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Speaker 1: This is Wall Street Week. I'm David Weston. The UAW

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Speaker 1: has tentative agreements with all three major US automakers deals

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Speaker 1: the UAW head Sean Fain says, didn't leave any money

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Speaker 1: on the table from his point of view, to take

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Speaker 1: us through those deals and what they may mean for

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Speaker 1: the industry. Welcome back now, Steve Radner, chairman and CEO

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Speaker 1: of will It Advisors, which invests the personal and philanthropic

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Speaker 1: assets of Michael Bloomberg. He is, of course our founder

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Speaker 1: and majority shareholders. So Steve, welcome back. Good to have

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Speaker 1: you here.

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Speaker 2: Thanks.

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Speaker 1: In addition to so many things you've done in your career,

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Speaker 1: you're also the lead advisor to President Obama for the

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Speaker 1: Presidential task Force in the Auditors, So you know this

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Speaker 1: business terribly. Well what do you make of the deals

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Speaker 1: as they've been described so far for the Big Three?

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Speaker 2: Well, I think we have the details, now have the package.

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Speaker 2: It's a stick I was just reading it. I think

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Speaker 2: it's a good outcome for both sides. Actually, I think

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Speaker 2: the union got what they will, most of what they're

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Speaker 2: much of what they wanted, and much of what they deserve,

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Speaker 2: which are substantial pay increases. They got Cola cost of

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Speaker 2: living adjustments, back, the right to strike in certain places,

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Speaker 2: things like that. And I think from the standpoint of

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Speaker 2: the companies, what's really important is that there was no

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Speaker 2: backsliding on work rules, on all the restrictions that made

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Speaker 2: it hard to manage those companies before we restructured them

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Speaker 2: in two thousand and nine. And they also did not

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Speaker 2: go back to define benefit pension plans or company paid

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Speaker 2: retiery healthcare, which of course everybody would like workers to have,

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Speaker 2: but simply isn't in the playbook anymore in today's economy.

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Speaker 1: What about that flexibility because earlier on Wallstreetbek you were

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Speaker 1: warned about those work rules because you had to deal

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Speaker 1: with those back two thousand and twousand and nine. There

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Speaker 1: were some agreements such as, for example, the right to

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Speaker 1: strike as I understand it, for any individual plant closing.

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Speaker 1: Do you think this will still give the auto companies

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Speaker 1: enough flexibility to deal with a really changing environment in autos.

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Speaker 2: Yeah, I do. I think the thing that the union

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Speaker 2: has to be careful about is, as we've talked about before,

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Speaker 2: the inn and the Yang, is that when you increase pay,

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Speaker 2: increase costs to the companies. They're talking about eight or

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Speaker 2: nine hundred dollars a car potentially have increased costs. What

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Speaker 2: can happen then, is the jobs can move, that the

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Speaker 2: next plant doesn't get built in the US, it gets

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Speaker 2: built in Mexico, and that the right to strike does

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Speaker 2: not prevent that from happening. And that's what's been happening

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Speaker 2: in the auto industry for the last fifteen years. The

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Speaker 2: number of the jobs have been moving. It's not a

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Speaker 2: coincidence that the big three companies essentially don't really make

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Speaker 2: small cars in the US anymore. They cannot afford. They

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Speaker 2: simply can't make them with any kind of reasonable profit

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Speaker 2: margin given the cost structures they have. So we all

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Speaker 2: want workers to do more, but we don't want it

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Speaker 2: to cost jobs. And that's the thing we have to

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Speaker 2: be really careful about.

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Speaker 1: Come back to your point of a competition moving to Mexico,

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Speaker 1: moving to right to work states, there's also a competition

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Speaker 1: from non union producers, for example, of teslas, you know,

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Speaker 1: for electric vehicles. Does this put the Big three it

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Speaker 1: a substantially greater disadvantage to the teslas of this world.

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Speaker 1: And also some of the Japanese automakers, who as understand,

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Speaker 1: also don't.

