WEBVTT - The Great Car Buying Bonanza Is (Probably) Over

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<v Speaker 1>Bloomberg Audio Studios, podcasts, radio news.

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<v Speaker 2>This week, virtually every major automaker posted sales numbers for

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<v Speaker 2>the second quarter of this year, and it's clear Americans

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<v Speaker 2>are still scrambling to buy cars before President Trump's tariffs

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<v Speaker 2>are finalized.

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<v Speaker 1>For General Motors, Honda, all Head good Quarters, actually Toyota

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<v Speaker 1>did as well.

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<v Speaker 2>David Welch is Bloomberg's Detroit bureau chief, and he's been

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<v Speaker 2>tracking that sales data closely. There were winners, David says,

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<v Speaker 2>and there were losers.

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<v Speaker 1>Still And has had a tough quarter. Nissan had a

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<v Speaker 1>tough quarter. Both of them have had pre existing problems,

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<v Speaker 1>but they didn't seem to capitalize on consumers running the

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<v Speaker 1>dealerships as much as the others. And of course Tesla

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<v Speaker 1>down thirteen percent. Very tough quarter for that, David says.

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<v Speaker 2>What we're seeing now with the auto industry is a

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<v Speaker 2>new chapter in a story that started a few years ago.

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<v Speaker 2>The reason for the price hike too few vehicles for

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<v Speaker 2>sale during the pandemic and too many buyers.

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<v Speaker 1>How anybody can afford paying as much for a vehicle

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<v Speaker 1>or a truck as a.

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<v Speaker 2>House, And that run up in prices has intensified because

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<v Speaker 2>of the ongoing trade.

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<v Speaker 1>War, and what we're going to be doing is a

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<v Speaker 1>twenty five percent tariff on all cars that are not

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<v Speaker 1>made in the United States. If they're made in the

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<v Speaker 1>United States, is absolutely not terror.

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<v Speaker 2>That was President Trump back in March. The introduction of

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<v Speaker 2>new tariffs started what David calls a buying bonanza. Americans

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<v Speaker 2>wanted to get their hands on a new ride before

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<v Speaker 2>prices got even higher. We're hearing reporting that a lot

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<v Speaker 2>of consumers are front running the implementation of these tariffs.

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<v Speaker 2>But what this week's figures show is that surge in

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<v Speaker 2>sales couldn't last forever.

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<v Speaker 1>The storious consumers raced out to get ahead of the tariffs,

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<v Speaker 1>and they did just that. So you had a bonanza

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<v Speaker 1>for car companies in April and May, but you had

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<v Speaker 1>a hangover from it some payback in June when the

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<v Speaker 1>tariffs actually went into place and everyone who bought, not

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<v Speaker 1>everyone put a lot of people who bought had already

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<v Speaker 1>gotten their car and didn't need to go, and so

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<v Speaker 1>you saw sales really geared down that last month.

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<v Speaker 2>I'm David Gera and this is the big take from

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<v Speaker 2>Bloomberg News today on the show. It's a nobody's market

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<v Speaker 2>in cars. Why consumers, dealers, and manufacturers are all bracing

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<v Speaker 2>for tougher times ahead. What that means for you if

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<v Speaker 2>you're in the market for a new car this summer.

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<v Speaker 2>Right after the largest car makers reported sales numbers for

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<v Speaker 2>the second quarter this year, for April, May and June,

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<v Speaker 2>I sat down with Bloomberg's David Welch. Before we dug

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<v Speaker 2>into the details, I asked him for the big picture

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<v Speaker 2>on those reports.

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<v Speaker 1>It was a pretty solid quarter. Actually, you had a

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<v Speaker 1>lot of people racing to buy cars in April and

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<v Speaker 1>May to get ahead of tariffs that were going to

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<v Speaker 1>be put in place. Those people did manage to avoid

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<v Speaker 1>some extra costs from that, and then you had to

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<v Speaker 1>pay back in June. Some companies were down, some companies

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<v Speaker 1>were up just a little. So it tells you that

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<v Speaker 1>people once they got the cars they needed and the

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<v Speaker 1>tariffs came out, there us a big payback for all

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<v Speaker 1>of that bonanza buying that went on early in the quarter.

