maybe these actions
Speaker 2: start to filter through to companies like Tesla.
Speaker 5: I think it's pretty unlikely. I think that it's not
Speaker 5: just Tesla, but when you look at the auto companies
Speaker 5: that have been operating in the South for a long time,
Speaker 5: which were Toyota, Hana, the German companies and so forth.
Speaker 5: They are also not unionized, and I believe I'm right,
Speaker 5: although my memory is a little hazy and sad saying that,
Speaker 5: I think there have been efforts to try to unionize
Speaker 5: them that have failed because the workers understood. Look, I
Speaker 5: think we should step back and talk about the general
Speaker 5: issue of manufacturing in the United States, not just autos.
Speaker 5: But this was a real wake up call for me.
Speaker 5: I had spent my whole career working in essentially with
Speaker 5: service industry companies, mostly media and telecoms, and then suddenly
Speaker 5: I'm plunged into manufacturing. And what I saw was really
Speaker 5: scary to me, which was that we basically have a
Speaker 5: high cost structure in this country. Appropriately, we want our
Speaker 5: manufacturing workers to earn a good living. But an increasingly
Speaker 5: globalizing world and we can talk about whether the world
Speaker 5: is now going to deglobalize, but at least has been globalizing.
Speaker 5: It was getting harder and harder for us to compete.
Speaker 5: And that's why, in large part, we lost so many
Speaker 5: manufacturing jobs over these last fifteen or twenty years. And
Speaker 5: so you had, from the union's point of view, you
Speaker 5: had jobs moving from the Midwest to the South, from
Speaker 5: union jobs to non union jobs. But you also had
Speaker 5: a lot of jobs moving to Mexico from these same companies,
Speaker 5: including the Detroit companies. The Detroit Three have twenty facilities
Speaker 5: in Mexico of one sort or another. And when you
Speaker 5: look at the wage structure in Mexico, you're literally talking
Speaker 5: about GM actually has a unionized plant there which has
Speaker 5: low wages. But if you talk about the non unionized
Speaker 5: plants there, you're talking about wages of nine to thirteen
Speaker 5: or fourteen dollars a day, not an hour a day.
Speaker 5: And if you talk to auto executives who operate there,
Speaker 5: they will tell you that they get very good productivity
Speaker 5: out of their Mexican workers. Some will say they get
Speaker 5: better productivity. And the consequence of that is that the
Speaker 5: number of auto workers in Mexico has crossed the line
Speaker 5: and has now higher the number of auto workers in
Speaker 5: the US. Our number of auto workers did recover after
Speaker 5: the two thousand and nine exercise, but Mexico simply grew
Speaker 5: faster and has outgrown US and is now a larger
Speaker 5: source of employment at these very very low ways. And
Speaker 5: so this isn't changing. And again you have the Chinese
Speaker 5: as we talked about coming and potentially other low wage countries,
Speaker 5: and so it really worries me about the future of manufacturing.
Speaker 5: The yin and the yang of this whole situation with
Speaker 5: the UAW in a sense is that it's a tension
Speaker 5: between jobs and pay. The more you pay, the fewer
Speaker 5: jobs you ultimately have, because inevitably these jobs will migrate
Speaker 5: out of the union facilities and into non union facilities.
Speaker 1: I don't know if it's pushing back, but intuitively or
Speaker 1: a sort of big picture I get that, Okay, if
Speaker 1: you can get high productivity or commensurate productivity out of
Speaker 1: a plant in Mexico and labor costs are a lot
Speaker 1: cheaper than over time, are going to have this migration.
Speaker 1: But labor costs still, like my understanding, I've seen this
Speaker 1: stat a few times, like they're not a huge part.
Speaker 1: They're like I've seen a stat here it says five
Speaker 1: percent of auto industry costs, so it's like it's significant,
Speaker 1: but it's not the majority of the cost or even
Speaker 1: anywhere close to the major.
Speaker 4: Costs of a car.
Speaker 1: So intuitively, someone I look at five percent, who's like, okay, well, like,
Speaker 1: what would be the big problem if it moved to
Speaker 1: seven percent or six percent, I guess I'm just skeptical
Speaker 1: or I have this intuitive skepticism that the labor component,
Speaker 1: if it's a bit more radically changes the economics for
Speaker 1: these companies.
Speaker 4: Well, let's think about it this way.
Speaker 5: Okay, I think I don't have this figure in my head,
Speaker 5: but let's just say, and I think it's probably directionally
Speaker 5: about right that the profit margins all going well, and
Speaker 5: there are plenty of times when they're not going well.
Speaker 5: The profit margins for these kinds, for these big companies,
Speaker 5: there's maybe ten percent or something like that. And so
Speaker 5: if your labor costs go from five to seven, as
Speaker 5: you said, that means your profit margins go from ten
Speaker 5: to eight, and you've wiped out twenty percent of your profits.
Speaker 5: And that's a lot to a company. I mean companies
Speaker 5: like these that are high cost companies with lots of
Speaker 5: moving parts, no pun intended. They watch, or they're supposed
Speaker 5: to watch every penny, every cost item, and work unbelievably
Speaker 5: hard to keep costs down to make some reasonable profit.