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Speaker 2: Have unions, yeah, it does, no getting around that. If

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Speaker 2: you increase your costs of a car by eight or

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Speaker 2: nine hundred dollars, you're at a disadvantage. And I always

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Speaker 2: forget to mention Tesla because it wasn't really around in

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Speaker 2: two thousand and nine. I was thinking about Mexico and

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Speaker 2: the Southern transplants. But Tesla is absolutely a factor in this,

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Speaker 2: and companies like Tesla that don't have unions and pay

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Speaker 2: substantially less, And again that's the yin and the yang

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Speaker 2: for the unions to think about, because if General Motors

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Speaker 2: and Stillantis and Ford can't be competitive with Tesla, then

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Speaker 2: they're gonna lose jobs. They're gonna lose sales, which means

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Speaker 2: losing jobs. And you can have the right to strike

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Speaker 2: all day long, but if if the company ends up

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Speaker 2: closing a factory or reducing the number of shifts, that's

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Speaker 2: what's gonna happen.

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Speaker 1: What do you make of the question of the shift

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Speaker 1: in power toward labor. There has been historically shift away

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Speaker 1: from labor toward capital overall and certainly the private sector particularly.

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Speaker 1: Are we seeing a fundamental shift back again, or are

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Speaker 1: we seeing essentially a peak time when labor has the

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Speaker 1: most power, and it may well come down from I

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Speaker 1: think somewhere in between.

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Speaker 2: I think we're definitely seeing a shift back. If you

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Speaker 2: look at a chart showing day's loss to strikes, you'll

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Speaker 2: see that relative to five years or ten years ago,

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Speaker 2: there's been a significant increase in days loss to strikes.

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Speaker 2: We all know about the ups drivers and the screenwriters

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Speaker 2: and the auto workers, but you'll also see the day's

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Speaker 2: loss or nothing compared to what they were back in

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Speaker 2: the seventies and eighties. So we're not anywhere back in

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Speaker 2: that zip code. I think this is a healthy development. Actually,

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Speaker 2: I think that capital has benefited too much at the

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Speaker 2: expense of labor. You're in a situation now where people's

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Speaker 2: real wages still have not recovered given the inflation we've had,

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Speaker 2: but corporate profits have remained quite strong. And I'm happy

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Speaker 2: corporate profits have remain quite strong. But I think companies

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Speaker 2: can afford to do more. And as we've talked about

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Speaker 2: it before, I think you also have to distinguish between

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Speaker 2: what I call the tradable sectors, which essentially involve exports,

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Speaker 2: and the non tradable sectors. If the people who work

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Speaker 2: at CVS and Walgreens to take today's example, want to

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Speaker 2: get paid more. That's fine, not going to affect Walgreens

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Speaker 2: or CVS that much. As we just talked about with

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Speaker 2: respect to the auto companies, you have competition from the

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Speaker 2: transplants in the South, you have the non union firms

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Speaker 2: like Tesla, you have Mexico, you have Japan, you have China.

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Speaker 2: You've got to maintain some prudence in the wage demands

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Speaker 2: or else it's just going to simply end up in

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Speaker 2: more jobs. So look, this is similar to what happens,

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Speaker 2: say in the nineteen thirties, when we also had a

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Speaker 2: depressed economy and workers organized in a more forceful way.

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Speaker 2: And I think that that's a healthy development.

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Speaker 1: What does this say to you, if anything, as an investor,

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Speaker 1: because all the things being equal, as I listened to you,

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Speaker 1: it sounds like that's going to squeeze profit margins. That

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Speaker 1: you're going to have increased costs of labor, and that's

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Speaker 1: got to come out of somewhere unless there's a lot

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Speaker 1: of pricing power out there.

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Speaker 2: That's absolutely correct. It is still the case. The profit

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Speaker 2: margins are at ur near record levels. Part of why

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Speaker 2: companies have done well, the stock market's done well. Investors

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Speaker 2: have done well for the last fifteen years. Really is

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Speaker 2: partly low interest rates, but a lot of it. It

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Speaker 2: also was that these profit margins just went to levels

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Speaker 2: that we have not seen in a very very long time,

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Speaker 2: if ever, and so they so there. So there is

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Speaker 2: some risks to that, and as investors, we recognize that

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Speaker 2: we're at peak margins and for any number of reasons.

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Speaker 2: Labor is just one of them. It's very possible that

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Speaker 2: they'll come down a bit. But let's look in the

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Speaker 2: case of the auto companies, this probably costs them something

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Speaker 2: like one percent on their margins and so it isn't

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Speaker 2: going to fundamentally affect their profitability. No, it's all at

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Speaker 2: the margin, no pun intended, and we all have to

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Speaker 2: accept that.

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Speaker 1: Okay, Steve, thank you so much for Rebecca. Great to

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Speaker 1: have you on Wellstreek. That is Steve Retner of Willet Advisors,