WEBVTT - Auto Analyst Alan Baum: Auto Sales To Plateau This Year (Audio)

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<v Speaker 1>Broadcasting live to New York, Bloomberg eleven to Washington, d C,

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<v Speaker 1>bloom to Boston, Bloomberg dwell underd to San Francisco, Bloomberg

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<v Speaker 1>nine to the country is at the General one nine

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<v Speaker 1>and around the globe the Bloomberg Radio book and Bloomberg

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<v Speaker 1>Got Gone. This is taking Stock. I'm Kathleen Hayes at

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<v Speaker 1>our San Francisco bureau. We wrapped up a very interesting

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<v Speaker 1>conversation with President of the San Francisco Fed, John Williams

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<v Speaker 1>and two of his top researchers. And now we're gonna

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<v Speaker 1>be diving into a topic that they are certainly watching closely,

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<v Speaker 1>and that is otto sales PIM Fox. Of course back

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<v Speaker 1>in New York. Yes, the US may be the lone

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<v Speaker 1>bright spot in another wise sluggish global economy. American consumers

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<v Speaker 1>continuing to buy expensive new vehicles at record levels. We're

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<v Speaker 1>going to find out what this means for investing in

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<v Speaker 1>automobile companies. But right now, let's go to Catherine Cowdery

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<v Speaker 1>in the Bloomberg newsroom for a Bloomberg business flash. Thank you, Bam,

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<v Speaker 1>and Bloomberg. Taking Song is brought to you by Sector

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<v Speaker 1>Spider E T S. Why buy a single stock when

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<v Speaker 1>dot Com or full one six six sector e t F.

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<v Speaker 1>More weakness in Chinese and UK manufacturing is weighing on

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<v Speaker 1>the stock market. It's renewing concerns at China's economy is

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<v Speaker 1>slowing down. European officials trim their economic growth forecast for

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<v Speaker 1>the nineteen countries that share the euro currency. US surnames

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<v Speaker 1>remain mixed, with A I G declining after posting a

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<v Speaker 1>third Street on profitable quarter as biser Games after it

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<v Speaker 1>raised its outlook an Apple on track to break its

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<v Speaker 1>eight session news in the Street. The retreat wiped out

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<v Speaker 1>about seventy nine billion dollars in Apple's market cap. Walter

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<v Speaker 1>Piecheck is an analyst at bt I G. I think

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<v Speaker 1>the concern is more of a trust factor with the company,

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<v Speaker 1>whether they can actually develop new products to provide an

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<v Speaker 1>incremental revenue stream, or provide something interesting enough and the

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<v Speaker 1>next iteration of the phone in the September to actually

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<v Speaker 1>return to growth. The thing it's holding the stock where

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<v Speaker 1>it is today is this hope that you're still going

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<v Speaker 1>to get growth in the December Corps. Apple shares are

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<v Speaker 1>up one point nine percent, trading at ninety one. We

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<v Speaker 1>checked the markets every fifteen minutes throughout the trading day.

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<v Speaker 1>Down Industrial l average is down one forty seven points

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<v Speaker 1>eight seven eights of a percent, trading at seventeen thousand,

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<v Speaker 1>seven hundred forty two. SMP five fundered down nineteen points

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<v Speaker 1>and nine tens of a percent, trading at two thousand,

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<v Speaker 1>sixteen one. The NAZZAC is down fifty one points, the

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<v Speaker 1>loss of one point one percent, trading at forty seven

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<v Speaker 1>sixty six. West Texas Intermediate for oil down a dollar

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<v Speaker 1>seven of barrel two point four percent to forty three

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<v Speaker 1>seventy one ten year Treasury seconds with the yield of

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<v Speaker 1>one point seventy five. And now let's get an update

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<v Speaker 1>of some of the other stories we're following today. Thank you,

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<v Speaker 1>Catherine from the Bloomberg news room. I'm Rami in aescent cio.