Speaker 5: These are not companies with forty percent profit margins where
Speaker 5: maybe it doesn't matter, And so it is important to
Speaker 5: these companies to have labor costs be competitive with other
Speaker 5: companies that are basically doing the same thing with labor
Speaker 5: costs and can behalf of what they are for the
Speaker 5: Detroit three.
Speaker 2: Well, on a similar note, the UAW strikes are happening
Speaker 2: against this backdrop of historically low unemployment post pandemic, and
Speaker 2: I imagine that has empowered a lot of the workers
Speaker 2: to feel like this is the moment when they can
Speaker 2: ask for all these different things. But the other broad
Speaker 2: trend that's happening is the sort of post pandemic tendency
Speaker 2: towards reshoring or building more resilient supply chains, or call
Speaker 2: it whatever you want. And of course the backdrop of
Speaker 2: Bidenomics as well, where Biden has basically said he wants
Speaker 2: to build more industrial and manufacturing capacity within the US.
Speaker 2: Does that not potentially put a lid on the threat
Speaker 2: of moving a lot of car production to places like
Speaker 2: China or Mexico.
Speaker 4: Well, let me try to unpack that.
Speaker 5: You're going to again have to remind me of a
Speaker 5: couple of good questions that you asked that I won't remember. Look,
Speaker 5: the first point that you alluded to, I just would
Speaker 5: like to mention for the benefit of the listeners, which
Speaker 5: is and maybe it's obvious, but as you said, what's
Speaker 5: happening right now is we have a historically low unemployment
Speaker 5: rate three point eight percent and about one and a
Speaker 5: half jobs for everybody who's actually looking for a job,
Speaker 5: and so that has led workers in many, many industries
Speaker 5: to feel empowered to ask for more. And so obviously
Speaker 5: you have the screenwriters and the actors on strike, you
Speaker 5: have hotel workers in LA on strike. At the moment,
Speaker 5: you've had very large contracts to the ups drivers, to
Speaker 5: the American Airlines pilots and so forth. But those are
Speaker 5: all service industries and if you pay those people more,
Speaker 5: sure it cuts into profits a little bit. It may
Speaker 5: add to inflation a little bit because the companies raise
Speaker 5: their prices, but fundamentally, those jobs don't leave. They can't
Speaker 5: leave if you have to have if you're an LA
Speaker 5: hotel worker, that's the only place you're going to work.
Speaker 5: And again, manufacturing, manufacturing is different. So let's talk about
Speaker 5: deglobalization and industrial policy and bynomics because they are somewhat different.
Speaker 5: Obviously related. I think the wake up call during the
Speaker 5: pandemic and the context of what's going on with China
Speaker 5: to many American companies and government officials is that we
Speaker 5: globalized to a great extent to cut costs for Americans.
Speaker 5: And it's important to recognize that part of why we
Speaker 5: had so little inflation until the pandemic was because we
Speaker 5: were importing manufactured goods from China from other places, not cars,
Speaker 5: that were much cheaper than anything we could make here,
Speaker 5: and so prices for things like clothes were very barely
Speaker 5: moved I think during this period because they were able
Speaker 5: to source it more cheaply. Now, companies and again the
Speaker 5: government are saying, well, the supply lines are too stretched
Speaker 5: and this is how you get in trouble, and so
Speaker 5: there will be and it's not an organized effort, it's
Speaker 5: not a government policy that, it's not a government edict.
Speaker 5: But companies are reassessing their supply lines and saying, Okay,
Speaker 5: you know, maybe we shouldn't rely on China. But then
Speaker 5: they have to get it from somewhere else. And by definition,
Speaker 5: if they were getting it from China because it was
Speaker 5: the cheapest they could get, it's going to cost more
Speaker 5: to get it from somewhere else, and that does add
Speaker 5: at some point into inflation and costs for everyday Americans.
Speaker 5: And so this is not going to be a top
Speaker 5: down decision from Washington. This is going to be decision
Speaker 5: made company by company to try to balance secure supply
Speaker 5: lines with being able to keep prices to consumers at
Speaker 5: reasonable levels. And I think when the dust settles, it
Speaker 5: will not be as big of a It will not
Speaker 5: be as big as people think it might be for
Speaker 5: the because of the cost problem that companies are going
Speaker 5: to find the costs are higher and are going to
Speaker 5: maybe pull back from some of this deglobalization that you
Speaker 5: see talking about. So now if you're ready, we can
Speaker 5: talk about bionomics and industrial policy. Yeah.
Speaker 2: Well, wait, can I ask one more question just on
Speaker 2: the car industry. I mean, you were the cars and
Speaker 2: before you were the cars are you were in private
Speaker 2: equity and an investment banker. So you've dealt with all
Speaker 2: these different types of businesses over the years. What did
Speaker 2: you learn about the car industry specifically? Is there something
Speaker 2: that makes that business model special in your mind?
Speaker 5: It's an iconic American industry. It's an industry that every
Speaker 5: country takes some national pride in having their own company.
