AAH #807 - Unboxed Assembly Will Revolutionize The Industry....Or Maybe Not

WEBVTT
1
00:00:00.530 --> 00:00:04.669
AutoLine After Hours is brought to you by Bridgestone Tires,
2
00:00:05.129 --> 00:00:09.929
solutions for your journey. And by BorgWarner. The automotive industry
3
00:00:09.990 --> 00:00:14.390
continues to evolve, and so do the opportunities to define it. BorgWarner,
4
00:00:14.599 --> 00:00:17.519
one of the world's most admired companies, gets partners where
5
00:00:17.559 --> 00:00:20.719
they need to go. Let's do something big together.
6
00:00:20.739 --> 00:00:23.179
Hey, everybody.
7
00:00:23.260 --> 00:00:27.760
Thanks for joining us on AutoLine After Hours. And good afternoon, Mr.
8
00:00:27.780 --> 00:00:28.640
Gary Vasilash.
9
00:00:29.120 --> 00:00:29.420
How are you?
10
00:00:29.850 --> 00:00:30.469
I'm doing okay.
11
00:00:30.489 --> 00:00:31.870
So I think we've got to point out to the
12
00:00:31.910 --> 00:00:34.640
people last week who are watching the show or listening
13
00:00:34.679 --> 00:00:36.719
to the show, when my phone went off with the
14
00:00:36.759 --> 00:00:40.719
klaxon sound and we got the tornado warning during the show,
15
00:00:41.619 --> 00:00:42.659
and then the show went off.
16
00:00:42.939 --> 00:00:43.560
It went black.
17
00:00:43.820 --> 00:00:46.229
So we actually did lose power, but we did not
18
00:00:46.270 --> 00:00:48.929
have a tornado. So it was just a power outage.
19
00:00:48.950 --> 00:00:50.490
For anybody who was watching last week and all of
20
00:00:50.509 --> 00:00:53.329
a sudden the show ended, that was why. This whole
21
00:00:53.530 --> 00:00:54.070
area lost power.
22
00:00:54.189 --> 00:00:54.390
Yeah.
23
00:00:55.939 --> 00:00:58.460
And Nora Eckert, who was with us last week when
24
00:00:58.579 --> 00:01:01.640
that was happening, she lost power until Saturday night.
25
00:01:02.159 --> 00:01:03.950
So, big power outage.
26
00:01:03.969 --> 00:01:07.049
I think it landed to the east, right? The tornado
27
00:01:07.090 --> 00:01:07.890
hit further east of here.
28
00:01:07.989 --> 00:01:08.670
I think you're right.
29
00:01:09.189 --> 00:01:11.049
And that voice you just heard was from Dan Hirsch.
30
00:01:11.109 --> 00:01:15.790
He's the global co-leader for automotive and industrial practices at
31
00:01:15.849 --> 00:01:18.269
Alex Partners. Great to have you on the show, Dan.
32
00:01:18.540 --> 00:01:18.939
Thanks, John.
33
00:01:19.079 --> 00:01:19.920
Your first time here.
34
00:01:19.939 --> 00:01:21.239
It is. I'm excited.
35
00:01:21.260 --> 00:01:21.939
I know.
36
00:01:21.959 --> 00:01:23.739
You and I have talked a number of times, but
37
00:01:23.840 --> 00:01:26.659
never in front of cameras. That's right.
38
00:01:27.099 --> 00:01:30.530
And we got Thule from Sino Auto Insights. Always great
39
00:01:30.549 --> 00:01:31.530
to have you back on the show.
40
00:01:31.549 --> 00:01:33.609
Thanks for having me, John. I know. It's good to
41
00:01:33.670 --> 00:01:34.310
have you here.
42
00:01:35.189 --> 00:01:37.349
So, Dan, let's get into it. You guys have published
43
00:01:37.489 --> 00:01:40.090
a disruption index where you look at a bunch of
44
00:01:40.150 --> 00:01:43.459
different industries all over the world. You interview all kinds
45
00:01:43.480 --> 00:01:47.819
of executives. And guess what? They all said, you know what?
46
00:01:48.290 --> 00:01:52.189
automotive is the most disruptive industry that there is going.
47
00:01:52.590 --> 00:01:56.079
And not just the most disruptive, but two years running champions, right?
48
00:01:56.189 --> 00:01:56.560
It's great.
49
00:01:57.739 --> 00:02:00.719
Yeah, so we've been doing this disruption index, which is,
50
00:02:01.019 --> 00:02:03.659
as you say, it's a fairly holistic view of all
51
00:02:03.680 --> 00:02:07.060
the industries throughout the country, really globally.
52
00:02:07.840 --> 00:02:08.699
And we do.
