WEBVTT - Steven Rattner on the UAW Strike and the Challenges of Bidenomics 0:00:00.400 --> 0:00:03.239 Our new spinoff show Lots More. We'll be back next Friday, 0:00:03.320 --> 0:00:06.400 but for now, enjoy this bonus episode with Steve Radner. 0:00:16.760 --> 0:00:20.079 Hello, and welcome to another episode of the Odd Blots podcast. 0:00:20.160 --> 0:00:21.520 I'm Tracy Alloway. 0:00:21.239 --> 0:00:22.280 And I'm Joe Whysenthal. 0:00:22.560 --> 0:00:26.560 Joe, it is the first week of the United Auto Workers' strike. 0:00:26.840 --> 0:00:29.680 I feel confident predicting that by the time this episode 0:00:29.720 --> 0:00:32.280 comes out, it'll probably still be ongoing. 0:00:32.600 --> 0:00:36.120 Right so we are recording this September twentieth. I think 0:00:36.159 --> 0:00:39.239 you're listening to this Friday, September twenty second. Even in 0:00:39.320 --> 0:00:41.600 the off chance that they get a deal between now 0:00:41.640 --> 0:00:44.920 and then, there is a lot going on with autos 0:00:45.000 --> 0:00:46.839 right now, there's a lot going out with labor that 0:00:47.000 --> 0:00:49.239 even if they're by some miracle there's a deal in 0:00:49.280 --> 0:00:51.960 the next forty eight hours, it's worth having a deeper 0:00:52.040 --> 0:00:53.520 understanding of what's going on right now. 0:00:53.560 --> 0:00:57.720 Absolutely, and we've obviously recorded an episode on this previously. 0:00:57.960 --> 0:01:03.240 We spoke to one of theaw leader's Dan Vicente, talked 0:01:03.240 --> 0:01:06.120 about some of the concerns. But I think this whole 0:01:06.800 --> 0:01:10.960 saga is interesting from a sort of thematic perspective because 0:01:11.000 --> 0:01:14.119 it gets it all these big picture conversations that we've 0:01:14.160 --> 0:01:17.600 been having, you know, questions over the division of labor 0:01:17.640 --> 0:01:22.000 in the US economy, over productivity, over the future of 0:01:22.160 --> 0:01:26.319 the US car industry, and how it's responding to environmental 0:01:26.360 --> 0:01:31.120 pressures and concerns industrial policy. Even it sort of wraps 0:01:31.200 --> 0:01:34.560 all of these things up in one complicated package. 0:01:34.640 --> 0:01:35.399 Let's put it that way. 0:01:35.600 --> 0:01:37.920 Yeah, you nailed it. I mean, there's the question of 0:01:38.319 --> 0:01:41.640 labor costs and the tight labor markets and whether this 0:01:41.720 --> 0:01:44.640 is an opportunity for labor to get a greater share 0:01:44.720 --> 0:01:45.959 of the pie. 0:01:45.680 --> 0:01:46.360 So to speak. 0:01:46.640 --> 0:01:50.600 There is the transition which was already happening, is already underway, 0:01:50.680 --> 0:01:54.760 and that poses very unique opportunities and threats to the 0:01:55.200 --> 0:01:58.400 legacy industry. And then this idea of like, well, we're 0:01:58.400 --> 0:02:00.920 in an era of sort of industrial policy, and part 0:02:00.920 --> 0:02:04.480 of this is by design the Bidenomics and so forth, 0:02:04.760 --> 0:02:07.880 and so you know how all of these things play together. 0:02:07.920 --> 0:02:10.000 It really, as you said, it comes together in this 0:02:10.040 --> 0:02:11.680 one story in a unique way in. 0:02:11.639 --> 0:02:14.320 The strike, right, So we obviously need to talk more 0:02:14.360 --> 0:02:16.400 about it. I am very happy to say that we 0:02:16.480 --> 0:02:18.880 do indeed have the perfect guest. We're going to be 0:02:18.880 --> 0:02:23.639 speaking with Stephen Ratner, a very prominent American financier, as 0:02:23.680 --> 0:02:27.440 they say, and someone who was very much involved, in 0:02:27.480 --> 0:02:31.600 fact spearheaded the big auto bailout, the auto task. Cars 0:02:31.639 --> 0:02:34.760 are the cars are, That's exactly it under the Obama 0:02:34.840 --> 0:02:38.320 administration in circa two thousand and eight, two thousand and nine. 0:02:38.440 --> 0:02:42.440 Someone who can talk very authoritatively over some of the 0:02:42.560 --> 0:02:46.240 concerns from the car makers and the broader sort of 0:02:46.280 --> 0:02:50.360 financial state of those companies. So Stephen is currently the 0:02:50.440 --> 0:02:53.840 chairman and chief executive officer of Willett Advisors, that's the 0:02:54.040 --> 0:02:58.320 investment arm for the personal and philanthropic assets of Michael Bloomberg, 0:02:58.360 --> 0:03:02.520 who is, of course the majority owner of Bloomberg LP. Steve, 0:03:02.639 --> 0:03:03.480 welcome to the show. 0:03:03.760 --> 0:03:04.919 Thanks so much for having me. 0:03:05.280 --> 0:03:07.919 We're excited to have you here. I wanted to start 0:03:07.960 --> 0:03:12.240 out with something that the UAW representative that I mentioned 0:03:12.280 --> 0:03:15.280 in the intro told us, and it's the idea that 0:03:15.880 --> 0:03:20.239 the unions accepted a lot of concessions in the aftermath 0:03:20.280 --> 0:03:23.760 of two thousand and nine in order to get their 0:03:23.800 --> 0:03:27.880 respective employers, the car companies back up and running. 0:03:28.440 --> 0:03:29.000 Is that right? 0:03:29.160 --> 0:03:32.440 And was there an expectation that at some point those 0:03:32.520 --> 0:03:34.280 concessions would reverse. 0:03:35.440 --> 0:03:38.440 No question that the unions made concessions as part of 0:03:38.560 --> 0:03:40.520 what we like to call not the bailout, but the 0:03:40.560 --> 0:03:43.960 rescue of the auto companies. It was important, it was 0:03:44.000 --> 0:03:47.240 an important part of committing what ultimately became eighty two 0:03:47.280 --> 0:03:50.360 billion dollars of tax payer money to this industry that 0:03:50.400 --> 0:03:53.920 they be shared sacrifice, that all the different constituents around 0:03:53.960 --> 0:03:56.800 the industry, whether it be labor, whether it be shareholders, 0:03:56.840 --> 0:04:01.320 whether it be suppliers, whether it be management, all participated 0:04:01.320 --> 0:04:04.520 in making shared sacrifice. So yes, that definitely was the case. 0:04:05.160 --> 0:04:07.400 But as I'm sure we'll get into, as you asked 0:04:07.440 --> 0:04:11.160 me some more questions, the concessions that the automaker the 0:04:11.200 --> 0:04:14.960 auto workers made back in two thousand and nine were 0:04:15.080 --> 0:04:18.520 relatively small compared to what they're asking for today, And 0:04:18.560 --> 0:04:22.680 what they're asking for today would not just restore whatever 0:04:22.720 --> 0:04:25.120 it is, whatever they gave up back in two thousand 0:04:25.120 --> 0:04:27.479 and nine, but add a bunch of other stuff on 0:04:27.520 --> 0:04:27.960 top of that. 0:04:29.040 --> 0:04:30.680 What did they give up in two thousand and nine. 0:04:30.720 --> 0:04:33.920 The main thing that came up in our previous conversation 0:04:34.000 --> 0:04:36.679 on the strike was just this idea of tiered labor, 0:04:37.080 --> 0:04:40.679 a teering system. Certain employees sort of grandfathered into one 0:04:40.839 --> 0:04:43.880 pay scale and then an acceptance that new employees would 0:04:43.960 --> 0:04:46.120 not be on that scale. But what did you give 0:04:46.160 --> 0:04:50.880 your comparison of your characterization of what the UAW gave 0:04:50.960 --> 0:04:53.279 up or was willing to concede to in two thousand 0:04:53.279 --> 0:04:56.799 and nine versus what we know about what the UAW 0:04:57.000 --> 0:04:57.840 is asking for now. 0:04:58.560 --> 0:05:00.880 Some of the things that were given up in two 0:05:00.880 --> 0:05:03.240 thousand and nine were actually given up just before the 0:05:03.279 --> 0:05:06.280 auto rescue because of the problems that the industry had. 0:05:06.279 --> 0:05:08.720 So I'm going to lump all that together into what 0:05:08.880 --> 0:05:12.039 really happened around those couple of years, both right before 0:05:12.080 --> 0:05:14.960 and right after as part of the auto rescue. It's 0:05:15.040 --> 0:05:19.160 important to say that no full time Tier one as 0:05:19.160 --> 0:05:22.359 we called them, member of the UAW took any reduction 0:05:22.480 --> 0:05:26.520 in their cash compensation. That was a part of the understanding. 0:05:27.000 --> 0:05:30.839 There were concessions around things like the Tier two workers, 0:05:30.880 --> 0:05:34.279 who are workers who get newly hired workers who started 0:05:34.320 --> 0:05:37.839 out at roughly half of the cash compensation of the 0:05:37.920 --> 0:05:40.960 established workers. I don't want to get into a huge 0:05:41.000 --> 0:05:43.920 fight with the UAW, but it's important to note that 0:05:44.360 --> 0:05:47.039 the way the concession, the types of concessions that the 0:05:47.120 --> 0:05:51.200 UAW was willing to make mostly affected these newer workers 0:05:51.279 --> 0:05:53.320 rather than the established workers. It was a case of 0:05:53.360 --> 0:05:55.360 the UAW and effect. Think of it as there was 0:05:55.400 --> 0:05:57.840 a big pot of money and how does it get allocated? 0:05:58.200 --> 0:06:01.720 And the uaw's attitude is that the existing workers should 0:06:01.760 --> 0:06:04.680 be protected and the new workers should in effect take 0:06:05.040 --> 0:06:07.279 a lot of the pain. But there were other changes 0:06:07.360 --> 0:06:11.800 made around healthcare, especially for retirees, around the so called 0:06:11.880 --> 0:06:14.720 jobs bank, in which workers were getting paid even if 0:06:14.720 --> 0:06:16.960 they were laid off during a downturn, they could get 0:06:17.040 --> 0:06:20.400 ninety percent of their wages for actually working. And so 0:06:20.440 --> 0:06:22.920 it was a very complicated package of a lot of stuff, 0:06:22.960 --> 0:06:26.200 but we did think that in total it reduced the 0:06:26.279 --> 0:06:29.520 automaker's labor costs by a meaningful amount. 