Speaker 5: In effect, if you look at Europe, there's been some
Speaker 5: mergers recently to try to rationalize it. But every country
Speaker 5: in Europe felt like it had to have its own
Speaker 5: car company, even though it really didn't make sense for
Speaker 5: every country in Europe to have its own car company.
Speaker 5: And so if I were to stand up and say,
Speaker 5: you know, we don't really need a car industry in
Speaker 5: this country, I'd be probably drawn and quartered or burned
Speaker 5: at the stake or something like that. There's a lot
Speaker 5: of emotion and feeling around it. The car industry is
Speaker 5: three percent of our GDP that it may not sound
Speaker 5: like a lot, but that is a lot. And I
Speaker 5: think there's a strong feeling that we need to have
Speaker 5: a robust car industry here. And I get that. As
Speaker 5: I said I when I got into the auto rescue job,
Speaker 5: I did see a couple of things. One was the
Speaker 5: unbelievable pressure I'm manufacturing that I just described and how
Speaker 5: tough this was. And secondly, I saw these iconic companies
Speaker 5: that were really so much a fabric of America that
Speaker 5: we really felt like we.
Speaker 4: Had to save.
Speaker 5: That it was the right thing to do with tax paramney,
Speaker 5: which by the way, we got virtual all of it back.
Speaker 1: Out of curiosity. Other other factors that pressure domestic auto
Speaker 1: manufacturing or maybe manufacturing in general in the US versus
Speaker 1: other countries, not related to labor costs. I don't know
Speaker 1: whether there are environmental regulations, et cetera, other other reasons
Speaker 1: why manufacturing in the US is tough.
Speaker 5: That's a great question, and the answer is yes, we
Speaker 5: obviously do focus on this labor problem. But for example,
Speaker 5: permitting in the US and the environmental regulations and all
Speaker 5: that surrounds it is really really tough. Let me give
Speaker 5: you an example that has nothing with the car industry,
Speaker 5: but we recently looked at at copper invests in a
Speaker 5: copper mine in Arizona.
Speaker 4: Fine.
Speaker 5: It's what I learned, though, is that much and I
Speaker 5: don't know the percentage of the copper ore that we
Speaker 5: mine here gets sent to China to be smelted and
Speaker 5: then it comes back here, all adding to cost. And
Speaker 5: of course the Chinese don't exactly observe a lot of
Speaker 5: environmental protections when they do that kind of stuff over there.
Speaker 5: And meanwhile, there's a smelter in Idaho I'm told that
Speaker 5: is built sitting there not operating because it can't get
Speaker 5: permitted because of environmental concerns and so and of course,
Speaker 5: copper is a key ingredient in EVS and all the
Speaker 5: energy transition things we're talking about. And so there is
Speaker 5: a tension in this country between various goals, and we
Speaker 5: have a goal of obviously making this energy transition. If
Speaker 5: we want to make an energy transition, we're going to
Speaker 5: have to radically change the permitting process. It would be
Speaker 5: great if you want at some point we can talk
Speaker 5: about semiconductors, which is another manufacturing business where there are
Speaker 5: a lot of issues to be thought about.
Speaker 2: Well, all right, I'll take the bait. Let's talk about semiconductors.
Speaker 2: And I mean this leads nicely into bidenomics as well.
Speaker 5: So look, so what happened with semiconductors, and I've actually
Speaker 5: spent a fair amount of time on semiconductors recently because
Speaker 5: I think it's a fascinating subject, is that we of
Speaker 5: course invented semiconductors basically after Sputnik. We basically had our
Speaker 5: Sputnik moment. We said we've got to become a technology leader.
Speaker 5: The Defense Department got heavily involved DARPA, and the Internet
Speaker 5: was one outcome of that our leadership, and semiconductors, with
Speaker 5: Intel in particular being our national champion, but many many
Speaker 5: other companies, QUALCOMAMD whatever also being products of that. But
Speaker 5: what then happened was that we also encouraged and we
Speaker 5: were not the main reason this happened, but you then
Speaker 5: had a semiconductor industry grow up in South Korea, Japan, Taiwan,
Speaker 5: and Singapore. We encouraged it because we felt that if
Speaker 5: those countries were strong economically, it would help resist China
Speaker 5: better in its own economic expansion. Those countries pursued a
Speaker 5: very vigorous industrial policy, which relates to your question, to
Speaker 5: develop those industries there. And so where do we sit now?
Speaker 5: We sit now we're ninety two percent of the world's
Speaker 5: high end semiconductors, the most important ones that power your
Speaker 5: phones and lots of other things that you use are
Speaker 5: made in Taiwan, which obviously has a series of issues
Speaker 5: surrounding it. And now suddenly we want to bring that
Speaker 5: back here. But what we're finding is, and what we're
Speaker 5: going to find, is that that is not easy. We
Speaker 5: don't have the ecosystem of engineers, suppliers and so on
Speaker 5: that has grown up around the semiconductor industries elsewhere. We
Speaker 5: have this permitting problem, we have a high cost structure TSMC.