53
00:02:08.719 --> 00:02:11.909
It's a bit of a survey followed up by some interviews,
54
00:02:11.949 --> 00:02:16.530
but it's a pulse, right? And so for the second year, automotive,
55
00:02:16.909 --> 00:02:19.469
this year I think tied with retail, general retail, but
56
00:02:19.580 --> 00:02:24.020
automotive is the most disrupted. Again, to this audience, of course,
57
00:02:24.300 --> 00:02:27.659
no surprise, right? The number of things that have continued
58
00:02:27.680 --> 00:02:32.110
to pile on each other since COVID. and it just
59
00:02:32.469 --> 00:02:34.389
feels unabating.
60
00:02:34.449 --> 00:02:36.090
We in the industry know that, or those of us
61
00:02:36.110 --> 00:02:39.509
who follow the industry know that, but this really confirms it.
62
00:02:39.610 --> 00:02:43.490
Other industries are saying automotive is the most disruptive.
63
00:02:43.550 --> 00:02:46.729
Isn't it like you're in auto and you score it,
64
00:02:46.750 --> 00:02:47.689
and you're in.
65
00:02:47.610 --> 00:02:49.289
Consumer products and you score it?
66
00:02:49.710 --> 00:02:53.849
That's right. So auto executives answer, they are the most disruptive.
67
00:02:53.909 --> 00:02:56.840
They feel the most at risk to lose their jobs
68
00:02:56.960 --> 00:03:00.009
or go through insolvency or All of the all of
69
00:03:00.050 --> 00:03:02.289
the things that are piling up on them. So the
70
00:03:02.490 --> 00:03:06.810
the sentiment within the industry is worse on this scale
71
00:03:06.840 --> 00:03:09.520
than any other part of the economy.
72
00:03:09.759 --> 00:03:10.879
OK, but the thing that I don't get.
73
00:03:11.259 --> 00:03:14.539
So this is the official Alex Partners definition of what
74
00:03:14.979 --> 00:03:17.199
this disruption is, because, I mean, I think this is
75
00:03:17.300 --> 00:03:18.729
something we need to put our arms around.
76
00:03:18.789 --> 00:03:20.490
And I read this and I want.
77
00:03:20.370 --> 00:03:21.909
You to explain me what it means, because I have
78
00:03:22.050 --> 00:03:22.569
no idea.
79
00:03:23.210 --> 00:03:26.729
Disruption is the accelerated and fundamental reshaping of businesses, markets,
80
00:03:26.789 --> 00:03:32.319
and value networks by technological, societal, environmental, and political regulatory forces.
81
00:03:34.300 --> 00:03:36.580
Is that not self-explanatory? I'm sorry.
82
00:03:36.620 --> 00:03:42.710
Yeah, I mean, just put simply the rate of change,
83
00:03:43.469 --> 00:03:48.840
the frequency of things just just being knocked on their
84
00:03:48.879 --> 00:03:54.360
heels in, you know, in automotive, retail, as I mentioned,
85
00:03:54.800 --> 00:03:59.199
because of similar things, right? We spent years, decades with
86
00:03:59.520 --> 00:04:06.460
fairly smooth, stable supply chains, right? And then COVID, when
87
00:04:06.500 --> 00:04:09.659
COVID hit, I mean, it just absolutely upended everything. So
88
00:04:09.680 --> 00:04:12.159
there were some general trends and these things would happen
89
00:04:12.340 --> 00:04:17.889
over years and decades, right? So that- That's what we're
90
00:04:17.910 --> 00:04:20.790
seeing now is just one of the charts that we
91
00:04:20.829 --> 00:04:25.439
show in our global automotive outlook displays kind of the
92
00:04:25.879 --> 00:04:28.319
rate of disruption as a bit of a sine wave
93
00:04:28.379 --> 00:04:31.920
over time. And what's happened is these things have bunched up.
94
00:04:31.980 --> 00:04:34.639
It's like a Doppler effect, like the trains coming at
95
00:04:34.680 --> 00:04:37.079
you and they're just compressed on you like this.
96
00:04:37.610 --> 00:04:40.430
It's one thing after another, after another, after another, after another.
97
00:04:41.529 --> 00:04:45.790
Multiple times within a year. That's not what we're used to.
98
00:04:45.829 --> 00:04:47.089
That's not what anybody's used to.
99
00:04:47.290 --> 00:04:49.939
I mean, that that is a really significant difference.
100
00:04:50.689 --> 00:04:53.519
And just when you think, you know, that one is done,
101
00:04:53.540 --> 00:04:57.079
the next thing comes along. And sometimes, you know, recently
102
00:04:57.139 --> 00:05:00.259
it's been, you know, one tariff battle after another. Then
103
00:05:00.339 --> 00:05:04.899
it's been, you know, military conflicts that create impacts that
104
00:05:05.899 --> 00:05:08.120
we don't put that are very hard to predict, not
105
00:05:08.199 --> 00:05:12.259
only where the military action happens, but what are those
106
00:05:12.319 --> 00:05:13.180
knock on effect?
107
00:05:13.259 --> 00:05:13.459
Right.
108
00:05:13.500 --> 00:05:14.879
So, you know, who knew?