0:06:29.960 --> 0:06:32.920 What was it like negotiating with the unions back then? 0:06:33.720 --> 0:06:36.279 It was very different than today, and I think it 0:06:36.320 --> 0:06:39.719 was different for a couple of reasons. First, there was 0:06:39.760 --> 0:06:43.600 a crisis, and as Ram Emmanuel, President Obama's chief of STEFF, 0:06:43.720 --> 0:06:46.080 liked to say, never let a good crisis go to waste, 0:06:46.520 --> 0:06:50.520 and so the UIW got it. They understood that without 0:06:50.560 --> 0:06:55.400 this shared sacrifice, these companies would go bankrupt and perhaps 0:06:55.480 --> 0:06:58.520 even disappear and lose all of those jobs, and so 0:06:58.960 --> 0:07:02.400 they got the message in that. Secondly, they had a president, 0:07:02.480 --> 0:07:05.800 Ron Gettelfinger, who I dealt with extensively, who was a 0:07:05.880 --> 0:07:08.640 very reasonable guy. He had an agenda, he had members 0:07:08.720 --> 0:07:11.360 he wanted to take care of. We respected that, he 0:07:11.440 --> 0:07:14.720 respected us. The discussions are always very cordial. Nobody, at 0:07:14.800 --> 0:07:17.160 least in the meetings I was in, ever started yelling 0:07:17.240 --> 0:07:18.960 and screaming or pounding the table or any of that 0:07:19.040 --> 0:07:22.840 kind of stuff. And in contrast, today, for a variety 0:07:22.880 --> 0:07:26.640 of reasons, the UAW has a leader, Sean Fame, who 0:07:26.680 --> 0:07:29.000 is much more of a firebrand, who's put these rather 0:07:29.200 --> 0:07:32.800 large demands on the table, who's actually conducted a lot 0:07:32.800 --> 0:07:36.240 of these negotiations publicly, which is not the way it 0:07:36.400 --> 0:07:38.320 worked certainly when I was involved with it, or the 0:07:38.320 --> 0:07:40.640 way I think it's worked most times in the past. 0:07:41.280 --> 0:07:44.480 And that reflects a couple of things I think. I 0:07:44.520 --> 0:07:46.240 don't know Sean Fayne, but I think it reflects a 0:07:46.240 --> 0:07:49.840 couple of things. One that, in fact, as I'm sure 0:07:49.840 --> 0:07:53.120 we'll get into, the auto workers haven't really done that 0:07:53.200 --> 0:07:56.440 well in the last fifteen years, and so they do 0:07:56.520 --> 0:08:00.520 have legitimate concerns, grievances, whatever you want to call it 0:08:01.160 --> 0:08:03.800 around that. Secondly, the UAW, as i'm sure you know, 0:08:04.280 --> 0:08:07.160 has been through a variety of corruption scandals in the 0:08:07.200 --> 0:08:09.960 last few years, had a whole succession of presidents. These 0:08:09.960 --> 0:08:13.680 are not ron Gettholfinger kinds of guys. And I think 0:08:13.720 --> 0:08:17.720 the membership is just angry and frustrated and disappointed in 0:08:17.760 --> 0:08:19.880 their union. And I think Sean Fain has been able 0:08:19.920 --> 0:08:23.560 to capitalize that. He's really more of a firebrand than 0:08:23.560 --> 0:08:25.880 he is a dispassionate negotiator. 0:08:26.120 --> 0:08:29.920 You mentioned the tiering system, one argument that the union 0:08:29.960 --> 0:08:32.480 makes that tiering is bad for the It's just bad 0:08:32.520 --> 0:08:35.200 for the union. It creates divisions. The union is supposed 0:08:35.200 --> 0:08:37.800 to be sort of one family or one team. And 0:08:37.800 --> 0:08:39.520 then if you say, as you put tier one tier 0:08:39.559 --> 0:08:43.920 two workers, that inherently weakens the union in your view, 0:08:44.679 --> 0:08:46.800 Is it sort of plausible or reasonable that it goes 0:08:46.840 --> 0:08:49.840 back to a single tier people doing this getting the 0:08:49.840 --> 0:08:52.000 same pace goal for the same job. And then what 0:08:52.240 --> 0:08:55.319 else you said in the beginning that the demands are 0:08:55.360 --> 0:08:58.960 above and beyond what that sacrifice was like roughly fourteen 0:08:59.040 --> 0:09:01.440 years ago. So talk to you about what you perceive 0:09:01.600 --> 0:09:02.840 as being further beyond that. 0:09:02.880 --> 0:09:04.800 Well, let's take that in pieces, and you can remind 0:09:04.840 --> 0:09:06.480 me of a couple of the questions that I'm not 0:09:06.480 --> 0:09:09.600 going to remember, but because I'm focused on your first question. Yeah, 0:09:09.880 --> 0:09:13.840 there's no doubt that it is odd, I think unfair 0:09:13.840 --> 0:09:17.000 in many respects, a bad dynamic to have two people 0:09:17.120 --> 0:09:21.120 working on the same assembly line performing essentially similar functions. 0:09:21.160 --> 0:09:23.079 Maybe one is putting on windshield wipers and one is 0:09:23.080 --> 0:09:26.240 putting on door handles, and one is getting paid literally, 0:09:26.320 --> 0:09:28.960 at least back then, was getting paid literally half as 0:09:29.040 --> 0:09:32.520 much in cash and a much reduced benefits package relative 0:09:32.559 --> 0:09:34.640 to the guy or a woman who was standing next 0:09:34.640 --> 0:09:38.720 to him doing essentially the same job. That's a bad dynamic. 0:09:38.800 --> 0:09:41.040 But it occurred in part for the reason I said 0:09:41.080 --> 0:09:44.640 that the union was unwilling to have the existing members 0:09:45.240 --> 0:09:49.440 make a significant and more significant sacrifice. Sacrifice I actually 0:09:49.440 --> 0:09:52.600 reduced their cash compensation. And so again you think of 0:09:52.600 --> 0:09:54.640 it as a pot of money and has to get allocated, 0:09:55.200 --> 0:09:58.480 and a disproportionate amount of it got allocated the existing 0:09:58.520 --> 0:10:00.920 workers at the expense of these knew what we used 0:10:00.960 --> 0:10:03.040 to call here too now they call them temp workers 0:10:03.440 --> 0:10:05.520 who had just started at the company were getting paid 0:10:05.559 --> 0:10:07.080 a lot less, all. 0:10:07.000 --> 0:10:09.440 Right, I'm going to take up the second portion of 0:10:09.600 --> 0:10:12.520 Joe's question then, And you've pointed out in an op 0:10:12.640 --> 0:10:15.120 ed that you think there's no way the automakers will 0:10:15.160 --> 0:10:17.960 be able to meet some of the asks or all 0:10:18.000 --> 0:10:21.079 of the asks, rather that the UAW is making. Can 0:10:21.120 --> 0:10:23.440 you explain that a little bit more. What's the thinking 0:10:23.480 --> 0:10:24.360 behind that statement. 0:10:25.360 --> 0:10:28.200 The auto companies are making very very good profits at 0:10:28.200 --> 0:10:31.240 the moment. There's no nobody can argue about that. But 0:10:31.760 --> 0:10:35.320 this is a tough business. The profit margins are relatively thin, 0:10:35.920 --> 0:10:40.280 the capital expenditures required are large. The transition to EVS 0:10:40.400 --> 0:10:43.360 is going to be very expensive and painful for these companies. 0:10:44.000 --> 0:10:46.720 And so when you boil it all together, if you 0:10:46.720 --> 0:10:49.920 look at General Motors, for example, it's stock price. When 0:10:50.000 --> 0:10:52.200 it's stock price from when it went public, I think 0:10:52.240 --> 0:10:56.000 about twelve years ago it was twenty eleven, has not budged. 0:10:56.360 --> 0:10:58.520 The overall stock market is up two hundred and seventy 0:10:58.520 --> 0:11:03.120 five percent, and so Wall Street investors are basically saying, 0:11:03.559 --> 0:11:05.959 we don't think these companies are actually doing that great, 0:11:06.520 --> 0:11:08.839 and therefore they have limits as to what they can 0:11:08.880 --> 0:11:11.480 do and still have the resources and the profits they 0:11:11.520 --> 0:11:14.640 need to keep investors happy and do this transition. And 0:11:14.720 --> 0:11:17.400 so when you talk about things like getting paid for 0:11:17.400 --> 0:11:20.439 forty hours but working thirty two hours, when you talk 0:11:20.480 --> 0:11:23.000 about things like restoring the jobs bank where you get 0:11:23.080 --> 0:11:25.800 paid even if you're laid off. When you talk about 0:11:25.840 --> 0:11:30.200 going back to a defined benefit pension plan from defined contribution, 0:11:30.400 --> 0:11:33.560 which would be wonderful, but very few companies even have 0:11:33.640 --> 0:11:34.240 those anymore. 0:11:34.240 --> 0:11:35.800 From new workers, those. 0:11:35.720 --> 0:11:38.080 Are demands that the company simply can't meet. I think 0:11:38.120 --> 0:11:41.559 what this will hopefully come down to is a big 0:11:41.640 --> 0:11:44.679 ask on cash compensation. The union wants thirty five thirty 0:11:44.720 --> 0:11:47.600 six percent. The companies have offered twenty percent. This would 0:11:47.600 --> 0:11:50.920 be over four years and some other one time payments 0:11:51.360 --> 0:11:53.959 something like somewhere in there. There's a deal to be done, 0:11:54.080 --> 0:11:56.360 but all the rest of this stuff is mostly going 0:11:56.400 --> 0:11:59.560 to have to go away to have an outcome that 0:11:59.640 --> 0:12:02.240 I think is appropriate for these car companies. 0:12:18.840 --> 0:12:19.520 We're obviously going. 0:12:19.480 --> 0:12:21.679 To talk more about the negotiations, but I want to 0:12:21.720 --> 0:12:25.600 actually just pause the union component of the conversation for 0:12:25.640 --> 0:12:30.040 a second setting. Aside the UAW contract, This would be 0:12:30.040 --> 0:12:33.520 a major period of upheaval for the industry regardless, because 0:12:34.120 --> 0:12:37.240 the transition that we're talking about and the incredible investment 0:12:37.280 --> 0:12:40.480 that it's going to take to compete with Tesla, to 0:12:40.559 --> 0:12:44.160 compete potentially on a global scale with Chinese ev makers, 0:12:45.200 --> 0:12:48.280 you name it. Give us your review of just how challenging, 0:12:48.520 --> 0:12:51.920 setting aside the labor component, how challenging for the business 0:12:52.000 --> 0:12:54.400 models of the Big three, which make most of their 0:12:54.440 --> 0:12:58.760 profits from selling cars with internal combustion engines, How challenging 0:12:59.080 --> 0:13:01.040 is this ev trans. 