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<v Speaker 2>So it's not a stretch to say, looking at these

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<v Speaker 2>sales data that this is a tariff's story.

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<v Speaker 1>It is. You know, consumers aren't dumb. I think Trump

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<v Speaker 1>put in a lot of tariffs in place on different

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<v Speaker 1>goods in his first term, and I remember when you

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<v Speaker 1>put tariffs on the EU. I remember seeing people running

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<v Speaker 1>out to buy wine because it was sort of publicly

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<v Speaker 1>out there that French and Italian wines were going to

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<v Speaker 1>get hit with tariffs. And so it makes more sense

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<v Speaker 1>with a big purchase than it does with a bottle

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<v Speaker 1>of wine because depending on what the car companies are

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<v Speaker 1>going to try to pass through. But you put five

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<v Speaker 1>percent down an average price of a vehicle close to

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<v Speaker 1>fifty thousand dollars, that's real money.

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<v Speaker 2>David, I confess, as a journalist who covers this day

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<v Speaker 2>in the day out, it is hard to keep track

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<v Speaker 2>of what tariffs are in place, what have been put

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<v Speaker 2>on pause, what may or may not be coming down

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<v Speaker 2>the line. Can you just describe the trade environment that

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<v Speaker 2>car manufacturers are having to deal with right now.

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<v Speaker 1>Yeah, it's tough. So the big ones with this market,

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<v Speaker 1>I should say the most common ones would be Mexico

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<v Speaker 1>and Canada. So you've got some big tariffs on the

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<v Speaker 1>non US content in those cars. So if the cars

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<v Speaker 1>themselves were made with a certain amount of parts that

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<v Speaker 1>are either made in the US or made at a

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<v Speaker 1>certain wage, level. Then they qualify for USMCA. They come

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<v Speaker 1>over here with a minimal tariff, but the parts in

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<v Speaker 1>them that were not made in the US, there's still

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<v Speaker 1>a terrify on those. To vehicles made in Korea, made

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<v Speaker 1>in Japan, made in Canada or Mexico get hit with

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<v Speaker 1>some pretty big tariffs. You haven't seen companies pass along

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<v Speaker 1>a lot of that cost yet. They've been sneaking in

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<v Speaker 1>some price increases or just cutting some of the discounting, rebating,

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<v Speaker 1>zero percent financing deals that they had in the months

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<v Speaker 1>leading up to implementation the terrors, But right now they're

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<v Speaker 1>basically eating it out of their bottom line. So second

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<v Speaker 1>quarter earnings will be very interesting for a lot of

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<v Speaker 1>these companies, and I think the reason they're doing that

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<v Speaker 1>is they're waiting to see what happens with trade negotiations.

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<v Speaker 1>You know that there's the whole you know, Taco Trump

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<v Speaker 1>always chickens out, So there's there's that. And also if

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<v Speaker 1>you're General Motors, Hundai, Kia, or Toyota, you're not going

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<v Speaker 1>to make any big change. Go wait and see what

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<v Speaker 1>trade deal comes out.

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<v Speaker 2>I'd love to shift from what manufacturers are doing to

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<v Speaker 2>how consumers are doing in this moment. So I'm interested

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<v Speaker 2>in the consumer psychology of car buying in this in

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<v Speaker 2>this environment. What are they dealing with and you mentioned

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<v Speaker 2>that buying bonanza a few minutes ago. How are they

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<v Speaker 2>dealing yes, with these tariffs, but also with higher interest

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<v Speaker 2>rates and kind of the broader economic environments challenges.

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<v Speaker 1>Oh, that's a big problem. Affordability has been an issue

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<v Speaker 1>in the auto industry for a while. And what happened

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<v Speaker 1>during COVID semiconductor shortage is you have had shortage vehicles,

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<v Speaker 1>so the car companies just got rid of all discounts.