109
00:05:15.600 --> 00:05:21.300
That Ukraine was the big wiring harness or manufacturer, Europe's
110
00:05:21.339 --> 00:05:23.139
version of Mexico before that happened.
111
00:05:23.399 --> 00:05:24.329
Who knew they'd.
112
00:05:24.149 --> 00:05:27.930
Make all of the xenon gas on Earth, right? And
113
00:05:28.290 --> 00:05:31.370
why that habit? Why was it important, right? Now with Iran,
114
00:05:31.389 --> 00:05:34.050
we're finding out, you know, who knew how much helium
115
00:05:34.129 --> 00:05:37.240
comes out of refining oil and natural gas and what
116
00:05:37.269 --> 00:05:39.120
the impact to the rest of the.
117
00:05:39.100 --> 00:05:40.240
World and economy is.
118
00:05:40.600 --> 00:05:42.819
And so that's what we mean by Just the rate
119
00:05:42.920 --> 00:05:46.170
and speed of this. And in our case, it's holistic.
120
00:05:46.230 --> 00:05:50.930
It's the OEMs and suppliers and the aftermarket. Everybody's feeling
121
00:05:50.949 --> 00:05:53.569
the impact. And we talk about the things that are
122
00:05:53.610 --> 00:05:57.370
kind of macroeconomic that are outside of the industry's control.
123
00:05:57.389 --> 00:06:01.329
But of course, within the industry, we've created technology shifts
124
00:06:01.389 --> 00:06:03.689
that have gone this way. And then we're swinging way
125
00:06:03.750 --> 00:06:06.610
back on electrification, autonomy, technology.
126
00:06:07.370 --> 00:06:09.170
Well, in certain regions. In certain regions.
127
00:06:09.250 --> 00:06:09.490
Yeah.
128
00:06:09.589 --> 00:06:10.589
Well, yeah, exactly.
129
00:06:10.629 --> 00:06:14.970
But yeah, certainly in Europe and the US, you have
130
00:06:15.370 --> 00:06:19.149
impacts of volumes eroding that were never coming back from.
131
00:06:19.170 --> 00:06:22.779
And China. And China. And eroding. It wasn't that long ago.
132
00:06:22.850 --> 00:06:24.889
Europe was 22 million in sales.
133
00:06:24.949 --> 00:06:26.750
Which is crazy when you think about it now.
134
00:06:26.860 --> 00:06:27.100
Yeah.
135
00:06:27.250 --> 00:06:29.060
And it's never going back to 22. Right.
136
00:06:29.480 --> 00:06:34.220
You know, a quickly validating factor to this ranking is
137
00:06:34.620 --> 00:06:40.019
Volkswagen Group. laying off 50,000, now 110 or 120,000, closing
138
00:06:40.060 --> 00:06:45.319
four factories, reducing their product portfolio by half from 150
139
00:06:45.319 --> 00:06:53.000
to 75, and likely closing some brands. Looks like Porsche
140
00:06:53.040 --> 00:06:56.670
sold Bugatti Remat for a billion dollars.
141
00:06:58.079 --> 00:06:59.910
Say that may go away as a brand.
142
00:06:59.970 --> 00:07:00.250
Yes.
143
00:07:00.709 --> 00:07:03.769
So, yeah, look, they're going to be bailing out all
144
00:07:03.810 --> 00:07:07.550
kinds of... Businesses that made sense when they were the
145
00:07:07.589 --> 00:07:09.589
big behemoth that they were, but now as they start
146
00:07:09.629 --> 00:07:13.389
to shrink. My problem with Volkswagen is their 2030 plan,
147
00:07:13.430 --> 00:07:15.689
based on what I've read, still assumes they're going to
148
00:07:15.730 --> 00:07:18.110
be selling 9 million vehicles a year by 2030. And
149
00:07:18.269 --> 00:07:21.050
I just don't see that happening.
150
00:07:21.449 --> 00:07:23.930
Well, I don't want to bury the lead here, but okay,
151
00:07:24.069 --> 00:07:27.209
you guys found that nearly half of the CEOs in
152
00:07:27.230 --> 00:07:30.629
the auto industry think they may lose their jobs.
153
00:07:30.709 --> 00:07:30.949
Yeah.
154
00:07:31.490 --> 00:07:31.689
Why?
155
00:07:32.850 --> 00:07:36.850
So the rate of change, just the inability to plan
156
00:07:36.889 --> 00:07:40.529
and forecast and meet expectations, right? So a lot of
157
00:07:40.939 --> 00:07:43.600
these companies are publicly traded, right? So you have quarter
158
00:07:43.639 --> 00:07:49.339
by quarter pressure, right? And pressure to perform and anticipate
159
00:07:49.800 --> 00:07:53.089
things that, I mean, how do you anticipate all of these?
160
00:07:53.910 --> 00:07:57.449
Not only can you not anticipate what maybe the administration's
161
00:07:57.490 --> 00:08:00.000
going to do, it's They announce something.