0:13:00.760 --> 0:13:03.439 It's going to be significantly challenging. And we should talk 0:13:03.480 --> 0:13:05.920 about the labor piece of it, because that's very relevant. 0:13:05.920 --> 0:13:08.600 But let me, as you ask, let me talk about 0:13:08.679 --> 0:13:11.520 some of the other elements of it. Look, you have 0:13:11.640 --> 0:13:14.240 a whole bunch of new entrants coming into this industry 0:13:14.679 --> 0:13:19.000 starting from scratch. I'm reading at the moment Walter Isaacson's 0:13:19.040 --> 0:13:23.920 new biography of Elon Musk and Tesla. He started with 0:13:23.920 --> 0:13:25.760 a blank piece of paper when he did Tesla, and 0:13:25.800 --> 0:13:30.120 he was able to design a manufacturing system, a set 0:13:30.120 --> 0:13:33.720 of supply arrangements, not without a lot of commotion and 0:13:33.760 --> 0:13:36.880 difficulty and so forth, and with no unions, by the way, 0:13:37.280 --> 0:13:40.480 and build Tesla in effect from the ground up. The 0:13:40.600 --> 0:13:43.560 legacy companies have a way of doing things that's existed 0:13:43.600 --> 0:13:45.880 for now one hundred and twenty years plus or minus, 0:13:46.480 --> 0:13:49.280 and so they have to completely rethink a lot of 0:13:49.320 --> 0:13:52.199 how they operate a lot of their processes, and they 0:13:52.240 --> 0:13:54.920 have to compete against not just Tesla, but Rivian and 0:13:55.000 --> 0:13:58.040 Lucid and the Chinese companies you mentioned are not yet 0:13:58.080 --> 0:14:00.160 here because of the high tariffs that we have on 0:14:00.200 --> 0:14:03.520 auto imports, but sooner or later they probably will be here. 0:14:04.120 --> 0:14:07.120 And so what has been a tough business is getting 0:14:07.400 --> 0:14:10.719 even tougher. And it's important for these companies to have 0:14:10.800 --> 0:14:12.520 a cost structure that they can live with. 0:14:13.160 --> 0:14:15.840 You touched on it in that answer just then. But Tesla, 0:14:15.920 --> 0:14:19.160 of course is famously non unionized, and then of course 0:14:19.160 --> 0:14:23.040 there is the threat of the Chinese EV manufacturers and 0:14:23.240 --> 0:14:26.480 cheap labor over there. Could it not go the other 0:14:26.600 --> 0:14:29.120 way though? Could you not have a situation where instead 0:14:29.120 --> 0:14:33.760 of competing with non unionized EV companies that maybe some 0:14:33.840 --> 0:14:37.080 of those start to get unionized, Like maybe these actions 0:14:37.160 --> 0:14:41.520 start to filter through to companies like Tesla. 0:14:41.600 --> 0:14:45.160 I think it's pretty unlikely. I think that it's not 0:14:45.240 --> 0:14:48.960 just Tesla, but when you look at the auto companies 0:14:49.000 --> 0:14:51.400 that have been operating in the South for a long time, 0:14:51.480 --> 0:14:54.600 which were Toyota, Hana, the German companies and so forth. 0:14:55.400 --> 0:14:58.320 They are also not unionized, and I believe I'm right, 0:14:58.400 --> 0:15:01.000 although my memory is a little hazy and sad saying that, 0:15:00.440 --> 0:15:03.080 I think there have been efforts to try to unionize 0:15:03.080 --> 0:15:06.800 them that have failed because the workers understood. Look, I 0:15:06.800 --> 0:15:09.400 think we should step back and talk about the general 0:15:09.480 --> 0:15:13.160 issue of manufacturing in the United States, not just autos. 0:15:13.600 --> 0:15:15.480 But this was a real wake up call for me. 0:15:15.720 --> 0:15:18.040 I had spent my whole career working in essentially with 0:15:18.080 --> 0:15:22.000 service industry companies, mostly media and telecoms, and then suddenly 0:15:22.040 --> 0:15:25.680 I'm plunged into manufacturing. And what I saw was really 0:15:25.720 --> 0:15:29.680 scary to me, which was that we basically have a 0:15:30.000 --> 0:15:34.080 high cost structure in this country. Appropriately, we want our 0:15:34.240 --> 0:15:38.800 manufacturing workers to earn a good living. But an increasingly 0:15:38.840 --> 0:15:41.200 globalizing world and we can talk about whether the world 0:15:41.280 --> 0:15:44.520 is now going to deglobalize, but at least has been globalizing. 0:15:45.080 --> 0:15:47.520 It was getting harder and harder for us to compete. 0:15:47.560 --> 0:15:50.360 And that's why, in large part, we lost so many 0:15:50.400 --> 0:15:54.080 manufacturing jobs over these last fifteen or twenty years. And 0:15:54.400 --> 0:15:57.080 so you had, from the union's point of view, you 0:15:57.120 --> 0:15:59.680 had jobs moving from the Midwest to the South, from 0:15:59.760 --> 0:16:02.760 union jobs to non union jobs. But you also had 0:16:02.800 --> 0:16:06.040 a lot of jobs moving to Mexico from these same companies, 0:16:06.360 --> 0:16:09.640 including the Detroit companies. The Detroit Three have twenty facilities 0:16:09.640 --> 0:16:12.280 in Mexico of one sort or another. And when you 0:16:12.320 --> 0:16:15.640 look at the wage structure in Mexico, you're literally talking 0:16:15.680 --> 0:16:18.520 about GM actually has a unionized plant there which has 0:16:19.200 --> 0:16:21.520 low wages. But if you talk about the non unionized 0:16:21.560 --> 0:16:24.680 plants there, you're talking about wages of nine to thirteen 0:16:24.760 --> 0:16:27.400 or fourteen dollars a day, not an hour a day. 0:16:28.080 --> 0:16:30.800 And if you talk to auto executives who operate there, 0:16:31.200 --> 0:16:33.800 they will tell you that they get very good productivity 0:16:33.840 --> 0:16:36.560 out of their Mexican workers. Some will say they get 0:16:36.600 --> 0:16:40.240 better productivity. And the consequence of that is that the 0:16:40.360 --> 0:16:44.080 number of auto workers in Mexico has crossed the line 0:16:44.120 --> 0:16:46.160 and has now higher the number of auto workers in 0:16:46.200 --> 0:16:49.360 the US. Our number of auto workers did recover after 0:16:49.920 --> 0:16:54.640 the two thousand and nine exercise, but Mexico simply grew 0:16:54.680 --> 0:16:57.800 faster and has outgrown US and is now a larger 0:16:58.160 --> 0:17:00.480 source of employment at these very very low ways. And 0:17:00.520 --> 0:17:03.000 so this isn't changing. And again you have the Chinese 0:17:03.000 --> 0:17:06.520 as we talked about coming and potentially other low wage countries, 0:17:07.119 --> 0:17:11.080 and so it really worries me about the future of manufacturing. 0:17:11.160 --> 0:17:13.040 The yin and the yang of this whole situation with 0:17:13.080 --> 0:17:16.960 the UAW in a sense is that it's a tension 0:17:16.960 --> 0:17:20.439 between jobs and pay. The more you pay, the fewer 0:17:20.520 --> 0:17:24.040 jobs you ultimately have, because inevitably these jobs will migrate 0:17:24.080 --> 0:17:28.040 out of the union facilities and into non union facilities. 0:17:28.720 --> 0:17:31.119 I don't know if it's pushing back, but intuitively or 0:17:31.160 --> 0:17:33.440 a sort of big picture I get that, Okay, if 0:17:33.480 --> 0:17:37.520 you can get high productivity or commensurate productivity out of 0:17:37.560 --> 0:17:40.080 a plant in Mexico and labor costs are a lot 0:17:40.200 --> 0:17:42.680 cheaper than over time, are going to have this migration. 0:17:43.240 --> 0:17:46.760 But labor costs still, like my understanding, I've seen this 0:17:46.800 --> 0:17:49.160 stat a few times, like they're not a huge part. 0:17:49.480 --> 0:17:51.640 They're like I've seen a stat here it says five 0:17:51.680 --> 0:17:55.480 percent of auto industry costs, so it's like it's significant, 0:17:55.960 --> 0:17:58.000 but it's not the majority of the cost or even 0:17:58.080 --> 0:17:59.880 anywhere close to the major. 0:17:59.640 --> 0:18:00.920 Costs of a car. 0:18:01.040 --> 0:18:03.840 So intuitively, someone I look at five percent, who's like, okay, well, like, 0:18:04.200 --> 0:18:05.760 what would be the big problem if it moved to 0:18:06.400 --> 0:18:09.920 seven percent or six percent, I guess I'm just skeptical 0:18:10.000 --> 0:18:13.520 or I have this intuitive skepticism that the labor component, 0:18:13.600 --> 0:18:17.320 if it's a bit more radically changes the economics for 0:18:17.359 --> 0:18:18.040 these companies. 0:18:18.119 --> 0:18:19.440 Well, let's think about it this way. 0:18:19.520 --> 0:18:22.040 Okay, I think I don't have this figure in my head, 0:18:22.080 --> 0:18:24.320 but let's just say, and I think it's probably directionally 0:18:24.320 --> 0:18:27.440 about right that the profit margins all going well, and 0:18:27.560 --> 0:18:29.359 there are plenty of times when they're not going well. 0:18:29.600 --> 0:18:32.160 The profit margins for these kinds, for these big companies, 0:18:32.359 --> 0:18:35.119 there's maybe ten percent or something like that. And so 0:18:35.560 --> 0:18:38.440 if your labor costs go from five to seven, as 0:18:38.480 --> 0:18:41.200 you said, that means your profit margins go from ten 0:18:41.200 --> 0:18:44.680 to eight, and you've wiped out twenty percent of your profits. 0:18:44.840 --> 0:18:47.679 And that's a lot to a company. I mean companies 0:18:48.000 --> 0:18:51.000 like these that are high cost companies with lots of 0:18:51.040 --> 0:18:54.520 moving parts, no pun intended. They watch, or they're supposed 0:18:54.520 --> 0:18:58.240 to watch every penny, every cost item, and work unbelievably 0:18:58.240 --> 0:19:01.240 hard to keep costs down to make some reasonable profit. 0:19:01.600 --> 0:19:04.680 These are not companies with forty percent profit margins where 0:19:04.760 --> 0:19:08.119 maybe it doesn't matter, And so it is important to 0:19:08.200 --> 0:19:11.640 these companies to have labor costs be competitive with other 0:19:11.680 --> 0:19:14.960 companies that are basically doing the same thing with labor 0:19:14.960 --> 0:19:16.840 costs and can behalf of what they are for the 0:19:16.880 --> 0:19:17.879 Detroit three. 