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<v Speaker 1>They were steadily raising the sticker price on vehicles and

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<v Speaker 1>the dealers wouldn't In some cases were gouging, but in

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<v Speaker 1>most cases the dealers didn't have to bargain because they

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<v Speaker 1>didn't have a lot of inventories. They sold them at

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<v Speaker 1>sticker price. And what the auto industry discovered was if

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<v Speaker 1>they made fewer vehicles and sold them at higher prices

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<v Speaker 1>and paid fewer people to do it, their profits were better.

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<v Speaker 1>And they've tried pretty hard to stick to that ever since.

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<v Speaker 1>So bottom line is, even if car companies wanted to

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<v Speaker 1>push price increases in in order to make up for

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<v Speaker 1>what they're losing on tariffs. It's really hard to do

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<v Speaker 1>it because consumers are already beset by high interest rate,

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<v Speaker 1>high prices, and they're kind of pushed to the limit.

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<v Speaker 2>Yeah, this driver of a twenty fifteen Honda Odyssey was

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<v Speaker 2>surprised to see the average price of a new car

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<v Speaker 2>is forty eight forty eight thousand dollars. I mean, there

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<v Speaker 2>have been substantial increases.

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<v Speaker 1>It seems the used car market is not the great

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<v Speaker 1>refuge that it was in years prior. So if you

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<v Speaker 1>need to drive, is our spend more when you go

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<v Speaker 1>buy it or just keep paying the repair shop and

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<v Speaker 1>keep it going until maybe something breaks.

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<v Speaker 2>What story are we we being told by these companies

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<v Speaker 2>about the state that they're in right now.

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<v Speaker 1>Ford had a good quarter, although it was against a

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<v Speaker 1>pretty weak comparison a year ago because they had some

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<v Speaker 1>production issues, but they had solid numbers. How ahead, a

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<v Speaker 1>pretty good quarter. They've been really gaining market surely. General

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<v Speaker 1>Motors has been gaining a fair amount of market Sharely

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<v Speaker 1>that was the bugbear for the company for decades. They're

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<v Speaker 1>selling a lot of evs. They've vowed that they're not

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<v Speaker 1>going to put in price increases. Well, they're dealing with

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<v Speaker 1>these tariffs and they're going to start building more vehicles

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<v Speaker 1>in the US, So I think they see an opportunity

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<v Speaker 1>to if they keep their prices where they are, continue

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<v Speaker 1>to pick up market share while others are maybe a

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<v Speaker 1>sneaky way taking away some of the discounts. And because

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<v Speaker 1>they know some of their competitors are, particularly Toyota, are

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<v Speaker 1>more exposed to tarifs in there, you do have your

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<v Speaker 1>laggers here. Stillantis and Nissan continue to struggle. They're having problems.

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<v Speaker 2>We haven't talked about Tesla yet, and that company reported

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<v Speaker 2>sales numbers on Wednesday morning, global sales down thirteen percent

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<v Speaker 2>from a year ago. As you look at those numbers,

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<v Speaker 2>is the story they tell? A similar one, a unique one.

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<v Speaker 2>How should we think about Tesla in the context of

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<v Speaker 2>the broader car market.

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<v Speaker 1>I think Tesla's story here is pretty unique. They have, frankly,

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<v Speaker 1>a pretty stale product line. And that's not me writing

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<v Speaker 1>cover views about Tesla saying I think the cars are stale.

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<v Speaker 1>The model Y is pretty fresh, and it just hasn't

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<v Speaker 1>really given them the big sales boost that they need

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<v Speaker 1>to stave off this decline. So if you look at

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<v Speaker 1>the four models that Tesla sells the most of the

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<v Speaker 1>models Sedan Model X kind of a crossover. It should

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<v Speaker 1>be Model three's they're smaller Sedan, Model Y. They're sort

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<v Speaker 1>of stylistically different sizes of the same sausage. Right, So

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<v Speaker 1>even though there's a new model Wine it's got some

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<v Speaker 1>better technology and so forth, it doesn't tell consumers that

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<v Speaker 1>there's something really new here. You also have the cyber

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<v Speaker 1>truck that's clearly a niche vehicle, one because it's expensive,

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<v Speaker 1>and two because it's it's a stylistic oddity, let's face it.