162
00:08:00.139 --> 00:08:01.519
Is it really going to happen? I mean, we're just
163
00:08:01.560 --> 00:08:03.199
talking about this with some of the tariffs. They come
164
00:08:03.259 --> 00:08:06.480
and they go. They're legal. They're not legal. They're threatened.
165
00:08:06.579 --> 00:08:07.779
They go away.
166
00:08:08.500 --> 00:08:14.009
How you plan a capital-intensive, long-term business like ours under
167
00:08:14.069 --> 00:08:17.689
those conditions, but the markets kind of don't care, right?
168
00:08:17.709 --> 00:08:23.410
So the investors aren't always as informed about those aspects.
169
00:08:23.449 --> 00:08:26.439
They just see, all right, cash flow and EBITDA and
170
00:08:26.629 --> 00:08:28.860
the important things to the balance sheet.
171
00:08:29.500 --> 00:08:31.899
And so there's that piece.
172
00:08:32.240 --> 00:08:36.559
There's also the nature of these businesses where even 10
173
00:08:36.559 --> 00:08:39.059
years ago, I think we would all still think of
174
00:08:39.120 --> 00:08:41.740
cars as primarily hardware.
175
00:08:41.460 --> 00:08:46.279
Devices, right? Software was there. It augmented things.
176
00:08:46.379 --> 00:08:50.080
It was sometimes great and sometimes a nuisance. It's now
177
00:08:50.139 --> 00:08:54.259
the central piece and it's awfully hard to see and
178
00:08:54.460 --> 00:08:57.779
feel quality problems. And so the number of warranties and
179
00:08:57.860 --> 00:09:01.049
recalls and and service actions that are, that have to
180
00:09:01.090 --> 00:09:06.370
be taken because of software glitches or poor performance or
181
00:09:06.409 --> 00:09:10.350
just interactions that are unanticipated and very difficult to test
182
00:09:10.929 --> 00:09:14.129
and find at those, at those border cases, right? All
183
00:09:14.149 --> 00:09:17.799
of that is, is it's changing company, the nature of
184
00:09:17.860 --> 00:09:20.679
some of these companies, you know, lighting companies where it
185
00:09:20.700 --> 00:09:22.519
would have all been about the physicals.
186
00:09:22.139 --> 00:09:23.860
And the look. And now there's a, there's a heavy
187
00:09:23.899 --> 00:09:26.159
software piece of that.
188
00:09:26.259 --> 00:09:30.789
Plus, how you use AI and not waste tremendous amounts
189
00:09:30.830 --> 00:09:34.029
of money and energy and other things. One of the
190
00:09:34.289 --> 00:09:39.690
aspects of the study talks about within automotive, it's at
191
00:09:39.730 --> 00:09:42.269
least one of the most prominent industries that is no
192
00:09:42.389 --> 00:09:45.460
longer viewing AI or does not view AI as a
193
00:09:45.669 --> 00:09:46.799
revenue generation.
194
00:09:47.340 --> 00:09:48.860
It's a cost-cutting tool, right?
195
00:09:49.840 --> 00:09:53.700
I think nearly everybody saw AI as this thing that
196
00:09:53.720 --> 00:09:56.299
was going to help us sell whatever it is you sell.
197
00:09:56.320 --> 00:09:59.470
They're going to help you you know, make new cool things.
198
00:09:59.889 --> 00:10:01.929
And I think we very quickly in this industry come
199
00:10:02.090 --> 00:10:05.580
to reality of it can help accelerate some things, but
200
00:10:06.720 --> 00:10:10.740
it's not that effective. It's hard to trust at this
201
00:10:10.860 --> 00:10:17.500
point when you're making things that people's lives are impacted
202
00:10:17.580 --> 00:10:20.990
when things don't go right, right? And so relying on
203
00:10:21.009 --> 00:10:24.309
them for safety testing, engineering, some of the basic things,
204
00:10:24.769 --> 00:10:29.110
really difficult. And so, you know, the use cases we're
205
00:10:29.129 --> 00:10:31.799
seeing are in, you know, finance or areas that are
206
00:10:31.840 --> 00:10:37.919
less sensitive to the consumer, the safety, to durability, that
207
00:10:37.960 --> 00:10:39.720
kind of thing, right? And so, but, you know, back
208
00:10:39.759 --> 00:10:42.639
to the point of your question is why do these
209
00:10:43.120 --> 00:10:45.399
CEOs all feel more risk?
210
00:10:45.440 --> 00:10:46.799
It's because just the.
211
00:10:46.759 --> 00:10:50.269
Very nature of the vehicle. from a very hardware thing
212
00:10:50.309 --> 00:10:53.169
to a software-defined vehicle, as we call it, has been
213
00:10:53.230 --> 00:10:58.259
so rapid. And the leadership that's required when you've got,
214
00:10:58.360 --> 00:11:01.960
you're defending against change, but trying to figure out where
215
00:11:02.039 --> 00:11:04.840
things are going and anticipate, are the OEMs going to
216
00:11:04.860 --> 00:11:09.419
be more software, more hardware, more autonomy, more electrification?