Speaker 5: Taiwan Semiconductor, which is the leading company in making this stuff,
Speaker 5: has a facility up on the Oregon Washington border they've
Speaker 5: had for a number of years. They say their costs
Speaker 5: are fifty percent higher than they are back in Taiwan,
Speaker 5: and so yeah, they're building a fab as these factories
Speaker 5: are called in Phoenix. But it's going to cost a
Speaker 5: lot and it's going to make barely a dent in
Speaker 5: our semiconductor situation. So we can talk about our industrial
Speaker 5: policy towards semiconductors. We have. The Congress has approved fifty
Speaker 5: two billion dollars for mostly for tax and grants to
Speaker 5: build these things. Another I think twelve billion of it
Speaker 5: for research and development. But then they've gone out with
Speaker 5: an RFP for companies to apply with all kinds of
Speaker 5: other conditions and things around it, like that companies have
Speaker 5: to provide childcare for their employees. One thing, one of
Speaker 5: the most important things that I learned in the auto
Speaker 5: rescue and that we were lucky to have, was we
Speaker 5: were told by the White House, you focus on fixing
Speaker 5: the companies, We'll worry about all the other issues that
Speaker 5: are out there, whether it's environment, labor, whatever, You can't
Speaker 5: have multiple objectives in a policy that's that important and
Speaker 5: be successful. In my opinion, you have to have one
Speaker 5: objective and be willing to make certain sacrifices around it
Speaker 5: to be successful.
Speaker 1: Setting aside whether these sort of other aspects like childcare
Speaker 1: are going to hobble our efforts to build domestic semiconductor manufacturing.
Speaker 1: I mean, you could make the argument right that the
Speaker 1: US semiconductor industry is doing really well. In Vidia is
Speaker 1: a one trillion dollar company. That's twice TSMC is only
Speaker 1: a four hundred and fifty eight billion dollar company, so
Speaker 1: in video is bigger than TSMC. Do you agree with
Speaker 1: the even premise that we need to have more domestic
Speaker 1: semiconductor manufacturing.
Speaker 4: And video doesn't make anything? No, I know, they make nothing.
Speaker 1: But they but they make a ton of money.
Speaker 4: Yeah that point, but.
Speaker 1: No, no, I know, But like, but do we need
Speaker 1: I mean yeah, so the whole look, the whole thing
Speaker 1: sort of arose. This got this semiconductor supply chains got
Speaker 1: on everyone's radar in twenty twenty when the low end
Speaker 1: lagging edge nodes that went into cars, there was a
Speaker 1: shortage of them. But then you know that eased and
Speaker 1: we don't expect pandemics to happen except maybe once every
Speaker 1: hundred years. Like, what, how much manufacturing do we need
Speaker 1: to do here?
Speaker 5: A lot or some or look, I don't know. I'm
Speaker 5: rather skeptical as possible, but in imperfect world you'd want
Speaker 5: a lot more. Nvidia does not make anything. It doesn't
Speaker 5: matter what their profits are. They could design chips every
Speaker 5: day from now till the end of civilization, but if
Speaker 5: they don't have somebody to make them, it doesn't matter.
Speaker 5: So in the chip world, you can separate I, at
Speaker 5: least in my own mind, separated into kind of three
Speaker 5: groups of chips. You have memory chips, which are basically
Speaker 5: a commodity. We make a lot of them. That's not
Speaker 5: going to be an issue. You have, as you said,
Speaker 5: low end processing chips. We make some of those. There
Speaker 5: are made in plenty of places in the world. We
Speaker 5: can be competitive there. But none of that matters if
Speaker 5: you don't have high end ships, because you need those. Again,
Speaker 5: it's not just your phones, it's Defence Department's missiles. It's
Speaker 5: all kinds of stuff that cannot function without them, and
Speaker 5: we don't make any of them here. We literally don't
Speaker 5: make any of them.
Speaker 4: Here.
Speaker 2: Okay, if we agree that we do need to semiconductors
Speaker 2: in the US, and that maybe there is a role
Speaker 2: for industrial policy or government money to play in that process.
Speaker 2: I know you've been somewhat critical of the federal deficit
Speaker 2: in recent years. How do you square those two objectives,
Speaker 2: you know, not wanting to explode the public debt but
Speaker 2: also wanting to foster certain domestic industry.
Speaker 4: Look, first, let me say a couple things.
Speaker 5: First of all, I am on the more skeptical end
Speaker 5: of the value of industrial policy. I think when the
Speaker 5: government gets into the business of picking winners, there are
Speaker 5: many many ways in which it can mess up. I
Speaker 5: will freely concede that what the Asian countries, the for
Speaker 5: Asian countries I mentioned did in semiconductors, which is heavily
Speaker 5: through industrial policy, worked and so there are plenty of
Speaker 5: examples it works. Lots of people like me would say, Okay,
Speaker 5: if you give me full control of this and I
Speaker 5: don't have to deal with all this other stuff and
Speaker 5: politics and whatever, I can make this work. There's a
Speaker 5: certain amount of hubris in saying that, but that's what
Speaker 5: a lot of us would say. That's not how it's
Speaker 5: going to work. It's going to work as a whole
Speaker 5: different kind of process, and that I think brings a
Speaker 5: lot of risks in terms of the costs. We're not
Speaker 5: talking about that much money. I mean, we have a
Speaker 5: federal budget deficit of two trillion dollars. We're talking about
Speaker 5: fifty two billion over a number of years. It is
Speaker 5: important if we believe we can execute it well. And
Speaker 5: as I said, I have my questions about that. It
Speaker 5: is just as important as many many other things the
Speaker 5: government does. And we just would need to find fifty
Speaker 5: two billion dollars somewhere else to pay for this because
Speaker 5: it is. It should be a priority if we can
Speaker 5: execute it well.