0:19:18.320 --> 0:19:22.160 Well, on a similar note, the UAW strikes are happening 0:19:22.200 --> 0:19:26.760 against this backdrop of historically low unemployment post pandemic, and 0:19:26.880 --> 0:19:29.480 I imagine that has empowered a lot of the workers 0:19:29.520 --> 0:19:31.720 to feel like this is the moment when they can 0:19:31.760 --> 0:19:35.320 ask for all these different things. But the other broad 0:19:35.400 --> 0:19:39.480 trend that's happening is the sort of post pandemic tendency 0:19:39.720 --> 0:19:45.040 towards reshoring or building more resilient supply chains, or call 0:19:45.080 --> 0:19:47.960 it whatever you want. And of course the backdrop of 0:19:48.000 --> 0:19:51.200 Bidenomics as well, where Biden has basically said he wants 0:19:51.240 --> 0:19:55.159 to build more industrial and manufacturing capacity within the US. 0:19:55.480 --> 0:19:58.719 Does that not potentially put a lid on the threat 0:19:58.800 --> 0:20:01.879 of moving a lot of car production to places like 0:20:02.000 --> 0:20:03.000 China or Mexico. 0:20:03.400 --> 0:20:04.480 Well, let me try to unpack that. 0:20:04.560 --> 0:20:06.159 You're going to again have to remind me of a 0:20:06.160 --> 0:20:09.920 couple of good questions that you asked that I won't remember. Look, 0:20:10.359 --> 0:20:12.439 the first point that you alluded to, I just would 0:20:12.480 --> 0:20:15.200 like to mention for the benefit of the listeners, which 0:20:15.240 --> 0:20:18.000 is and maybe it's obvious, but as you said, what's 0:20:18.040 --> 0:20:20.960 happening right now is we have a historically low unemployment 0:20:21.040 --> 0:20:24.920 rate three point eight percent and about one and a 0:20:24.960 --> 0:20:27.440 half jobs for everybody who's actually looking for a job, 0:20:27.960 --> 0:20:31.879 and so that has led workers in many, many industries 0:20:31.960 --> 0:20:34.840 to feel empowered to ask for more. And so obviously 0:20:34.880 --> 0:20:38.040 you have the screenwriters and the actors on strike, you 0:20:38.119 --> 0:20:40.720 have hotel workers in LA on strike. At the moment, 0:20:41.240 --> 0:20:44.720 you've had very large contracts to the ups drivers, to 0:20:44.760 --> 0:20:48.159 the American Airlines pilots and so forth. But those are 0:20:48.200 --> 0:20:51.320 all service industries and if you pay those people more, 0:20:51.600 --> 0:20:54.360 sure it cuts into profits a little bit. It may 0:20:54.359 --> 0:20:56.800 add to inflation a little bit because the companies raise 0:20:56.880 --> 0:20:59.800 their prices, but fundamentally, those jobs don't leave. They can't 0:20:59.840 --> 0:21:01.560 leave if you have to have if you're an LA 0:21:01.640 --> 0:21:03.960 hotel worker, that's the only place you're going to work. 0:21:04.440 --> 0:21:08.960 And again, manufacturing, manufacturing is different. So let's talk about 0:21:08.960 --> 0:21:13.600 deglobalization and industrial policy and bynomics because they are somewhat different. 0:21:13.640 --> 0:21:16.639 Obviously related. I think the wake up call during the 0:21:16.680 --> 0:21:20.000 pandemic and the context of what's going on with China 0:21:20.560 --> 0:21:25.359 to many American companies and government officials is that we 0:21:25.880 --> 0:21:30.000 globalized to a great extent to cut costs for Americans. 0:21:30.040 --> 0:21:32.240 And it's important to recognize that part of why we 0:21:32.280 --> 0:21:36.680 had so little inflation until the pandemic was because we 0:21:36.680 --> 0:21:41.000 were importing manufactured goods from China from other places, not cars, 0:21:41.520 --> 0:21:43.960 that were much cheaper than anything we could make here, 0:21:44.000 --> 0:21:47.560 and so prices for things like clothes were very barely 0:21:47.640 --> 0:21:50.440 moved I think during this period because they were able 0:21:50.440 --> 0:21:53.320 to source it more cheaply. Now, companies and again the 0:21:53.359 --> 0:21:55.960 government are saying, well, the supply lines are too stretched 0:21:56.080 --> 0:21:58.320 and this is how you get in trouble, and so 0:21:58.359 --> 0:22:01.200 there will be and it's not an organized effort, it's 0:22:01.200 --> 0:22:03.800 not a government policy that, it's not a government edict. 0:22:04.320 --> 0:22:08.960 But companies are reassessing their supply lines and saying, Okay, 0:22:09.040 --> 0:22:11.320 you know, maybe we shouldn't rely on China. But then 0:22:11.320 --> 0:22:13.639 they have to get it from somewhere else. And by definition, 0:22:13.800 --> 0:22:15.440 if they were getting it from China because it was 0:22:15.480 --> 0:22:17.680 the cheapest they could get, it's going to cost more 0:22:17.680 --> 0:22:20.359 to get it from somewhere else, and that does add 0:22:20.560 --> 0:22:23.600 at some point into inflation and costs for everyday Americans. 0:22:23.640 --> 0:22:26.040 And so this is not going to be a top 0:22:26.080 --> 0:22:28.600 down decision from Washington. This is going to be decision 0:22:28.640 --> 0:22:32.639 made company by company to try to balance secure supply 0:22:32.760 --> 0:22:35.760 lines with being able to keep prices to consumers at 0:22:35.880 --> 0:22:38.560 reasonable levels. And I think when the dust settles, it 0:22:38.600 --> 0:22:40.399 will not be as big of a It will not 0:22:40.440 --> 0:22:42.080 be as big as people think it might be for 0:22:42.119 --> 0:22:44.399 the because of the cost problem that companies are going 0:22:44.440 --> 0:22:46.560 to find the costs are higher and are going to 0:22:46.560 --> 0:22:49.399 maybe pull back from some of this deglobalization that you 0:22:49.440 --> 0:22:52.199 see talking about. So now if you're ready, we can 0:22:52.200 --> 0:22:54.560 talk about bionomics and industrial policy. Yeah. 0:22:54.600 --> 0:22:57.040 Well, wait, can I ask one more question just on 0:22:57.080 --> 0:23:00.600 the car industry. I mean, you were the cars and 0:23:00.840 --> 0:23:02.760 before you were the cars are you were in private 0:23:02.800 --> 0:23:05.440 equity and an investment banker. So you've dealt with all 0:23:05.480 --> 0:23:09.160 these different types of businesses over the years. What did 0:23:09.160 --> 0:23:12.720 you learn about the car industry specifically? Is there something 0:23:12.720 --> 0:23:15.040 that makes that business model special in your mind? 0:23:16.560 --> 0:23:21.680 It's an iconic American industry. It's an industry that every 0:23:21.760 --> 0:23:25.640 country takes some national pride in having their own company. 0:23:25.640 --> 0:23:27.960 In effect, if you look at Europe, there's been some 0:23:28.040 --> 0:23:31.520 mergers recently to try to rationalize it. But every country 0:23:31.560 --> 0:23:33.120 in Europe felt like it had to have its own 0:23:33.160 --> 0:23:35.159 car company, even though it really didn't make sense for 0:23:35.200 --> 0:23:37.120 every country in Europe to have its own car company. 0:23:37.640 --> 0:23:39.520 And so if I were to stand up and say, 0:23:39.560 --> 0:23:41.119 you know, we don't really need a car industry in 0:23:41.119 --> 0:23:44.200 this country, I'd be probably drawn and quartered or burned 0:23:44.200 --> 0:23:46.240 at the stake or something like that. There's a lot 0:23:46.240 --> 0:23:49.040 of emotion and feeling around it. The car industry is 0:23:49.119 --> 0:23:51.400 three percent of our GDP that it may not sound 0:23:51.440 --> 0:23:54.320 like a lot, but that is a lot. And I 0:23:54.320 --> 0:23:56.320 think there's a strong feeling that we need to have 0:23:56.480 --> 0:23:59.560 a robust car industry here. And I get that. As 0:23:59.600 --> 0:24:02.879 I said I when I got into the auto rescue job, 0:24:03.320 --> 0:24:05.240 I did see a couple of things. One was the 0:24:05.320 --> 0:24:08.240 unbelievable pressure I'm manufacturing that I just described and how 0:24:08.240 --> 0:24:11.720 tough this was. And secondly, I saw these iconic companies 0:24:11.720 --> 0:24:14.720 that were really so much a fabric of America that 0:24:14.800 --> 0:24:16.320 we really felt like we. 0:24:16.280 --> 0:24:16.880 Had to save. 0:24:17.280 --> 0:24:19.800 That it was the right thing to do with tax paramney, 0:24:19.800 --> 0:24:21.800 which by the way, we got virtual all of it back. 0:24:22.040 --> 0:24:25.960 Out of curiosity. Other other factors that pressure domestic auto 0:24:26.000 --> 0:24:30.400 manufacturing or maybe manufacturing in general in the US versus 0:24:30.440 --> 0:24:34.159 other countries, not related to labor costs. I don't know 0:24:34.160 --> 0:24:37.280 whether there are environmental regulations, et cetera, other other reasons 0:24:37.359 --> 0:24:39.920 why manufacturing in the US is tough. 0:24:40.400 --> 0:24:44.639 That's a great question, and the answer is yes, we 0:24:44.680 --> 0:24:47.880 obviously do focus on this labor problem. But for example, 0:24:48.200 --> 0:24:51.480 permitting in the US and the environmental regulations and all 0:24:51.480 --> 0:24:55.560 that surrounds it is really really tough. Let me give 0:24:55.600 --> 0:24:57.600 you an example that has nothing with the car industry, 0:24:57.720 --> 0:25:00.439 but we recently looked at at copper invests in a 0:25:00.440 --> 0:25:01.679 copper mine in Arizona. 0:25:02.200 --> 0:25:02.480 Fine. 0:25:03.119 --> 0:25:06.159 It's what I learned, though, is that much and I 0:25:06.160 --> 0:25:08.359 don't know the percentage of the copper ore that we 0:25:08.480 --> 0:25:12.760 mine here gets sent to China to be smelted and 0:25:12.800 --> 0:25:15.600 then it comes back here, all adding to cost. And 0:25:15.680 --> 0:25:17.639 of course the Chinese don't exactly observe a lot of 0:25:17.800 --> 0:25:20.600 environmental protections when they do that kind of stuff over there. 