217
00:11:10.080 --> 00:11:10.539
Where do you go?
218
00:11:10.960 --> 00:11:15.750
And every subsystem in the vehicle has different directions they
219
00:11:15.789 --> 00:11:16.629
have to go in that.
220
00:11:16.649 --> 00:11:19.070
So it's like, You've got to be a super expert.
221
00:11:19.110 --> 00:11:21.580
And so if you're super expert in something, but then
222
00:11:21.600 --> 00:11:24.600
that thing changes drastically, now, yeah, you're potentially out of
223
00:11:24.620 --> 00:11:24.860
a job.
224
00:11:25.399 --> 00:11:26.960
Well, speaking of being out of jobs, and this sort
225
00:11:26.980 --> 00:11:28.879
of goes to your point, too, when you're talking about
226
00:11:29.039 --> 00:11:34.230
massive layoffs at VW, you guys found 95% of CEOs
227
00:11:35.070 --> 00:11:38.450
in the auto industry expect AI to lead to layoffs
228
00:11:38.490 --> 00:11:41.070
in the next five years. And of that group, 44%
229
00:11:41.070 --> 00:11:42.230
expect at least 10% layoffs.
230
00:11:46.269 --> 00:11:47.250
I mean, that's huge.
231
00:11:47.549 --> 00:11:48.370
Yeah, yeah.
232
00:11:48.409 --> 00:11:52.409
Well, it speaks back to AI not as something that
233
00:11:52.429 --> 00:11:55.429
helps us make money or make revenue. It's something that
234
00:11:55.470 --> 00:11:58.389
helps us cut cost. You don't cut cost if you
235
00:11:58.429 --> 00:12:02.789
don't take headcount out, right? It's about efficiency and efficiency
236
00:12:02.860 --> 00:12:06.100
is either speed or fewer heads and usually both, right?
237
00:12:06.159 --> 00:12:08.980
Now the speed thing we're starting to find, I think
238
00:12:09.000 --> 00:12:11.799
we're starting to find the edge of the envelope on that.
239
00:12:11.840 --> 00:12:14.460
You know, everybody is chasing China speed, but even the
240
00:12:14.480 --> 00:12:18.649
Chinese are going, okay, Within reason, like got to do
241
00:12:18.710 --> 00:12:21.350
all the steps. They can't just cut corners. And so
242
00:12:21.389 --> 00:12:24.129
I think we're finding the real borders of what's going
243
00:12:24.149 --> 00:12:26.649
to be viable there long-term. But I mean, there are
244
00:12:26.750 --> 00:12:31.480
certain types of testing and validation and just making sure
245
00:12:31.519 --> 00:12:35.360
that things work together that can't be modeled, like not
246
00:12:35.399 --> 00:12:39.899
with 100% fidelity. You can't trust everything that AI tells
247
00:12:39.919 --> 00:12:41.700
you or gives you. You do have to go through
248
00:12:41.720 --> 00:12:44.549
some of the physical, you know, crash testing in some
249
00:12:44.610 --> 00:12:48.350
cases and Durability testing and all the other interactions, as
250
00:12:48.409 --> 00:12:51.750
simple as going back to the one major recall where
251
00:12:51.789 --> 00:12:56.620
somebody didn't design the detent in the key ignition correctly.
252
00:12:57.460 --> 00:13:00.700
And so people with too many things on their key chain,
253
00:13:00.720 --> 00:13:02.740
much like my daughter, whose thing is like this long,
254
00:13:03.460 --> 00:13:05.019
it's turning off while you're driving, right?
255
00:13:05.820 --> 00:13:06.879
How do you anticipate that?
256
00:13:06.940 --> 00:13:11.080
And is AI more likely to help you find something
257
00:13:11.120 --> 00:13:15.039
like that or to also miss those important nuances that
258
00:13:15.080 --> 00:13:17.440
we just built into the systems, right?
259
00:13:17.500 --> 00:13:18.159
It's somewhere in the middle.
260
00:13:18.580 --> 00:13:20.480
I can see where AI would help in something like that,
261
00:13:20.559 --> 00:13:23.980
something mechanical, perhaps even in software. But my question would be,
262
00:13:24.419 --> 00:13:25.600
what about in management?
263
00:13:25.659 --> 00:13:26.210
What are you.
264
00:13:26.179 --> 00:13:31.529
Guys at Alex Partners advising, counseling, coaching, management? Like you said,
265
00:13:31.570 --> 00:13:33.750
these guys are afraid of losing their job. There's so
266
00:13:33.789 --> 00:13:36.789
much disruption. You can't plan for it. It's just going
267
00:13:36.830 --> 00:13:40.149
to happen. What advice do you give to top management?
268
00:13:41.179 --> 00:13:45.149
You know, we... have a very pragmatic view of, of everything.