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<v Speaker 1>This news update is brought to you by the Jeep

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<v Speaker 1>Jeep dealer today. Democratic presidential candidate Hillary Clinton is walking

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<v Speaker 1>back comments she made earlier this year saying she wanted

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<v Speaker 1>to put coal miners out of business. I don't know

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<v Speaker 1>how to explain it other than what I said was

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<v Speaker 1>totally out of context from what I meant, because I

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<v Speaker 1>have been talking about helping Cold Country for a very

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<v Speaker 1>long time, and I did put out a plan last summer,

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<v Speaker 1>and it was a misstatement. Clinton apologized after being asked

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<v Speaker 1>about her comments by a West Virginian who recently lost

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<v Speaker 1>his job at a coal company. On the fifth anniversary

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<v Speaker 1>of the death of Osama bin lad And, President Obama

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<v Speaker 1>is defending his targeted approach to fighting terror. In an

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<v Speaker 1>exclusive interview with CNN, President Obama said the use of

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<v Speaker 1>drones as a mechanism of war is handled with extreme caution.

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<v Speaker 1>He insisted on near certainty that not only is the

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<v Speaker 1>individual that we're trying to strike h or the compound

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<v Speaker 1>that we're trying to strike and act to terrorist threat,

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<v Speaker 1>but also that we're avoiding civilian casualties. Mr Obama also

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<v Speaker 1>said the next president would most likely follow his lead

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<v Speaker 1>rather than his predecessors, and the State has redesigned the

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<v Speaker 1>domestic Violence Incidents Report form used by police so officers

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<v Speaker 1>can record more details that could be used in investigations.

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<v Speaker 1>Global News twenty four hours a day, powered by our

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<v Speaker 1>journalists in more than one under fifty news bureaus around

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<v Speaker 1>the world. From the Bloomberg Newsroom, I'm Ramie and essentio Catherine.

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<v Speaker 1>Thank you, And here's a quick check of the equity benchmarks. Down.

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<v Speaker 1>Industrial averages down one hundred sixty four points at seventeen thousand,

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<v Speaker 1>seven hundred twenty six SMP five, Founder down twenty one

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<v Speaker 1>points to two thousand sixty mast Act down fifty five

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<v Speaker 1>points to forty seven sixty two. And that's a Bloomberg

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<v Speaker 1>Business flash. You're listening to Taking Stock with Kathleen Hayes

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<v Speaker 1>and Pimpox on Bloomberg Radio. The automobile industry taking a

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<v Speaker 1>look at Americans love affair with the automobile. All Alan

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<v Speaker 1>boun is the principal at Boum and Associates, based in

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<v Speaker 1>West Bloomfield, Michigan, and he joins us now, Alan, thank

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<v Speaker 1>you very much for being with us. Good afternoon. All right,

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<v Speaker 1>so just give us the lowdown on today's sales reports

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<v Speaker 1>for April and what does that tell you about a trend,

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<v Speaker 1>if anything, for the rest of the year. Well, it's

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<v Speaker 1>to be honest, it's kind of boring. It's kind of

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<v Speaker 1>been what we've seen in the last few months. Crossover

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<v Speaker 1>is good. Uh, new pickups doing well. Uh. Cars struggling

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<v Speaker 1>depending on incentives, sometimes doing better than others. That's just

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<v Speaker 1>the trend we're seeing. So Alan, Uh, when you is

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<v Speaker 1>there a chance that we have to take the last

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<v Speaker 1>two months together to get a sense of what the

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<v Speaker 1>trend is now? Last year was such a hot year,

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<v Speaker 1>and yeah, it looks at me like car companies are

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<v Speaker 1>still doing really well, a lot of them. But in

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<v Speaker 1>terms of pushing the economy forward, people say that, you know,

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<v Speaker 1>they have to be net growing. What what's going to

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<v Speaker 1>happen next month? What kind of trajectory on? Well, the

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<v Speaker 1>biggest issue this year is going to be incentives, and

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<v Speaker 1>that is will the automakers hold the line and not

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<v Speaker 1>try to gain market share as the market plateaus. If

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<v Speaker 1>the answer is no, ironically, that means that we're gonna

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<v Speaker 1>see stronger sales with a bit of a payback coming forward.

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<v Speaker 1>If the answer is yes, that they hold the line,

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<v Speaker 1>then we'll have very modest increases from last year, which

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<v Speaker 1>was an excellent year. Will plateau this year, and then

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<v Speaker 1>we'll start to decline fairly modestly UH next year UM

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<v Speaker 1>and and so the question then is how high do

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<v Speaker 1>we go this year before we start to as I say,

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<v Speaker 1>plateau and modestly decline. And in terms of volume, the

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<v Speaker 1>impact is going to be somewhat modest. In terms of earnings,

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<v Speaker 1>the impact can be rather significant UM and So, for example,

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<v Speaker 1>GM has been losing market air this year because they've