0:25:21.119 --> 0:25:24.520 And meanwhile, there's a smelter in Idaho I'm told that 0:25:24.720 --> 0:25:28.200 is built sitting there not operating because it can't get 0:25:28.200 --> 0:25:32.640 permitted because of environmental concerns and so and of course, 0:25:32.680 --> 0:25:35.480 copper is a key ingredient in EVS and all the 0:25:35.600 --> 0:25:39.520 energy transition things we're talking about. And so there is 0:25:39.560 --> 0:25:43.520 a tension in this country between various goals, and we 0:25:43.600 --> 0:25:46.600 have a goal of obviously making this energy transition. If 0:25:46.600 --> 0:25:49.080 we want to make an energy transition, we're going to 0:25:49.080 --> 0:25:52.480 have to radically change the permitting process. It would be 0:25:52.520 --> 0:25:53.959 great if you want at some point we can talk 0:25:54.000 --> 0:25:57.800 about semiconductors, which is another manufacturing business where there are 0:25:57.880 --> 0:25:59.879 a lot of issues to be thought about. 0:26:00.160 --> 0:26:03.440 Well, all right, I'll take the bait. Let's talk about semiconductors. 0:26:03.480 --> 0:26:06.400 And I mean this leads nicely into bidenomics as well. 0:26:07.080 --> 0:26:10.280 So look, so what happened with semiconductors, and I've actually 0:26:10.280 --> 0:26:12.600 spent a fair amount of time on semiconductors recently because 0:26:12.600 --> 0:26:15.399 I think it's a fascinating subject, is that we of 0:26:15.440 --> 0:26:20.439 course invented semiconductors basically after Sputnik. We basically had our 0:26:20.440 --> 0:26:24.240 Sputnik moment. We said we've got to become a technology leader. 0:26:24.680 --> 0:26:27.720 The Defense Department got heavily involved DARPA, and the Internet 0:26:27.880 --> 0:26:31.439 was one outcome of that our leadership, and semiconductors, with 0:26:31.520 --> 0:26:34.600 Intel in particular being our national champion, but many many 0:26:34.640 --> 0:26:39.760 other companies, QUALCOMAMD whatever also being products of that. But 0:26:40.240 --> 0:26:44.240 what then happened was that we also encouraged and we 0:26:44.240 --> 0:26:46.440 were not the main reason this happened, but you then 0:26:46.480 --> 0:26:50.880 had a semiconductor industry grow up in South Korea, Japan, Taiwan, 0:26:50.960 --> 0:26:54.159 and Singapore. We encouraged it because we felt that if 0:26:54.160 --> 0:26:57.600 those countries were strong economically, it would help resist China 0:26:57.720 --> 0:27:01.359 better in its own economic expansion. Those countries pursued a 0:27:01.520 --> 0:27:04.800 very vigorous industrial policy, which relates to your question, to 0:27:04.880 --> 0:27:08.040 develop those industries there. And so where do we sit now? 0:27:08.080 --> 0:27:10.879 We sit now we're ninety two percent of the world's 0:27:10.920 --> 0:27:14.760 high end semiconductors, the most important ones that power your 0:27:14.760 --> 0:27:17.640 phones and lots of other things that you use are 0:27:17.680 --> 0:27:21.080 made in Taiwan, which obviously has a series of issues 0:27:21.119 --> 0:27:23.560 surrounding it. And now suddenly we want to bring that 0:27:23.640 --> 0:27:26.360 back here. But what we're finding is, and what we're 0:27:26.400 --> 0:27:29.480 going to find, is that that is not easy. We 0:27:29.600 --> 0:27:33.480 don't have the ecosystem of engineers, suppliers and so on 0:27:33.800 --> 0:27:37.040 that has grown up around the semiconductor industries elsewhere. We 0:27:37.160 --> 0:27:41.080 have this permitting problem, we have a high cost structure TSMC. 0:27:41.240 --> 0:27:44.679 Taiwan Semiconductor, which is the leading company in making this stuff, 0:27:45.280 --> 0:27:48.200 has a facility up on the Oregon Washington border they've 0:27:48.200 --> 0:27:50.400 had for a number of years. They say their costs 0:27:50.400 --> 0:27:53.800 are fifty percent higher than they are back in Taiwan, 0:27:54.359 --> 0:27:57.000 and so yeah, they're building a fab as these factories 0:27:57.000 --> 0:28:00.439 are called in Phoenix. But it's going to cost a 0:28:00.480 --> 0:28:03.119 lot and it's going to make barely a dent in 0:28:03.160 --> 0:28:06.680 our semiconductor situation. So we can talk about our industrial 0:28:06.720 --> 0:28:10.280 policy towards semiconductors. We have. The Congress has approved fifty 0:28:10.280 --> 0:28:14.439 two billion dollars for mostly for tax and grants to 0:28:14.520 --> 0:28:16.679 build these things. Another I think twelve billion of it 0:28:16.960 --> 0:28:20.040 for research and development. But then they've gone out with 0:28:20.119 --> 0:28:23.840 an RFP for companies to apply with all kinds of 0:28:23.880 --> 0:28:26.960 other conditions and things around it, like that companies have 0:28:27.000 --> 0:28:31.320 to provide childcare for their employees. One thing, one of 0:28:31.359 --> 0:28:33.760 the most important things that I learned in the auto 0:28:33.840 --> 0:28:36.320 rescue and that we were lucky to have, was we 0:28:36.320 --> 0:28:39.040 were told by the White House, you focus on fixing 0:28:39.040 --> 0:28:41.800 the companies, We'll worry about all the other issues that 0:28:41.840 --> 0:28:44.880 are out there, whether it's environment, labor, whatever, You can't 0:28:44.920 --> 0:28:48.840 have multiple objectives in a policy that's that important and 0:28:48.920 --> 0:28:51.360 be successful. In my opinion, you have to have one 0:28:51.400 --> 0:28:55.400 objective and be willing to make certain sacrifices around it 0:28:55.480 --> 0:28:56.320 to be successful. 0:28:56.800 --> 0:29:02.800 Setting aside whether these sort of other aspects like childcare 0:29:02.880 --> 0:29:07.160 are going to hobble our efforts to build domestic semiconductor manufacturing. 0:29:07.480 --> 0:29:09.719 I mean, you could make the argument right that the 0:29:09.800 --> 0:29:13.000 US semiconductor industry is doing really well. In Vidia is 0:29:13.040 --> 0:29:17.480 a one trillion dollar company. That's twice TSMC is only 0:29:17.520 --> 0:29:19.640 a four hundred and fifty eight billion dollar company, so 0:29:19.640 --> 0:29:22.560 in video is bigger than TSMC. Do you agree with 0:29:22.640 --> 0:29:26.840 the even premise that we need to have more domestic 0:29:26.880 --> 0:29:28.959 semiconductor manufacturing. 0:29:29.600 --> 0:29:32.520 And video doesn't make anything? No, I know, they make nothing. 0:29:32.400 --> 0:29:34.440 But they but they make a ton of money. 0:29:34.680 --> 0:29:35.920 Yeah that point, but. 0:29:35.840 --> 0:29:37.880 No, no, I know, But like, but do we need 0:29:38.000 --> 0:29:39.960 I mean yeah, so the whole look, the whole thing 0:29:40.280 --> 0:29:44.680 sort of arose. This got this semiconductor supply chains got 0:29:44.720 --> 0:29:48.640 on everyone's radar in twenty twenty when the low end 0:29:49.240 --> 0:29:53.040 lagging edge nodes that went into cars, there was a 0:29:53.160 --> 0:29:55.280 shortage of them. But then you know that eased and 0:29:55.320 --> 0:29:58.400 we don't expect pandemics to happen except maybe once every 0:29:58.480 --> 0:30:01.840 hundred years. Like, what, how much manufacturing do we need 0:30:01.880 --> 0:30:02.320 to do here? 0:30:03.240 --> 0:30:06.320 A lot or some or look, I don't know. I'm 0:30:06.440 --> 0:30:09.640 rather skeptical as possible, but in imperfect world you'd want 0:30:09.640 --> 0:30:12.040 a lot more. Nvidia does not make anything. It doesn't 0:30:12.120 --> 0:30:15.400 matter what their profits are. They could design chips every 0:30:15.480 --> 0:30:19.400 day from now till the end of civilization, but if 0:30:19.440 --> 0:30:21.840 they don't have somebody to make them, it doesn't matter. 0:30:22.440 --> 0:30:24.520 So in the chip world, you can separate I, at 0:30:24.600 --> 0:30:26.760 least in my own mind, separated into kind of three 0:30:27.360 --> 0:30:30.880 groups of chips. You have memory chips, which are basically 0:30:30.880 --> 0:30:33.000 a commodity. We make a lot of them. That's not 0:30:33.040 --> 0:30:35.200 going to be an issue. You have, as you said, 0:30:35.240 --> 0:30:38.880 low end processing chips. We make some of those. There 0:30:38.880 --> 0:30:40.920 are made in plenty of places in the world. We 0:30:41.040 --> 0:30:44.000 can be competitive there. But none of that matters if 0:30:44.000 --> 0:30:47.320 you don't have high end ships, because you need those. Again, 0:30:47.480 --> 0:30:50.480 it's not just your phones, it's Defence Department's missiles. It's 0:30:50.520 --> 0:30:54.320 all kinds of stuff that cannot function without them, and 0:30:54.360 --> 0:30:56.520 we don't make any of them here. We literally don't 0:30:56.520 --> 0:30:57.120 make any of them. 0:30:57.120 --> 0:30:57.360 Here. 0:30:57.800 --> 0:31:01.400 Okay, if we agree that we do need to semiconductors 0:31:01.440 --> 0:31:03.840 in the US, and that maybe there is a role 0:31:04.000 --> 0:31:08.320 for industrial policy or government money to play in that process. 0:31:08.960 --> 0:31:12.640 I know you've been somewhat critical of the federal deficit 0:31:12.920 --> 0:31:16.440 in recent years. How do you square those two objectives, 0:31:16.560 --> 0:31:18.760 you know, not wanting to explode the public debt but 0:31:18.880 --> 0:31:22.000 also wanting to foster certain domestic industry. 0:31:22.840 --> 0:31:24.200 Look, first, let me say a couple things. 