269
00:13:45.169 --> 00:13:47.570
I mean, that's, that's part of what we bring is,
270
00:13:47.750 --> 00:13:50.220
you know, solutions that work because we've, you know, we've
271
00:13:50.240 --> 00:13:51.779
worked in these companies, we've done the jobs.
272
00:13:51.799 --> 00:13:54.259
We're not just advisors with AI.
273
00:13:55.080 --> 00:13:57.179
What we found is there are a lot of companies
274
00:13:57.799 --> 00:14:00.779
that get into trying to design something and thinking, well,
275
00:14:00.820 --> 00:14:03.799
it's going to create this value, but without thinking that, okay,
276
00:14:03.830 --> 00:14:07.169
that value either has to come through increased revenue, right.
277
00:14:07.710 --> 00:14:09.549
Or you have to cut costs and if they're not
278
00:14:09.629 --> 00:14:12.480
fit and that's the layoff piece, right. if you're cutting costs,
279
00:14:12.500 --> 00:14:14.779
if you're becoming more efficient and you need fewer people,
280
00:14:16.080 --> 00:14:18.360
that's from a baseline of what you have today. That
281
00:14:18.399 --> 00:14:21.840
means those jobs go away, right? What types of jobs,
282
00:14:21.860 --> 00:14:25.210
you know, it's harder to take out a head count
283
00:14:25.250 --> 00:14:28.009
on the line, certainly robotics and automation, but that's not new.
284
00:14:28.029 --> 00:14:29.990
I mean, that's 20, 30 year old things.
285
00:14:30.049 --> 00:14:33.750
And is, is AI really going to improve or accelerate
286
00:14:33.830 --> 00:14:34.509
that aspect?
287
00:14:34.750 --> 00:14:35.669
Not really, right.
288
00:14:35.750 --> 00:14:40.889
We don't see that, but redundant jobs, clerical tasks that
289
00:14:41.029 --> 00:14:44.850
you see in accounting and finance, in supply chain and procurement,
290
00:14:45.850 --> 00:14:48.529
some aspects of engineering, but what we find, what we
291
00:14:48.850 --> 00:14:52.549
think is more on the design and ideation side than
292
00:14:52.590 --> 00:14:56.570
it is the nuts and bolts and validation piece. But
293
00:14:56.710 --> 00:15:00.809
there will undoubtedly be aspects of that that accelerate.
294
00:15:00.950 --> 00:15:02.610
Somebody figures out how to solve for those.
295
00:15:02.909 --> 00:15:06.960
And as executives, which are the ones that are really
296
00:15:06.980 --> 00:15:10.529
worried about losing their jobs, they don't chase those, if
297
00:15:10.549 --> 00:15:13.190
they don't adopt and figure out how to make their
298
00:15:13.230 --> 00:15:15.710
companies more efficient, the other guy is, right? And they
299
00:15:15.750 --> 00:15:17.429
will be out of a job if they don't. So it's,
300
00:15:17.970 --> 00:15:21.600
you know, somebody is going to be finding a new.
301
00:15:21.740 --> 00:15:22.379
Job, right?
302
00:15:22.399 --> 00:15:25.159
This is always the story of innovation is the people
303
00:15:25.179 --> 00:15:26.399
with a certain job.
304
00:15:26.179 --> 00:15:28.070
Are unhappy about it.
305
00:15:29.019 --> 00:15:31.200
But by and large, we all find new jobs and
306
00:15:31.220 --> 00:15:33.960
new things to do, right? You know, before you put
307
00:15:33.980 --> 00:15:36.100
the car together, now somebody has to maintain the robot
308
00:15:36.120 --> 00:15:38.149
that's going to put the car together. That's just a
309
00:15:38.190 --> 00:15:40.830
different type of job. Now we become service and IT
310
00:15:40.870 --> 00:15:41.769
industry people.
311
00:15:41.809 --> 00:15:46.110
That's a natural shift that's been happening since the industrial revolution.
312
00:15:47.509 --> 00:15:50.509
Let me ask you this question because cost cutting is
313
00:15:50.549 --> 00:15:54.580
not a strategy. Getting smaller but not changing the way
314
00:15:54.620 --> 00:16:01.460
you do business, run efficiently, whatever. Because we're talking about AI,
315
00:16:01.500 --> 00:16:06.620
we're talking about these functions or these features or these things,
316
00:16:06.679 --> 00:16:12.419
but we're not It's more global now than ever. There
317
00:16:12.440 --> 00:16:15.750
will be 11 million cars shipped from China this year
318
00:16:15.759 --> 00:16:19.529
to the rest of the world. BYD is in 110 markets.
319
00:16:20.309 --> 00:16:23.330
They should be afraid. CEOs should be afraid because no
320
00:16:23.409 --> 00:16:26.629
one's creating value in the automotive space. They should have
321
00:16:26.649 --> 00:16:31.450
been afraid five years ago. So how are you explaining
322
00:16:31.490 --> 00:16:36.500
and separating? Let's create a strategy and cost cut. a
323
00:16:36.559 --> 00:16:38.159
new strategy and cost cut?