Speaker 1: Let me bring it back to autos for a second.
Speaker 1: You laid out the logic of why we should have
Speaker 1: some more manufacturing of semiconductors here. Does that logic to
Speaker 1: you also apply to the battery realm?
Speaker 4: I thought you were asking about autos in general.
Speaker 1: I think, well, we could go into audit, but like
Speaker 1: that seemed to be a specific concern, and I think
Speaker 1: that when they passed the Inflation Reduction Act, a big
Speaker 1: part of it was probably one of Joe Mansion. A
Speaker 1: critical vote was like he does not want to be
Speaker 1: in the same position that the US has found itself
Speaker 1: in with respect to solar with respect to potentially semiconductors,
Speaker 1: and find us in that same vulnerable position with respect
Speaker 1: to batteries.
Speaker 5: I would like to see us make more batteries here,
Speaker 5: because there are a lot of batteries made in China.
Speaker 5: I don't worry quite as much about that as I do.
Speaker 5: It's about semiconductors because they're also batteries made in South
Speaker 5: Korea and lots of other places that are friendly to us.
Speaker 5: And we're Look, we are living in a global world
Speaker 5: and we're not going to get away from that. We're
Speaker 5: not going to get away from that. We have spent
Speaker 5: too many years globalizing. There's a company called ASML that
Speaker 5: you may have heard about, which makes the equipment that
Speaker 5: makes semiconductors. Their high end EUV what's called an EUV
Speaker 5: machine has something like six hundred and fifty thousand parts
Speaker 5: in it. It's one of the most complicated pieces of machinery,
Speaker 5: if not the most complicated made. Those parts come from
Speaker 5: all over the world. The intellectual property is owned by
Speaker 5: countries all over the world, including by US. Some of
Speaker 5: those parts are actually made in California, and so we're
Speaker 5: not going to get away from that. The world's not
Speaker 5: going to get away from that. We have to accept
Speaker 5: that we're always going to be at some risk of
Speaker 5: supply line problems if the world becomes a less forgiving place.
Speaker 5: So I would like to see us make some batteries here.
Speaker 5: I think it is a much easier challenge than making
Speaker 5: semiconductors here. So I think it's possible and likely that
Speaker 5: we will make some. Tesla makes its batteries here, of course,
Speaker 5: But again we shouldn't get overly optimistic about how many
Speaker 5: we're going to make and what the costs are going
Speaker 5: to be.
Speaker 2: I'm going to ask you to put your banker slash
Speaker 2: private equity hat on again. As a director of capital,
Speaker 2: how do you encourage more money to flow into some
Speaker 2: of these strategically and or environmentally important industries such as semiconductors,
Speaker 2: such as potentially batteries, things like that, where to date,
Speaker 2: maybe there hasn't been as much money as certain people
Speaker 2: would have liked.
Speaker 5: In some industries where the prospects for return don't seem
Speaker 5: fulsome enough for us to invest there may if they're
Speaker 5: important enough, then the government needs to step in so
Speaker 5: let's talk about how the government can do this in
Speaker 5: a way that is most cost effective. If you think
Speaker 5: about it very broadly, the government can provide subsidies. They
Speaker 5: can provide tax incentives. The problem with subsidies is then
Speaker 5: you have the government in effect picking winners, and that
Speaker 5: scares me. The advantage of tax incentives is you're basically
Speaker 5: letting the market decide which projects are going to go forward,
Speaker 5: with the tax and centives providing and added boost. We
Speaker 5: have seen in my investment role, we have seen projects
Speaker 5: that came by a couple of years ago that we
Speaker 5: could not get pencil out to make returns meet our thresholds,
Speaker 5: and so we didn't invest. We literally had one of
Speaker 5: those same projects come back after the IRA was passed
Speaker 5: and suddenly there's i think a thirty percent or some
Speaker 5: large tax credit associated with it, and the project suddenly
Speaker 5: made economic sense and we invested in it.
Speaker 4: What area are we talking about. This was in the
Speaker 4: solar area. In the solar area.
Speaker 5: Yeah, And so that's how the market can work better,
Speaker 5: and it is working better. In fact, it's working so
Speaker 5: well that it seems clear that the original estimate for
Speaker 5: the cost of the IRA, which I think was around
Speaker 5: five hundred billion. Goldman Sax thinks it's going to be
Speaker 5: one point three trillion. Other people are somewhere in between.
Speaker 5: And that may sound like a bad thing, and it is,
Speaker 5: obviously from the standpoint of the budget deficit, but it's
Speaker 5: a good thing in the sense that these incentives have
Speaker 5: taken so many projects that were not economic and made
Speaker 5: them economic. And so you've had this enormous take up
Speaker 5: and we will have a lot of progress made in
Speaker 5: this country on energy transition projects because of it.