0:31:24.240 --> 0:31:27.520 First of all, I am on the more skeptical end 0:31:27.560 --> 0:31:30.120 of the value of industrial policy. I think when the 0:31:30.120 --> 0:31:33.520 government gets into the business of picking winners, there are 0:31:33.520 --> 0:31:36.160 many many ways in which it can mess up. I 0:31:36.240 --> 0:31:39.080 will freely concede that what the Asian countries, the for 0:31:39.200 --> 0:31:42.720 Asian countries I mentioned did in semiconductors, which is heavily 0:31:42.720 --> 0:31:45.960 through industrial policy, worked and so there are plenty of 0:31:46.040 --> 0:31:49.560 examples it works. Lots of people like me would say, Okay, 0:31:49.600 --> 0:31:51.560 if you give me full control of this and I 0:31:51.560 --> 0:31:53.040 don't have to deal with all this other stuff and 0:31:53.120 --> 0:31:56.160 politics and whatever, I can make this work. There's a 0:31:56.160 --> 0:31:58.320 certain amount of hubris in saying that, but that's what 0:31:58.360 --> 0:32:00.560 a lot of us would say. That's not how it's 0:32:00.560 --> 0:32:02.680 going to work. It's going to work as a whole 0:32:02.720 --> 0:32:05.680 different kind of process, and that I think brings a 0:32:05.680 --> 0:32:07.920 lot of risks in terms of the costs. We're not 0:32:07.960 --> 0:32:09.840 talking about that much money. I mean, we have a 0:32:09.840 --> 0:32:13.360 federal budget deficit of two trillion dollars. We're talking about 0:32:13.360 --> 0:32:16.560 fifty two billion over a number of years. It is 0:32:17.280 --> 0:32:19.720 important if we believe we can execute it well. And 0:32:19.760 --> 0:32:22.560 as I said, I have my questions about that. It 0:32:22.640 --> 0:32:24.840 is just as important as many many other things the 0:32:24.880 --> 0:32:26.960 government does. And we just would need to find fifty 0:32:26.960 --> 0:32:29.240 two billion dollars somewhere else to pay for this because 0:32:29.520 --> 0:32:31.800 it is. It should be a priority if we can 0:32:31.840 --> 0:32:32.800 execute it well. 0:32:32.920 --> 0:32:35.520 Let me bring it back to autos for a second. 0:32:35.720 --> 0:32:38.480 You laid out the logic of why we should have 0:32:38.680 --> 0:32:43.880 some more manufacturing of semiconductors here. Does that logic to 0:32:43.960 --> 0:32:48.000 you also apply to the battery realm? 0:32:48.240 --> 0:32:50.120 I thought you were asking about autos in general. 0:32:50.240 --> 0:32:52.480 I think, well, we could go into audit, but like 0:32:52.520 --> 0:32:54.520 that seemed to be a specific concern, and I think 0:32:54.560 --> 0:32:57.680 that when they passed the Inflation Reduction Act, a big 0:32:57.720 --> 0:33:00.880 part of it was probably one of Joe Mansion. A 0:33:01.000 --> 0:33:03.160 critical vote was like he does not want to be 0:33:03.200 --> 0:33:05.200 in the same position that the US has found itself 0:33:05.240 --> 0:33:08.960 in with respect to solar with respect to potentially semiconductors, 0:33:09.000 --> 0:33:11.680 and find us in that same vulnerable position with respect 0:33:11.720 --> 0:33:12.160 to batteries. 0:33:12.440 --> 0:33:15.560 I would like to see us make more batteries here, 0:33:15.640 --> 0:33:18.320 because there are a lot of batteries made in China. 0:33:18.760 --> 0:33:21.120 I don't worry quite as much about that as I do. 0:33:21.160 --> 0:33:24.160 It's about semiconductors because they're also batteries made in South 0:33:24.240 --> 0:33:27.680 Korea and lots of other places that are friendly to us. 0:33:27.960 --> 0:33:30.160 And we're Look, we are living in a global world 0:33:30.200 --> 0:33:32.040 and we're not going to get away from that. We're 0:33:32.080 --> 0:33:34.000 not going to get away from that. We have spent 0:33:34.080 --> 0:33:38.000 too many years globalizing. There's a company called ASML that 0:33:38.040 --> 0:33:40.200 you may have heard about, which makes the equipment that 0:33:40.200 --> 0:33:44.920 makes semiconductors. Their high end EUV what's called an EUV 0:33:45.000 --> 0:33:47.880 machine has something like six hundred and fifty thousand parts 0:33:47.920 --> 0:33:50.360 in it. It's one of the most complicated pieces of machinery, 0:33:50.400 --> 0:33:53.240 if not the most complicated made. Those parts come from 0:33:53.280 --> 0:33:56.400 all over the world. The intellectual property is owned by 0:33:56.400 --> 0:33:59.040 countries all over the world, including by US. Some of 0:33:59.040 --> 0:34:02.800 those parts are actually made in California, and so we're 0:34:02.800 --> 0:34:04.280 not going to get away from that. The world's not 0:34:04.320 --> 0:34:06.040 going to get away from that. We have to accept 0:34:06.040 --> 0:34:08.480 that we're always going to be at some risk of 0:34:08.600 --> 0:34:13.040 supply line problems if the world becomes a less forgiving place. 0:34:13.680 --> 0:34:16.200 So I would like to see us make some batteries here. 0:34:17.040 --> 0:34:19.560 I think it is a much easier challenge than making 0:34:19.560 --> 0:34:23.080 semiconductors here. So I think it's possible and likely that 0:34:23.120 --> 0:34:25.600 we will make some. Tesla makes its batteries here, of course, 0:34:26.320 --> 0:34:29.959 But again we shouldn't get overly optimistic about how many 0:34:29.960 --> 0:34:31.359 we're going to make and what the costs are going 0:34:31.400 --> 0:34:31.600 to be. 0:34:48.200 --> 0:34:50.360 I'm going to ask you to put your banker slash 0:34:50.440 --> 0:34:54.120 private equity hat on again. As a director of capital, 0:34:54.800 --> 0:34:57.960 how do you encourage more money to flow into some 0:34:58.120 --> 0:35:03.800 of these strategically and or environmentally important industries such as semiconductors, 0:35:03.960 --> 0:35:07.719 such as potentially batteries, things like that, where to date, 0:35:07.880 --> 0:35:11.479 maybe there hasn't been as much money as certain people 0:35:11.520 --> 0:35:12.320 would have liked. 0:35:13.560 --> 0:35:19.480 In some industries where the prospects for return don't seem 0:35:19.960 --> 0:35:23.520 fulsome enough for us to invest there may if they're 0:35:23.520 --> 0:35:26.680 important enough, then the government needs to step in so 0:35:26.960 --> 0:35:29.680 let's talk about how the government can do this in 0:35:29.719 --> 0:35:32.399 a way that is most cost effective. If you think 0:35:32.440 --> 0:35:35.319 about it very broadly, the government can provide subsidies. They 0:35:35.320 --> 0:35:38.520 can provide tax incentives. The problem with subsidies is then 0:35:38.560 --> 0:35:40.799 you have the government in effect picking winners, and that 0:35:40.880 --> 0:35:44.680 scares me. The advantage of tax incentives is you're basically 0:35:44.760 --> 0:35:47.560 letting the market decide which projects are going to go forward, 0:35:47.800 --> 0:35:51.840 with the tax and centives providing and added boost. We 0:35:51.960 --> 0:35:55.160 have seen in my investment role, we have seen projects 0:35:55.880 --> 0:35:58.200 that came by a couple of years ago that we 0:35:58.239 --> 0:36:01.879 could not get pencil out to make returns meet our thresholds, 0:36:02.040 --> 0:36:04.520 and so we didn't invest. We literally had one of 0:36:04.560 --> 0:36:07.400 those same projects come back after the IRA was passed 0:36:07.680 --> 0:36:09.799 and suddenly there's i think a thirty percent or some 0:36:09.920 --> 0:36:13.120 large tax credit associated with it, and the project suddenly 0:36:13.120 --> 0:36:15.040 made economic sense and we invested in it. 0:36:15.120 --> 0:36:16.880 What area are we talking about. This was in the 0:36:16.880 --> 0:36:18.600 solar area. In the solar area. 0:36:18.680 --> 0:36:22.120 Yeah, And so that's how the market can work better, 0:36:22.280 --> 0:36:24.279 and it is working better. In fact, it's working so 0:36:24.440 --> 0:36:29.160 well that it seems clear that the original estimate for 0:36:29.200 --> 0:36:30.960 the cost of the IRA, which I think was around 0:36:30.960 --> 0:36:33.520 five hundred billion. Goldman Sax thinks it's going to be 0:36:33.560 --> 0:36:36.440 one point three trillion. Other people are somewhere in between. 0:36:36.880 --> 0:36:39.080 And that may sound like a bad thing, and it is, 0:36:39.160 --> 0:36:41.879 obviously from the standpoint of the budget deficit, but it's 0:36:41.880 --> 0:36:44.520 a good thing in the sense that these incentives have 0:36:44.600 --> 0:36:47.080 taken so many projects that were not economic and made 0:36:47.120 --> 0:36:49.759 them economic. And so you've had this enormous take up 0:36:49.800 --> 0:36:52.560 and we will have a lot of progress made in 0:36:52.560 --> 0:36:56.319 this country on energy transition projects because of it. 0:36:56.920 --> 0:37:00.239 Let's go back to cars more broadly, because something it 0:37:00.320 --> 0:37:03.960 comes up a lot in our conversations. It's not just 0:37:04.080 --> 0:37:06.720 about do you have the cash, It's not just about 0:37:06.719 --> 0:37:09.480 do you have the workers. It's like are you good 0:37:09.520 --> 0:37:12.120 at it? Are the learning by doing? And when you 0:37:12.200 --> 0:37:14.840 talk about you know, you even mentioned the car industry 0:37:14.880 --> 0:37:16.799 in the US has been working on it's sort of 0:37:16.840 --> 0:37:21.719 existing model for over a century. The chip makers in 0:37:21.800 --> 0:37:24.720 places like Taiwan and Korea, like they've just gotten really 0:37:24.760 --> 0:37:26.400 good at what they do and they know how to 0:37:26.440 --> 0:37:31.520 do these repeatable processes. When it comes to evs and 0:37:31.560 --> 0:37:34.759 the legacy automakers. Sitting aside the labor cross again for 0:37:34.800 --> 0:37:37.000 a second, like, how much of a challenge is it 0:37:37.040 --> 0:37:39.839 going to be for them to basically get good at 0:37:39.880 --> 0:37:41.520 producing electric cars at scale. 0:37:42.120 --> 0:37:44.600 It's going to be a challenge. But I think there's 0:37:44.600 --> 0:37:47.520 an and yang to this. I think on the positive side, 0:37:47.880 --> 0:37:50.399 they have one hundred years of history in a very 0:37:50.440 --> 0:37:57.640 complicated industry and everything from design, engineering, supply lines, manufacturing, distribution, marketing, 0:37:57.680 --> 0:38:01.000 and so on, and so that's an advantage that they have. 0:38:01.400 --> 0:38:05.359 The disadvantage is their legacy companies, and they really need 0:38:05.400 --> 0:38:09.160 to reinvent themselves in a way to compete. I was 0:38:09.200 --> 0:38:13.520 a skeptic about the ability of companies like Tesla to 0:38:13.600 --> 0:38:17.799 come into a market that was so established and compete effectively, 0:38:17.840 --> 0:38:19.080 and I was wrong about that. 0:38:19.160 --> 0:38:20.239 Obviously it can be done. 0:38:20.239 --> 0:38:22.120 And you now also have a whole bunch of other 0:38:22.600 --> 0:38:26.399 startups coming along, and at the moment, the Detroit Three 0:38:26.440 --> 0:38:28.640 as we call them, are losing a lot of money 0:38:28.680 --> 0:38:31.520 on their evs and just really beginning to roll them 0:38:31.520 --> 0:38:35.120 out in force, and it's going to be a tough 0:38:35.160 --> 0:38:39.080 competitive experience for them, and that's why things like labor 0:38:39.120 --> 0:38:40.440 costs become important. 