324
00:16:39.990 --> 00:16:42.429
They're not mutually exclusive. They can't be, right? You have to,
325
00:16:42.470 --> 00:16:48.289
but responding to competition like that, right?
326
00:16:48.389 --> 00:16:51.259
Figuring out how you're going to play in those markets
327
00:16:51.960 --> 00:16:55.320
at those costs in a competitive way is one thing.
328
00:16:55.860 --> 00:16:59.500
Part of that can and maybe has to be changing
329
00:16:59.539 --> 00:17:02.809
the way that you run the internals, the back office,
330
00:17:02.850 --> 00:17:04.730
if you will, right? So it's not making the cars,
331
00:17:04.769 --> 00:17:07.390
but how you run that back office certainly frees up
332
00:17:08.390 --> 00:17:12.349
cash for investment and innovation and some of these other things.
333
00:17:12.750 --> 00:17:15.359
Some of the automakers are drastically changing the way they
334
00:17:15.380 --> 00:17:19.359
put cars together, the way they design them.
335
00:17:18.579 --> 00:17:22.539
That we've seen recently. That'll be the more meaningful thing, right?
336
00:17:22.579 --> 00:17:27.339
But what were the early adoption of AI is much
337
00:17:27.420 --> 00:17:30.329
more about becoming more efficient at what they do now
338
00:17:30.700 --> 00:17:33.190
but they also have to completely rewrite, right?
339
00:17:33.210 --> 00:17:35.309
And some OEMs, you see them doing that.
340
00:17:36.170 --> 00:17:38.529
Some are probably doing it, but are either less public
341
00:17:38.569 --> 00:17:39.500
or further behind it.
342
00:17:39.509 --> 00:17:41.269
So I'm not talking about it, but I mean, your
343
00:17:41.309 --> 00:17:42.289
point is exactly right.
344
00:17:42.970 --> 00:17:47.690
There's a tendency to think regionally and in the US
345
00:17:47.730 --> 00:17:50.089
or North America in particular, I think there's an expectation
346
00:17:50.109 --> 00:17:52.269
there's gonna be some protectionism for a while and maybe
347
00:17:52.289 --> 00:17:55.769
there should be, but it's not forever. It's probably not
348
00:17:56.029 --> 00:17:59.589
more than five or 10 years. you know, Chinese competition
349
00:17:59.710 --> 00:18:02.430
in the U.S. is an inevitability. It's just a question
350
00:18:02.470 --> 00:18:05.950
of when, right? There's just no logical reason that you,
351
00:18:06.309 --> 00:18:08.430
and it's not good for consumers in any case, right?
352
00:18:08.589 --> 00:18:11.150
I mean, their competition is good.
353
00:18:11.190 --> 00:18:14.420
It's just not always good for every individual, but overall
354
00:18:14.900 --> 00:18:15.859
it's necessary and it.
355
00:18:15.900 --> 00:18:16.599
Is a good thing, right?
356
00:18:16.640 --> 00:18:20.799
So whether they end up, whether Chinese OEMs end up
357
00:18:21.259 --> 00:18:24.140
selling and or making cars in the U.S.
358
00:18:24.160 --> 00:18:26.569
In the next five years, maybe, but in the next
359
00:18:26.569 --> 00:18:27.490
10 years, almost surely.
360
00:18:28.619 --> 00:18:32.599
It would require a drastic change in the face of
361
00:18:32.640 --> 00:18:35.180
the geopolitical world for that.
362
00:18:35.019 --> 00:18:35.880
Not to happen.
363
00:18:36.339 --> 00:18:38.680
If they were kept out of the market and selling
364
00:18:38.720 --> 00:18:42.240
in Canada and Mexico, we would see them probably create
365
00:18:42.329 --> 00:18:47.789
protectionism in the Chinese market against foreign automakers.
366
00:18:47.970 --> 00:18:49.690
So, okay, one of the things that you guys do
367
00:18:49.730 --> 00:18:54.049
in that disruption study is you have– breakout of different countries.
368
00:18:54.109 --> 00:18:57.009
And so there's discovered this comparison of China and the
369
00:18:57.029 --> 00:19:01.069
United States in the auto industry. And these numbers surprise
370
00:19:01.130 --> 00:19:04.329
me quite a bit. So we look at the index score,
371
00:19:04.349 --> 00:19:11.309
the overall score, the U.S. disruption rate in auto is 72.
372
00:19:11.309 --> 00:19:12.630
In China, 77. Okay.
373
00:19:12.710 --> 00:19:17.539
So they're feeling more disrupted than we are here. Highest
374
00:19:17.599 --> 00:19:23.519
rates of disruption that overall, the U.S., 53%.
375
00:19:23.630 --> 00:19:26.799
China, 69%, far more disrupted.
376
00:19:26.920 --> 00:19:27.140
Okay.