Speaker 1: Let's go back to cars more broadly, because something it
Speaker 1: comes up a lot in our conversations. It's not just
Speaker 1: about do you have the cash, It's not just about
Speaker 1: do you have the workers. It's like are you good
Speaker 1: at it? Are the learning by doing? And when you
Speaker 1: talk about you know, you even mentioned the car industry
Speaker 1: in the US has been working on it's sort of
Speaker 1: existing model for over a century. The chip makers in
Speaker 1: places like Taiwan and Korea, like they've just gotten really
Speaker 1: good at what they do and they know how to
Speaker 1: do these repeatable processes. When it comes to evs and
Speaker 1: the legacy automakers. Sitting aside the labor cross again for
Speaker 1: a second, like, how much of a challenge is it
Speaker 1: going to be for them to basically get good at
Speaker 1: producing electric cars at scale.
Speaker 5: It's going to be a challenge. But I think there's
Speaker 5: an and yang to this. I think on the positive side,
Speaker 5: they have one hundred years of history in a very
Speaker 5: complicated industry and everything from design, engineering, supply lines, manufacturing, distribution, marketing,
Speaker 5: and so on, and so that's an advantage that they have.
Speaker 5: The disadvantage is their legacy companies, and they really need
Speaker 5: to reinvent themselves in a way to compete. I was
Speaker 5: a skeptic about the ability of companies like Tesla to
Speaker 5: come into a market that was so established and compete effectively,
Speaker 5: and I was wrong about that.
Speaker 4: Obviously it can be done.
Speaker 5: And you now also have a whole bunch of other
Speaker 5: startups coming along, and at the moment, the Detroit Three
Speaker 5: as we call them, are losing a lot of money
Speaker 5: on their evs and just really beginning to roll them
Speaker 5: out in force, and it's going to be a tough
Speaker 5: competitive experience for them, and that's why things like labor
Speaker 5: costs become important.
Speaker 2: Just going back to the UAW strikes, what's your base
Speaker 2: case for how this all works out, and what is
Speaker 2: the trigger I suppose for the two sides to come
Speaker 2: to a resolution.
Speaker 5: Well, first, in relation to your opening comments to your listeners,
Speaker 5: I think this podcast will be relevant for a long
Speaker 5: time from every Unfortunately, unfortunately, certainly, the attitude at the
Speaker 5: companies is that this is not going to get settled
Speaker 5: quickly because the gap between the two sides is so vast,
Speaker 5: and I think the companies, as I said, and you
Speaker 5: may or may not agree, there's no possibility that companies
Speaker 5: can possibly accept paying people forty hours and working thirty
Speaker 5: two or anything like that. It's just it's not in
Speaker 5: the realm of reality. And so I think at the
Speaker 5: end of the day, what I hope will happen, and
Speaker 5: what would be the right thing to happen, is for
Speaker 5: the union to drop a lot of these ancillary demands.
Speaker 5: And there are also, by the way, demands and requests
Speaker 5: around the issue of workplace flexibility. One of the things
Speaker 5: that we did in two thousand and nine was to
Speaker 5: basically strip away a lot of the work roles that
Speaker 5: we felt were impeding efficiency. General motors, I believe from
Speaker 5: my recollection, had something like three hundred job classifications for
Speaker 5: its workers. If you were a plumber, you couldn't touch
Speaker 5: a piece of electric, piece of equipment or whatever. And
Speaker 5: we reduce those to six and that is still more
Speaker 5: or less where things stand. But there are other kinds
Speaker 5: of flexibility that the companies need to manage, especially in
Speaker 5: relation to the ev transition. So what I would like
Speaker 5: to see happen is a robust pay increase, and I
Speaker 5: think the companies have offered a reasonable one, but there's
Speaker 5: more to go, I'm sure, and the gap there, as
Speaker 5: I said, I think is bridgeable. And for the union
Speaker 5: to give up most of these I'm going to call
Speaker 5: them crazy demands and hopefully also address any kinds of
Speaker 5: workplace flexibility issues that the companies feel they need to
Speaker 5: be competitive.
Speaker 2: Does it have to get worse though, before it gets better, Well, it.
Speaker 5: Will get worse because what's happened is, as you know,
Speaker 5: first of all, is the way they structured the strike
Speaker 5: is unprecedented. They close three plants, one for each of
Speaker 5: the companies, and they did that in part because they
Speaker 5: didn't want their strike fund to get depleted too quickly.
Speaker 5: They couldn't afford to strike all three companies. They didn't
Speaker 5: want to do what historically has been done with strike
Speaker 5: one company. But what's going to happen now is that
Speaker 5: gradually other facilities are going to close because there's no
Speaker 5: place to send the parts because there's nobody to assemble
Speaker 5: the cars and trucks at these three facilities that have
Speaker 5: been shut down. And then those facilities will shut down
Speaker 5: and those workers will be laid off. Under the rules,
Speaker 5: the companies can't simply shut those facilities and lay off
Speaker 5: the workers unless they have a legitimate business reason to
Speaker 5: do that, i e. They're oversupplied with whatever that particular facility,
Speaker 5: what facility does. So yeah, this could easily ripple through
Speaker 5: the entire set of facilities around the Big three in
Speaker 5: Detroit three they could shut down. You could have one
Speaker 5: hundred and thirty thousand workers on strike or not on strike,
Speaker 5: but laid off and on strike. There will be significant
Speaker 5: effects on parts suppliers. By the way, let's not forget
Speaker 5: that these companies don't make a lot of their parts.