0:38:41.200 --> 0:38:44.280 Just going back to the UAW strikes, what's your base 0:38:44.400 --> 0:38:47.520 case for how this all works out, and what is 0:38:47.560 --> 0:38:51.080 the trigger I suppose for the two sides to come 0:38:51.120 --> 0:38:51.840 to a resolution. 0:38:52.760 --> 0:38:56.320 Well, first, in relation to your opening comments to your listeners, 0:38:56.800 --> 0:38:59.480 I think this podcast will be relevant for a long 0:38:59.520 --> 0:39:05.120 time from every Unfortunately, unfortunately, certainly, the attitude at the 0:39:05.160 --> 0:39:07.440 companies is that this is not going to get settled 0:39:07.520 --> 0:39:11.720 quickly because the gap between the two sides is so vast, 0:39:11.840 --> 0:39:14.840 and I think the companies, as I said, and you 0:39:14.920 --> 0:39:17.960 may or may not agree, there's no possibility that companies 0:39:18.000 --> 0:39:20.960 can possibly accept paying people forty hours and working thirty 0:39:20.960 --> 0:39:24.040 two or anything like that. It's just it's not in 0:39:24.080 --> 0:39:27.759 the realm of reality. And so I think at the 0:39:27.840 --> 0:39:29.880 end of the day, what I hope will happen, and 0:39:29.920 --> 0:39:32.200 what would be the right thing to happen, is for 0:39:32.719 --> 0:39:35.520 the union to drop a lot of these ancillary demands. 0:39:36.000 --> 0:39:38.960 And there are also, by the way, demands and requests 0:39:39.080 --> 0:39:43.120 around the issue of workplace flexibility. One of the things 0:39:43.120 --> 0:39:45.960 that we did in two thousand and nine was to 0:39:46.160 --> 0:39:49.319 basically strip away a lot of the work roles that 0:39:49.360 --> 0:39:53.120 we felt were impeding efficiency. General motors, I believe from 0:39:53.200 --> 0:39:57.000 my recollection, had something like three hundred job classifications for 0:39:57.040 --> 0:39:59.279 its workers. If you were a plumber, you couldn't touch 0:39:59.320 --> 0:40:02.120 a piece of electric, piece of equipment or whatever. And 0:40:02.160 --> 0:40:06.000 we reduce those to six and that is still more 0:40:06.080 --> 0:40:08.680 or less where things stand. But there are other kinds 0:40:08.680 --> 0:40:12.319 of flexibility that the companies need to manage, especially in 0:40:12.360 --> 0:40:15.200 relation to the ev transition. So what I would like 0:40:15.280 --> 0:40:18.279 to see happen is a robust pay increase, and I 0:40:18.280 --> 0:40:20.719 think the companies have offered a reasonable one, but there's 0:40:20.840 --> 0:40:23.440 more to go, I'm sure, and the gap there, as 0:40:23.480 --> 0:40:26.280 I said, I think is bridgeable. And for the union 0:40:26.360 --> 0:40:28.880 to give up most of these I'm going to call 0:40:28.920 --> 0:40:33.400 them crazy demands and hopefully also address any kinds of 0:40:33.480 --> 0:40:36.279 workplace flexibility issues that the companies feel they need to 0:40:36.320 --> 0:40:36.960 be competitive. 0:40:37.160 --> 0:40:40.680 Does it have to get worse though, before it gets better, Well, it. 0:40:40.600 --> 0:40:43.000 Will get worse because what's happened is, as you know, 0:40:43.480 --> 0:40:46.000 first of all, is the way they structured the strike 0:40:46.120 --> 0:40:48.719 is unprecedented. They close three plants, one for each of 0:40:48.719 --> 0:40:51.759 the companies, and they did that in part because they 0:40:51.760 --> 0:40:54.440 didn't want their strike fund to get depleted too quickly. 0:40:54.719 --> 0:40:57.520 They couldn't afford to strike all three companies. They didn't 0:40:57.520 --> 0:40:59.399 want to do what historically has been done with strike 0:40:59.440 --> 0:41:02.640 one company. But what's going to happen now is that 0:41:03.560 --> 0:41:07.120 gradually other facilities are going to close because there's no 0:41:07.160 --> 0:41:10.000 place to send the parts because there's nobody to assemble 0:41:10.120 --> 0:41:12.480 the cars and trucks at these three facilities that have 0:41:12.600 --> 0:41:15.640 been shut down. And then those facilities will shut down 0:41:15.760 --> 0:41:18.080 and those workers will be laid off. Under the rules, 0:41:18.120 --> 0:41:20.680 the companies can't simply shut those facilities and lay off 0:41:20.760 --> 0:41:23.719 the workers unless they have a legitimate business reason to 0:41:23.800 --> 0:41:27.600 do that, i e. They're oversupplied with whatever that particular facility, 0:41:28.040 --> 0:41:31.800 what facility does. So yeah, this could easily ripple through 0:41:32.440 --> 0:41:36.120 the entire set of facilities around the Big three in 0:41:36.239 --> 0:41:39.880 Detroit three they could shut down. You could have one 0:41:40.000 --> 0:41:42.600 hundred and thirty thousand workers on strike or not on strike, 0:41:42.640 --> 0:41:45.160 but laid off and on strike. There will be significant 0:41:45.200 --> 0:41:47.800 effects on parts suppliers. By the way, let's not forget 0:41:48.200 --> 0:41:50.800 that these companies don't make a lot of their parts. 0:41:50.840 --> 0:41:53.920 Most of their parts they've outsourced those years ago. So 0:41:54.000 --> 0:41:56.200 those and this was something we encountered in two thousand 0:41:56.280 --> 0:41:58.520 and nine as well, And so those companies are going 0:41:58.600 --> 0:42:01.960 to suffer financial pressures and they will be concentrated in 0:42:02.000 --> 0:42:04.879 the Upper Midwest, and none of this is a good thing. 0:42:05.680 --> 0:42:09.400 You broke the UAW demands between what you see is 0:42:09.440 --> 0:42:13.640 like sort of very reasonable and deserved pay increases and 0:42:13.680 --> 0:42:17.200 then this so called crazy demand. Where does ending the 0:42:17.280 --> 0:42:19.720 tiered system fall into that? Do you consider that crazy 0:42:19.760 --> 0:42:21.240 or is that something that can be solved? 0:42:21.280 --> 0:42:24.920 Well, again, that's a money issue, really, and so it's 0:42:24.960 --> 0:42:27.920 a question of how you want to allocate the money. 0:42:27.960 --> 0:42:32.800 If you give the existing permanent workers more than whatever, 0:42:33.280 --> 0:42:35.640 then there's less to deal with what they're called the 0:42:35.640 --> 0:42:39.239 temp workers now, and so it's really a question as 0:42:39.320 --> 0:42:41.719 much for the union as for the companies as to 0:42:41.719 --> 0:42:44.279 how they want to allocate it. The temporary worker thing 0:42:44.360 --> 0:42:47.319 has been significantly improved since two thousand and nine in 0:42:47.400 --> 0:42:49.200 terms of the amount of time a new worker is 0:42:49.200 --> 0:42:52.520 a temporary worker before they become a permanent worker, and 0:42:52.560 --> 0:42:55.200 I think that will continue to shrink under this new contract. 0:42:55.360 --> 0:42:58.560 I think the company's prepared to give something on that front. 0:42:58.719 --> 0:43:00.200 But again, as I said, it's as much for the 0:43:00.280 --> 0:43:03.600 UAW is this for the companies as to where their 0:43:03.600 --> 0:43:04.520 priorities lie. 0:43:04.800 --> 0:43:08.080 Let me ask you one thing about EV's is I 0:43:08.120 --> 0:43:11.480 think they're less labor intensive and they have fewer parts total, 0:43:11.560 --> 0:43:15.160 so there's less assemblies. So even under again saying there 0:43:15.200 --> 0:43:19.000 was no contract issues, I believe the perception is that 0:43:19.200 --> 0:43:23.319 the transition would require less labor. Is that the case, Like, 0:43:23.360 --> 0:43:25.360 what is the stress that's going to become on the 0:43:25.440 --> 0:43:29.600 labor force in your view, regardless of this contract from 0:43:29.880 --> 0:43:30.359 But this is. 0:43:30.320 --> 0:43:33.640 Something the UAW is worrying about, and it's analogous in 0:43:33.680 --> 0:43:36.520 a way to what the screenwriters are worrying about. They're 0:43:36.560 --> 0:43:38.720 worrying that AI is going to put them out of work. 0:43:39.040 --> 0:43:41.360 The UAW is worrying that the evs are going to 0:43:41.360 --> 0:43:43.480 put them out of work. And this is again where 0:43:43.719 --> 0:43:47.279 there's a very interesting tension in America today between the 0:43:47.320 --> 0:43:49.520 people who care passionately about labor and the people who 0:43:49.800 --> 0:43:52.200 care passionately about the energy transition. Many of them are 0:43:52.280 --> 0:43:55.720 the same people, and I certainly would even consider myself 0:43:55.719 --> 0:43:58.520 one of them. But you have to decide what your 0:43:58.560 --> 0:44:01.520 priorities are, and if we want to be competitive in 0:44:01.600 --> 0:44:04.480 evs and not end up like semiconductors where they're all 0:44:04.520 --> 0:44:07.120 made somewhere else, then we have to accept that there 0:44:07.160 --> 0:44:08.920 are going to be some costs to that. I don't 0:44:08.960 --> 0:44:12.200 mean financial costs. I mean costs in terms of jobs, because, 0:44:12.200 --> 0:44:15.279 as you correctly said, evs require a good bit less 0:44:15.360 --> 0:44:18.680 labor and we just have to accept that, and trying 0:44:18.719 --> 0:44:22.200 to protect old jobs is never a winning strategy for 0:44:22.239 --> 0:44:23.480 any country or any company. 