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<v Speaker 1>So that has moved the needle for them, and they

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<v Speaker 1>haven't gotten out the really inexpensive tesla that they've been

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<v Speaker 1>talking about, the Model two. So they're kind of stuck

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<v Speaker 1>in this situation where they've got a pretty stale lineup.

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<v Speaker 2>After the break, What this slowdown in sales signals for

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<v Speaker 2>manufacturers and what potential car buyers might expect to see

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<v Speaker 2>as tariffs hit company's bottom lines. As cars have gotten

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<v Speaker 2>more expensive, car makers have relied on incentive. A big

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<v Speaker 2>one has been a tax credit for electric vehicles that

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<v Speaker 2>was part of the Inflation Reduction Act. A seventy five

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<v Speaker 2>hundred dollars tax credit, that's been in place since twenty

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<v Speaker 2>twenty two, but the Senate version of the Tax and

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<v Speaker 2>Spending Bill does away with it. Bloomberg's David Welch says

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<v Speaker 2>that poses a real threat to an industry that's already vulnerable.

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<v Speaker 1>In China, you've got BYD and the domestic car companies

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<v Speaker 1>with very good electric vehicles really surging, and the European

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<v Speaker 1>automakers themselves have good evs and do pretty well competition

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<v Speaker 1>stuff there In North America, Ford had a particularly terrible

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<v Speaker 1>quarter in EV sales, but General Motors is coming out strong.

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<v Speaker 1>Hyundai and Kia are both very competitive and have good product.

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<v Speaker 1>It's not the oligopoli or near monopoly that Tesla had

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<v Speaker 1>five or six years ago in the US market. You know,

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<v Speaker 1>there's something else obviously going on, which the politics of Elon,

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<v Speaker 1>and I've seen some research that suggests that as high

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<v Speaker 1>as eighty percent of ED buyers are let's call it

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<v Speaker 1>somewhere left of center politically. They're not going to buy

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<v Speaker 1>a vehicle from Tesla because of you. Not every one

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<v Speaker 1>of them, not everybody really follows what the CEO does.

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<v Speaker 1>But Elon was actually working with the administration, and I

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<v Speaker 1>think he did turn away a lot of buyers, and

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<v Speaker 1>that's really hurt them.

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<v Speaker 2>What would that mean just quickly for these car makers?

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<v Speaker 2>And you and I have talked before about the challenges

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<v Speaker 2>facing car makers who make up electric vehicles. If that

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<v Speaker 2>tax credit is phased out, as it is in the

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<v Speaker 2>Senate version of this bill, what does that mean for

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<v Speaker 2>a GM, for a forward, for companies that have more

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<v Speaker 2>than dabbled in in electric vehicles lately.

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<v Speaker 1>Look, it's really tough. You know, this is a seventy

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<v Speaker 1>five hundred dollar tax incentive. Not every vehicle qualifies, but

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<v Speaker 1>I think the ones that would be affected by this

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<v Speaker 1>the most to the buyers who are most sensitive. So

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<v Speaker 1>you take something like a Chevy Equinox. That's GM's fastest

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<v Speaker 1>growing electric vehicle. You can get in one for thirty

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<v Speaker 1>five thousand dollars and it gets over three hundred miles

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<v Speaker 1>of range and it's a pretty nice little vehicle. And

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<v Speaker 1>right now I think that's, you know, that's the vehicle

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<v Speaker 1>for the non rich person who wants to go electric.

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<v Speaker 1>That vehicle was twenty seven to five after the tax credit.

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<v Speaker 1>Now it's back up to thirty five thousand dollars. General

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<v Speaker 1>Motors is racing to reduce costs for its electric vehicles.

0:12:12.120 --> 0:12:14.839
<v Speaker 1>Everybody is because the vehicles themselves are going to have

0:12:14.880 --> 0:12:16.960
<v Speaker 1>to stand on their own two feet in the marketplace

0:12:17.400 --> 0:12:19.320
<v Speaker 1>sell based on the price, and the company are going

0:12:19.360 --> 0:12:21.960
<v Speaker 1>to have to either reduce losses or try to make

0:12:22.000 --> 0:12:23.200
<v Speaker 1>money on them.