Speaker 5: Most of their parts they've outsourced those years ago. So
Speaker 5: those and this was something we encountered in two thousand
Speaker 5: and nine as well, And so those companies are going
Speaker 5: to suffer financial pressures and they will be concentrated in
Speaker 5: the Upper Midwest, and none of this is a good thing.
Speaker 1: You broke the UAW demands between what you see is
Speaker 1: like sort of very reasonable and deserved pay increases and
Speaker 1: then this so called crazy demand. Where does ending the
Speaker 1: tiered system fall into that? Do you consider that crazy
Speaker 1: or is that something that can be solved?
Speaker 5: Well, again, that's a money issue, really, and so it's
Speaker 5: a question of how you want to allocate the money.
Speaker 5: If you give the existing permanent workers more than whatever,
Speaker 5: then there's less to deal with what they're called the
Speaker 5: temp workers now, and so it's really a question as
Speaker 5: much for the union as for the companies as to
Speaker 5: how they want to allocate it. The temporary worker thing
Speaker 5: has been significantly improved since two thousand and nine in
Speaker 5: terms of the amount of time a new worker is
Speaker 5: a temporary worker before they become a permanent worker, and
Speaker 5: I think that will continue to shrink under this new contract.
Speaker 5: I think the company's prepared to give something on that front.
Speaker 5: But again, as I said, it's as much for the
Speaker 5: UAW is this for the companies as to where their
Speaker 5: priorities lie.
Speaker 1: Let me ask you one thing about EV's is I
Speaker 1: think they're less labor intensive and they have fewer parts total,
Speaker 1: so there's less assemblies. So even under again saying there
Speaker 1: was no contract issues, I believe the perception is that
Speaker 1: the transition would require less labor. Is that the case, Like,
Speaker 1: what is the stress that's going to become on the
Speaker 1: labor force in your view, regardless of this contract from
Speaker 1: But this is.
Speaker 5: Something the UAW is worrying about, and it's analogous in
Speaker 5: a way to what the screenwriters are worrying about. They're
Speaker 5: worrying that AI is going to put them out of work.
Speaker 5: The UAW is worrying that the evs are going to
Speaker 5: put them out of work. And this is again where
Speaker 5: there's a very interesting tension in America today between the
Speaker 5: people who care passionately about labor and the people who
Speaker 5: care passionately about the energy transition. Many of them are
Speaker 5: the same people, and I certainly would even consider myself
Speaker 5: one of them. But you have to decide what your
Speaker 5: priorities are, and if we want to be competitive in
Speaker 5: evs and not end up like semiconductors where they're all
Speaker 5: made somewhere else, then we have to accept that there
Speaker 5: are going to be some costs to that. I don't
Speaker 5: mean financial costs. I mean costs in terms of jobs, because,
Speaker 5: as you correctly said, evs require a good bit less
Speaker 5: labor and we just have to accept that, and trying
Speaker 5: to protect old jobs is never a winning strategy for
Speaker 5: any country or any company.
Speaker 2: I want to ask one more question. This is what
Speaker 2: we call a giveaway question. Well, you're a former journalist.
Speaker 2: You know your time as cars are.
Speaker 1: What was your.
Speaker 2: Favorite or most memorable moment from that period?
Speaker 5: My most memorable moment, there's a competition for that. For
Speaker 5: that award, I had many many It was a fascinating experience.
Speaker 5: It was the best thing I ever did with my life.
Speaker 5: I felt like I actually made a contribution and we
Speaker 5: were able to achieve it. I would say, interestingly, and
Speaker 5: this this is a little different than what we've made.
Speaker 5: My most memorable moment was when we got inside of
Speaker 5: General Motors. I had been taught and brought up in
Speaker 5: my investment banking world to think that General Motors was
Speaker 5: a really iconic company, well managed for the most part,
Speaker 5: especially in finance. They were renowned for their finance department.
Speaker 5: When we got inside General Motors, I could not believe
Speaker 5: how badly that company was run. They didn't even really
Speaker 5: have a model, a financial model that we could use
Speaker 5: to project the results for five years. They had some
Speaker 5: cut and paste thing, but they didn't even have really
Speaker 5: a model that could be manipulated and where you could
Speaker 5: change assumptions and things like that. The culture of the
Speaker 5: company was terrible. It was a get along, go along
Speaker 5: kind of culture. Nobody would challenge anybody. The CEO had
Speaker 5: an elevator that took him from his private executive or
Speaker 5: the private executive car parking area, straight to I think
Speaker 5: it was the forty ninth or fiftieth floor and the
Speaker 5: Renaissance tower to his office without stopping any of the floor,
Speaker 5: so he didn't have to mingle with any of the
Speaker 5: ordinary people. The executive offices were behind a locked door.