0:44:24.280 --> 0:44:26.839 I want to ask one more question. This is what 0:44:26.880 --> 0:44:29.600 we call a giveaway question. Well, you're a former journalist. 0:44:29.640 --> 0:44:31.719 You know your time as cars are. 0:44:32.360 --> 0:44:33.000 What was your. 0:44:32.920 --> 0:44:36.320 Favorite or most memorable moment from that period? 0:44:37.320 --> 0:44:41.719 My most memorable moment, there's a competition for that. For 0:44:41.800 --> 0:44:45.160 that award, I had many many It was a fascinating experience. 0:44:45.200 --> 0:44:47.040 It was the best thing I ever did with my life. 0:44:47.160 --> 0:44:50.000 I felt like I actually made a contribution and we 0:44:50.000 --> 0:44:52.920 were able to achieve it. I would say, interestingly, and 0:44:52.960 --> 0:44:55.160 this this is a little different than what we've made. 0:44:55.440 --> 0:44:58.880 My most memorable moment was when we got inside of 0:44:58.920 --> 0:45:02.520 General Motors. I had been taught and brought up in 0:45:02.600 --> 0:45:06.160 my investment banking world to think that General Motors was 0:45:06.280 --> 0:45:11.120 a really iconic company, well managed for the most part, 0:45:11.480 --> 0:45:14.400 especially in finance. They were renowned for their finance department. 0:45:14.800 --> 0:45:17.320 When we got inside General Motors, I could not believe 0:45:17.360 --> 0:45:20.720 how badly that company was run. They didn't even really 0:45:20.800 --> 0:45:24.040 have a model, a financial model that we could use 0:45:24.400 --> 0:45:26.799 to project the results for five years. They had some 0:45:26.880 --> 0:45:29.840 cut and paste thing, but they didn't even have really 0:45:30.080 --> 0:45:32.160 a model that could be manipulated and where you could 0:45:32.239 --> 0:45:35.239 change assumptions and things like that. The culture of the 0:45:35.239 --> 0:45:38.200 company was terrible. It was a get along, go along 0:45:38.280 --> 0:45:42.399 kind of culture. Nobody would challenge anybody. The CEO had 0:45:42.400 --> 0:45:46.000 an elevator that took him from his private executive or 0:45:46.000 --> 0:45:48.759 the private executive car parking area, straight to I think 0:45:48.800 --> 0:45:50.560 it was the forty ninth or fiftieth floor and the 0:45:50.600 --> 0:45:53.759 Renaissance tower to his office without stopping any of the floor, 0:45:53.800 --> 0:45:55.239 so he didn't have to mingle with any of the 0:45:55.520 --> 0:45:59.000 ordinary people. The executive offices were behind a locked door. 0:45:59.040 --> 0:46:01.400 You had to have a certain kind of paths to 0:46:01.440 --> 0:46:05.239 get through that door. It was unbelievable, unbelievable to me 0:46:05.440 --> 0:46:08.520 to see an kind of company run like that, and 0:46:09.040 --> 0:46:11.560 it was clear from the from day one that a 0:46:11.600 --> 0:46:14.040 big part of what we needed to do there was 0:46:14.080 --> 0:46:16.840 to change management. This was this is not labor. It 0:46:16.880 --> 0:46:19.080 was not labour's fault that these companies got in trouble. 0:46:19.160 --> 0:46:22.399 They have some responsibility, but management had an off lot 0:46:22.400 --> 0:46:23.240 of responsibility. 0:46:23.719 --> 0:46:26.080 All right, Steven Rattner, thank you so much for coming 0:46:26.080 --> 0:46:28.440 on all thoughts and reminiscing with us and sharing your 0:46:28.480 --> 0:46:30.600 thoughts on the current situation. Appreciate it. 0:46:30.600 --> 0:46:32.239 It was fun. Thanks so much for having me. 0:46:32.320 --> 0:46:33.439 Thank you. That was really great. 0:46:33.520 --> 0:46:49.120 Yeah, that was fantastic. Thank you, so Joe. I thought 0:46:49.120 --> 0:46:50.040 that was a. 0:46:50.080 --> 0:46:54.440 Very nuanced discussion of a topic that clearly people have 0:46:54.640 --> 0:46:57.319 a lot of feelings about. I did think one thing 0:46:57.320 --> 0:46:59.719 that jumped out to me was just how important that 0:46:59.719 --> 0:47:03.520 echomic backdrop is for these types of things. So Steve 0:47:03.600 --> 0:47:06.279 was talking about how in two thousand and nine you 0:47:06.320 --> 0:47:09.000 were able to get concessions out of the union because 0:47:09.120 --> 0:47:12.640 the economy was not doing very well. Obviously, fast forward 0:47:12.680 --> 0:47:14.720 to today and it feels like the balance of power 0:47:14.800 --> 0:47:18.759 has shifted potentially more in favor of workers, and so 0:47:19.160 --> 0:47:22.040 you can see why the UAW thinks this is the 0:47:22.080 --> 0:47:22.880 moment to strike. 0:47:23.640 --> 0:47:27.239 Absolutely, I mean absolutely, the macro backdrop couldn't be more 0:47:27.320 --> 0:47:31.040 different from the time when Stephen was the cars. It's 0:47:31.120 --> 0:47:34.640 crazy that last point. I'm yeah, about the elevator going 0:47:34.640 --> 0:47:37.360 straight up to the top of the Renaissance Tower in Detroit. 0:47:37.400 --> 0:47:39.440 I mean, he was talking about how a lot of companies, 0:47:39.560 --> 0:47:42.560 especially car companies, don't have defined pensions anymore. I wonder 0:47:42.560 --> 0:47:45.840 if they still have executive dining rooms and bathrooms and 0:47:45.880 --> 0:47:46.560 things like that. 0:47:46.440 --> 0:47:48.800 They get a I would guess so, though I guess 0:47:48.840 --> 0:47:51.200 we could confirm hopefully. I wonder if they still have 0:47:51.280 --> 0:47:54.520 that elevator. But you know, like there's a lot here, 0:47:54.719 --> 0:47:58.160 and so, you know, obviously, the labor component, like in 0:47:58.239 --> 0:48:01.120 my mind, like when I think about will the big 0:48:01.239 --> 0:48:06.560 three companies thrive in the age of electric vehicles, I 0:48:06.600 --> 0:48:10.000 guess I'm skeptical that the cost of labor, whether it's 0:48:10.040 --> 0:48:12.360 five percent or seven percent, is going to be the 0:48:12.400 --> 0:48:15.720 defining question of it. It still seems like the big 0:48:16.080 --> 0:48:19.160 question mark in my mind is can they make cars 0:48:19.239 --> 0:48:22.920 productively that people want to right and can they maintain 0:48:22.960 --> 0:48:25.680 their businesses which are still, like, you know, heavily driven 0:48:25.719 --> 0:48:28.880 by profits from internal combustion engine cars priced over a 0:48:28.880 --> 0:48:31.879 long time. Can the pencil out in the end where 0:48:31.920 --> 0:48:35.279 the profits from evs against all kinds of competition that 0:48:35.360 --> 0:48:38.359 they didn't have in the previous era, does it work? 0:48:38.680 --> 0:48:40.400 Are they competitive in this space? And I think it's 0:48:40.440 --> 0:48:42.000 still kind of TVD Yeah. 0:48:41.840 --> 0:48:43.880 And the other thing and Steve kind of touched on 0:48:43.960 --> 0:48:47.400 this is just the uniqueness of the car industry on 0:48:47.440 --> 0:48:49.880 the whole. So, you know, we associate a lot of 0:48:49.960 --> 0:48:53.160 car makers with American industry, and I think there's also 0:48:53.200 --> 0:48:57.759 a tendency for Americans to want to buy American cars 0:48:57.760 --> 0:49:00.640 often there's the sort of brand recognition of and so 0:49:00.719 --> 0:49:03.600 I kind of wonder, to your point on the labor costs, 0:49:03.680 --> 0:49:06.640 if maybe people are willing to give up a little 0:49:06.640 --> 0:49:09.640 bit of price in order to you know, support and 0:49:09.719 --> 0:49:12.280 buy American and all of that type of stuff. 0:49:12.360 --> 0:49:15.040 By the way, Tracy, did you hear where that copper 0:49:15.080 --> 0:49:16.360 mind he was looking to invest in? 0:49:16.520 --> 0:49:20.560 Is I knew? I knew you would notice that. Arizona. 0:49:20.719 --> 0:49:23.239 Yeah, another another Arizona angle for when we do our 0:49:23.440 --> 0:49:25.880 Arizona I didn't realize. I just look at on Wikipedia. 0:49:25.920 --> 0:49:28.040 They all somehow comes back to Arizona. 0:49:28.160 --> 0:49:28.319 Right. 0:49:28.320 --> 0:49:31.080 We have to go to Arizona, visit an alfalfa farm, 0:49:31.400 --> 0:49:35.400 visit like a water treatment plant, car a copper mine, 0:49:35.480 --> 0:49:36.640 a car factory. 0:49:36.760 --> 0:49:41.040 No, there's more. There's a Howard Hughes Master Limited, a 0:49:41.280 --> 0:49:44.440 master Plan community semiconductor fab and we have to take 0:49:44.480 --> 0:49:47.000 a self driving car around on the entire tour. 0:49:47.160 --> 0:49:49.640 All right, shall we leave it there? Right now? 0:49:49.760 --> 0:49:50.480 Let's leave it there. 0:49:50.640 --> 0:49:53.840 Okay, this has been another episode of the Odd Blots podcast. 0:49:53.920 --> 0:49:57.280 I'm Tracy Alloway. You can follow me at Tracy Alloway. 0:49:57.040 --> 0:49:59.920 And I'm Jill Wisenthal. You can follow me at the Stalwart. 0:50:00.040 --> 0:50:03.760 Follow our guests Steven Rattner. He's at Steve Rattner. Follow 0:50:03.800 --> 0:50:07.520 our producers Carmen Rodriguez at Carmen armand dash Ol Bennett 0:50:07.520 --> 0:50:10.440 at dashbod. And thank you to our producer Moses Ondam. 0:50:10.800 --> 0:50:14.439 Follow all of the Bloomberg podcasts under the handle at podcasts, 0:50:14.760 --> 0:50:17.160 and for more odd Loots content, go to Bloomberg dot 0:50:17.200 --> 0:50:20.320 com slash odd Lots, where we post transcripts, a blog, 0:50:20.400 --> 0:50:23.360 and a newsletter. And check out the discord. We have 0:50:23.400 --> 0:50:25.920 a transportation room, we have a climate room. Gonna be 0:50:26.000 --> 0:50:29.080 lots to talk about this one discord dot gg slash 0:50:29.120 --> 0:50:31.560 odd Lots. Talk about this and all the other episodes 0:50:31.600 --> 0:50:32.520 with fellow listeners. 0:50:32.800 --> 0:50:35.440 And if you enjoy odd Lots, if you like it 0:50:35.480 --> 0:50:38.480 when we talk about labor movements, then please leave us 0:50:38.480 --> 0:50:42.480 a positive review on your favorite podcast platform. Thanks for listening.