0:12:23.480 --> 0:12:25.760
<v Speaker 2>There was an ominous line in our coverage I'll quote

0:12:25.760 --> 0:12:28.680
<v Speaker 2>from it. With already high car prices expected to rise

0:12:28.679 --> 0:12:31.600
<v Speaker 2>further as automakers manage billions of dollars in tariff costs,

0:12:32.160 --> 0:12:35.720
<v Speaker 2>it may only get worse from here. What does the

0:12:35.720 --> 0:12:38.680
<v Speaker 2>forecast look like for the second half of twenty twenty five.

0:12:39.040 --> 0:12:41.920
<v Speaker 1>It's not good. The most of the forecasters are looking

0:12:42.000 --> 0:12:46.120
<v Speaker 1>for even more payback than we saw in June, because

0:12:46.160 --> 0:12:48.640
<v Speaker 1>there was some buying ahead in those months. But also

0:12:49.880 --> 0:12:51.839
<v Speaker 1>I think what a lot of them are looking at

0:12:52.000 --> 0:12:55.600
<v Speaker 1>is we could get more clarity in the second half

0:12:56.240 --> 0:13:01.040
<v Speaker 1>on tariffs, and clearly Trump is to keep some tariffs

0:13:01.040 --> 0:13:03.520
<v Speaker 1>in place. So let's say he gets a deal with

0:13:03.679 --> 0:13:06.160
<v Speaker 1>Japan and Korea. Maybe it's not fifty percent, but maybe

0:13:06.200 --> 0:13:09.400
<v Speaker 1>it's ten or fifteen percent, and then the companies will

0:13:09.400 --> 0:13:11.840
<v Speaker 1>start to adjust to that. They can't move production immediately,

0:13:11.880 --> 0:13:16.160
<v Speaker 1>so maybe they start raising prices. And parts makers also

0:13:16.200 --> 0:13:19.400
<v Speaker 1>start raising prices and eventually they try to push this

0:13:19.520 --> 0:13:23.200
<v Speaker 1>through to consumers. I thought General Motors moved to invest

0:13:23.200 --> 0:13:26.120
<v Speaker 1>four billion dollars and move production to the US from

0:13:26.160 --> 0:13:30.480
<v Speaker 1>Mexico was instructive in the sense that they've got people

0:13:31.200 --> 0:13:35.600
<v Speaker 1>talking directly to Trump himself and the Trump administration. So

0:13:36.559 --> 0:13:38.360
<v Speaker 1>I'm not saying they've got a perfect read on what

0:13:38.400 --> 0:13:41.520
<v Speaker 1>Trump's going to do, because he's very unpredictable, but they

0:13:41.600 --> 0:13:45.640
<v Speaker 1>got enough of a read on the permanence I think

0:13:45.640 --> 0:13:49.360
<v Speaker 1>of these tariffs, and to announce this four billion dollar

0:13:49.400 --> 0:13:51.559
<v Speaker 1>investment in moving a lot of production back from Mexico

0:13:52.000 --> 0:13:53.560
<v Speaker 1>that's going to take in two or three years to do,

0:13:54.360 --> 0:13:57.640
<v Speaker 1>that tells me that the Trump administration said, yeah, we're

0:13:57.720 --> 0:14:00.040
<v Speaker 1>keeping this stuff in place, so deal with it, and

0:14:00.040 --> 0:14:00.920
<v Speaker 1>that's how they're dealing with it.

0:14:03.000 --> 0:14:05.280
<v Speaker 2>If you look at all of these manufacturers and how

0:14:05.280 --> 0:14:09.320
<v Speaker 2>they operate, are there ones that are better positioned to

0:14:09.320 --> 0:14:11.839
<v Speaker 2>weather these tariffs than others? And I guess vice versa.