Speaker 5: You had to have a certain kind of paths to
Speaker 5: get through that door. It was unbelievable, unbelievable to me
Speaker 5: to see an kind of company run like that, and
Speaker 5: it was clear from the from day one that a
Speaker 5: big part of what we needed to do there was
Speaker 5: to change management. This was this is not labor. It
Speaker 5: was not labour's fault that these companies got in trouble.
Speaker 5: They have some responsibility, but management had an off lot
Speaker 5: of responsibility.
Speaker 2: All right, Steven Rattner, thank you so much for coming
Speaker 2: on all thoughts and reminiscing with us and sharing your
Speaker 2: thoughts on the current situation. Appreciate it.
Speaker 4: It was fun. Thanks so much for having me.
Speaker 1: Thank you. That was really great.
Speaker 3: Yeah, that was fantastic. Thank you, so Joe. I thought
Speaker 3: that was a.
Speaker 2: Very nuanced discussion of a topic that clearly people have
Speaker 2: a lot of feelings about. I did think one thing
Speaker 2: that jumped out to me was just how important that
Speaker 2: echomic backdrop is for these types of things. So Steve
Speaker 2: was talking about how in two thousand and nine you
Speaker 2: were able to get concessions out of the union because
Speaker 2: the economy was not doing very well. Obviously, fast forward
Speaker 2: to today and it feels like the balance of power
Speaker 2: has shifted potentially more in favor of workers, and so
Speaker 2: you can see why the UAW thinks this is the
Speaker 2: moment to strike.
Speaker 1: Absolutely, I mean absolutely, the macro backdrop couldn't be more
Speaker 1: different from the time when Stephen was the cars. It's
Speaker 1: crazy that last point. I'm yeah, about the elevator going
Speaker 1: straight up to the top of the Renaissance Tower in Detroit.
Speaker 2: I mean, he was talking about how a lot of companies,
Speaker 2: especially car companies, don't have defined pensions anymore. I wonder
Speaker 2: if they still have executive dining rooms and bathrooms and
Speaker 2: things like that.
Speaker 1: They get a I would guess so, though I guess
Speaker 1: we could confirm hopefully. I wonder if they still have
Speaker 1: that elevator. But you know, like there's a lot here,
Speaker 1: and so, you know, obviously, the labor component, like in
Speaker 1: my mind, like when I think about will the big
Speaker 1: three companies thrive in the age of electric vehicles, I
Speaker 1: guess I'm skeptical that the cost of labor, whether it's
Speaker 1: five percent or seven percent, is going to be the
Speaker 1: defining question of it. It still seems like the big
Speaker 1: question mark in my mind is can they make cars
Speaker 1: productively that people want to right and can they maintain
Speaker 1: their businesses which are still, like, you know, heavily driven
Speaker 1: by profits from internal combustion engine cars priced over a
Speaker 1: long time. Can the pencil out in the end where
Speaker 1: the profits from evs against all kinds of competition that
Speaker 1: they didn't have in the previous era, does it work?
Speaker 1: Are they competitive in this space? And I think it's
Speaker 1: still kind of TVD Yeah.
Speaker 2: And the other thing and Steve kind of touched on
Speaker 2: this is just the uniqueness of the car industry on
Speaker 2: the whole. So, you know, we associate a lot of
Speaker 2: car makers with American industry, and I think there's also
Speaker 2: a tendency for Americans to want to buy American cars
Speaker 2: often there's the sort of brand recognition of and so
Speaker 2: I kind of wonder, to your point on the labor costs,
Speaker 2: if maybe people are willing to give up a little
Speaker 2: bit of price in order to you know, support and
Speaker 2: buy American and all of that type of stuff.
Speaker 1: By the way, Tracy, did you hear where that copper
Speaker 1: mind he was looking to invest in?
Speaker 3: Is I knew? I knew you would notice that. Arizona.
Speaker 1: Yeah, another another Arizona angle for when we do our
Speaker 1: Arizona I didn't realize. I just look at on Wikipedia.
Speaker 2: They all somehow comes back to Arizona.
Speaker 4: Right.
Speaker 2: We have to go to Arizona, visit an alfalfa farm,
Speaker 2: visit like a water treatment plant, car a copper mine,
Speaker 2: a car factory.
Speaker 1: No, there's more. There's a Howard Hughes Master Limited, a
Speaker 1: master Plan community semiconductor fab and we have to take
Speaker 1: a self driving car around on the entire tour.
Speaker 3: All right, shall we leave it there? Right now?
Speaker 4: Let's leave it there.
Speaker 2: Okay, this has been another episode of the Odd Blots podcast.
Speaker 2: I'm Tracy Alloway. You can follow me at Tracy Alloway.
Speaker 1: And I'm Jill Wisenthal. You can follow me at the Stalwart.
Speaker 1: Follow our guests Steven Rattner. He's at Steve Rattner. Follow
Speaker 1: our producers Carmen Rodriguez at Carmen armand dash Ol Bennett
Speaker 1: at dashbod. And thank you to our producer Moses Ondam.
Speaker 1: Follow all of the Bloomberg podcasts under the handle at podcasts,
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