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<v Speaker 1>been holding the line on fleets. UH. Their their incentives

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<v Speaker 1>are are creeping up, as is most of the industry UM,

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<v Speaker 1>but they're there. Their results are excellent forward, of course,

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<v Speaker 1>because of the full year of the F one fifty

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<v Speaker 1>being available this year, UH is doing extraordinarily well. Their

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<v Speaker 1>volumes are going up, they had an excellent first quarter

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<v Speaker 1>and UH and and they're in increasing their fleet sales

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<v Speaker 1>a little bit to make up for some lost time

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<v Speaker 1>that they say they will they will scale back later

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<v Speaker 1>in the year. Chrysler, on the other hand, f C

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<v Speaker 1>A UM is somewhat treading water. Their volume is decent,

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<v Speaker 1>their incentives they're high. They're clearly not making the kind

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<v Speaker 1>of money they need to make at this point part

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<v Speaker 1>of the business cycle. And obviously UH Sergio Marcion's discussions

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<v Speaker 1>about needing a partner are related to this. Alan, can

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<v Speaker 1>you comment on the RAV for the small SUV from Toyota,

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<v Speaker 1>because I note that it broke a monthly record with

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<v Speaker 1>sales up Yes, and and the and that whole segment

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<v Speaker 1>is on absolute fire UH in a good way. And

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<v Speaker 1>it's a question of incentives. For example, the Ford Escape

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<v Speaker 1>UH is not growing at that rate simply because they

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<v Speaker 1>can't make more of them. In the case of the

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<v Speaker 1>RAP four, they've got a little bit more availability. In

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<v Speaker 1>the case of the CRV, they're building them in three plants,

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<v Speaker 1>so they have strong availability. In the case of the

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<v Speaker 1>Rogue UH, it's doing really well, primarily on the strength

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<v Speaker 1>of imports, again because they don't have enough capacity that segment.

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<v Speaker 1>If you throw enough product at it, you're gonna sell

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<v Speaker 1>and UH with with very modest incentives because of the demand.

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<v Speaker 1>If I'm Volkswagen, Alan, should I be happy that my

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<v Speaker 1>not state sales drop is the smallest inse December? Well,

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<v Speaker 1>you know what they've done is they've they've increased their

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<v Speaker 1>production over the last few months of gas models. Um,

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<v Speaker 1>I suppose you should be because of all the diesels

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<v Speaker 1>they can't sell. I suppose you should be happy about

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<v Speaker 1>the volume. You're certainly not happy about the profits. The

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<v Speaker 1>the incentives on those vehicles are dramatic. Uh, and they're

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<v Speaker 1>gonna get bigger. You've got a dealer body that is

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<v Speaker 1>an open revolt. Uh. And this isn't going to change

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<v Speaker 1>because of the requirement of the court to keep this

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<v Speaker 1>under wraps until they get every I dotted and and

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<v Speaker 1>T crossed, and that's gonna take some time. Can automobile

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<v Speaker 1>factories easily switch from making cars to making SUVs? Now

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<v Speaker 1>they can make cars to crossovers, they can't necessarily switch

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<v Speaker 1>from making cars to sport utility vehicles. And I the

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<v Speaker 1>distinction between the front wheel drive product and the rear

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<v Speaker 1>wheel drive product, and most of the demand is in

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<v Speaker 1>the crossovers now. Again, just because they're on the same

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<v Speaker 1>platform doesn't mean you can make that change easily. But

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<v Speaker 1>you are seeing automakers make those kinds of changes in

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<v Speaker 1>the production design process so that they do have flexibility

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<v Speaker 1>going forward. And uh. You know, for example, at Ford,

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<v Speaker 1>you've got the fusion in the edge. You're on the

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<v Speaker 1>same platform, they're built in different plants, so there's a

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<v Speaker 1>little that the flexibility is not immediate by any means,

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<v Speaker 1>but from an engineering standpoint, you can plan for that

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<v Speaker 1>going forward. Alan Bound, Principle, Bound and Associates, thank you

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<v Speaker 1>for joining us talking about automobile maker shares a Ford

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<v Speaker 1>down about one and a half percent, GM lower by

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<v Speaker 1>nearly one in coming up on taking stock, We're gonna

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<v Speaker 1>take stock of where to put your money. We've got

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<v Speaker 1>Michael Kujino. He is the president and portfolio of the

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<v Speaker 1>Permanent Portfolio family of funds. That's next