0:14:11.880 --> 0:14:14.160
<v Speaker 2>Are there those who stand to have more trouble than

0:14:14.360 --> 0:14:15.559
<v Speaker 2>other manufacturers.

0:14:16.000 --> 0:14:19.480
<v Speaker 1>I think Honda and Ford are very well positioned for this.

0:14:19.720 --> 0:14:22.320
<v Speaker 1>GM They've got a problem. Almost half their sales came

0:14:22.320 --> 0:14:27.560
<v Speaker 1>from someplace else. Toyto's got heavy tariff exposure here because

0:14:27.880 --> 0:14:29.840
<v Speaker 1>they get about half of their sales coming from Japan,

0:14:29.880 --> 0:14:32.440
<v Speaker 1>and they look the Europeans even you know, they had

0:14:32.520 --> 0:14:37.120
<v Speaker 1>moved a lot of production to Mexico for proximity and

0:14:37.160 --> 0:14:40.960
<v Speaker 1>because of USMCA, but that's all been kind of blown up.

0:14:41.840 --> 0:14:44.120
<v Speaker 2>As these tariffs come into effect and stay to effect,

0:14:44.240 --> 0:14:47.080
<v Speaker 2>are consumers going to be aware of how high they

0:14:47.120 --> 0:14:48.960
<v Speaker 2>are and how they're affecting the prices? In other words,

0:14:48.960 --> 0:14:51.200
<v Speaker 2>I think back on when there was that minor tempest

0:14:51.240 --> 0:14:53.080
<v Speaker 2>involving Amazon where they were going to list how much

0:14:53.120 --> 0:14:55.600
<v Speaker 2>prices were up because of tariffs. Are car company is

0:14:55.600 --> 0:14:57.360
<v Speaker 2>going to do something similar? Do you think are we

0:14:57.400 --> 0:14:59.160
<v Speaker 2>going to see on a bill of sale for instance

0:15:00.440 --> 0:15:03.120
<v Speaker 2>X In addition, because of the way that these tariffs

0:15:03.120 --> 0:15:05.880
<v Speaker 2>are affecting the bottom line at these companies, I.

0:15:05.840 --> 0:15:09.720
<v Speaker 1>Don't think they'll have that kind of transparency into it.

0:15:10.040 --> 0:15:14.720
<v Speaker 1>What consumers will just notice is they were shopping for

0:15:14.920 --> 0:15:17.120
<v Speaker 1>some vehicle a couple months ago, and they look now

0:15:17.160 --> 0:15:19.920
<v Speaker 1>and it's even more expensive where they tend to pick up.

0:15:20.000 --> 0:15:23.320
<v Speaker 1>Most of this is basically news reports reported by US,

0:15:23.360 --> 0:15:26.080
<v Speaker 1>reported by our competitors, and reported on TV that prices

0:15:26.120 --> 0:15:27.920
<v Speaker 1>have gone up, and even if they don't know the

0:15:27.960 --> 0:15:30.920
<v Speaker 1>exact amount, they just know that broadly speaking, cars have

0:15:31.000 --> 0:15:34.080
<v Speaker 1>gotten expensive and that they've got to either put off

0:15:34.080 --> 0:15:35.960
<v Speaker 1>that purchase or go out and buy something before it

0:15:35.960 --> 0:15:37.640
<v Speaker 1>gets even worse. And then they start to really do

0:15:37.680 --> 0:15:38.200
<v Speaker 1>their research.

0:15:42.520 --> 0:15:44.960
<v Speaker 2>This is the Big Take from Bloomberg News. I'm David Gera.

0:15:45.320 --> 0:15:47.840
<v Speaker 2>To get more from The Big Take and unlimited access

0:15:47.880 --> 0:15:51.320
<v Speaker 2>to all of Bloomberg dot com, subscribe today at Bloomberg

0:15:51.360 --> 0:15:55.200
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0:15:55.320 --> 0:15:57.400
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0:15:57.480 --> 0:15:59.960
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0:16:00.480 --> 0:16:03.800
<v Speaker 2>Thanks for listening. We'll be back tomorrow