377
00:19:27.619 --> 00:19:31.559
And planning on making significant changes to the business models
378
00:19:31.619 --> 00:19:38.660
this year, in the US, 42%, in China, 51%. So
379
00:19:40.619 --> 00:19:43.369
everybody seems to look to China as being the model
380
00:19:43.410 --> 00:19:43.750
of this.
381
00:19:43.670 --> 00:19:44.869
Is what we need to do.
382
00:19:44.890 --> 00:19:49.970
Do these numbers indicate that they're more messed up or
383
00:19:50.019 --> 00:19:53.440
or they're more proactive in dealing with disruption?
384
00:19:54.019 --> 00:19:57.299
I think it's just a more dynamic market.
385
00:19:57.319 --> 00:20:03.720
Especially with the newer native Chinese companies, they don't have
386
00:20:04.319 --> 00:20:09.420
the century of legacy that the all the other Western,
387
00:20:09.519 --> 00:20:11.940
or not all, but most of the other Western automakers have, right?
388
00:20:12.480 --> 00:20:13.759
And so the rate.
389
00:20:13.579 --> 00:20:16.400
Of change and the willing, you know, one of the
390
00:20:16.440 --> 00:20:20.309
things that we've noticed that characterizes some of these Chinese
391
00:20:20.329 --> 00:20:24.029
companies is their willingness to put out something that isn't
392
00:20:24.029 --> 00:20:28.490
100% perfect, or at least in their mind, that the
393
00:20:28.539 --> 00:20:31.660
customer is going to complain about, but know that they'll
394
00:20:31.740 --> 00:20:32.680
fix it, right?
395
00:20:32.740 --> 00:20:34.299
They know that they get.
396
00:20:34.220 --> 00:20:37.099
Something, something doesn't work in the software, something doesn't work
397
00:20:37.119 --> 00:20:40.240
in the radio, whatever it is, they'll still take a
398
00:20:40.259 --> 00:20:43.099
chance buying that brand because they expect that the brand
399
00:20:43.140 --> 00:20:45.960
is going to fix that issue for them, right? And
400
00:20:46.059 --> 00:20:49.980
so that's part of that China speed is being willing
401
00:20:50.039 --> 00:20:54.480
to do that, being closer to customers, much more active
402
00:20:54.519 --> 00:20:57.529
leadership in those companies, much more active in WeChat and other,
403
00:20:57.980 --> 00:21:00.390
with the consumers and really listening to what they want
404
00:21:00.869 --> 00:21:04.269
and then responding to it in real time. And so that,
405
00:21:04.509 --> 00:21:06.890
but that, what that comes to is, You have those
406
00:21:06.930 --> 00:21:08.910
price wars that happen over there.
407
00:21:08.970 --> 00:21:11.390
You have just this constant, some companies.
408
00:21:11.109 --> 00:21:14.299
Are completely EV, some are completely ICE, some are figuring
409
00:21:14.359 --> 00:21:17.799
out their way. The number of companies that exist over
410
00:21:17.839 --> 00:21:22.039
there versus what we've said, there will probably be 15
411
00:21:22.039 --> 00:21:23.160
that are really viable.
412
00:21:23.759 --> 00:21:26.680
We don't think that hundreds of brands will go away.
413
00:21:26.740 --> 00:21:29.809
They will probably still also get support as you do
414
00:21:29.849 --> 00:21:30.680
in an economy like that.
415
00:21:30.789 --> 00:21:35.930
But all of that is going on just within.
416
00:21:36.430 --> 00:21:40.450
China as the most competitive and what has been the
417
00:21:40.509 --> 00:21:43.190
most attractive market, the highest growth market in the world
418
00:21:43.269 --> 00:21:45.509
for 15, 20 years, right?
419
00:21:45.569 --> 00:21:49.089
Until today. Until recently, it's kind of gotten to that point.
420
00:21:49.130 --> 00:21:52.150
But now, yeah, we've created. Chinese are now selling. We
421
00:21:52.230 --> 00:21:55.009
think it's going to be 10, 11 million. We'll go
422
00:21:55.029 --> 00:21:55.569
to other markets.
423
00:21:55.650 --> 00:21:57.430
And maybe going to 18 or 20 by the end
424
00:21:57.470 --> 00:21:59.779
of the decade. But I wonder if China is hitting
425
00:21:59.799 --> 00:22:02.400
an inflection point, too, because I was very interested to
426
00:22:02.460 --> 00:22:06.400
see sales of the Xiaomi SU7 and YU7. You know,
427
00:22:06.420 --> 00:22:09.339
a year ago, everybody was just gobsmacked by these things.
428
00:22:09.759 --> 00:22:17.019
You know, they captured the Nürburgring record for EVs. Their
429
00:22:17.079 --> 00:22:20.059
sales were going through the roof. Right now, sales of
430
00:22:20.099 --> 00:22:23.980
those two models, SU7 and YU7, are taking a nosedive.
431
00:22:25.119 --> 00:22:26.980
I can't remember the name of it offhand. There's some
432
00:22:27.049 --> 00:22:32.509
Chinese group that monitors product quality. They evaluated 29 new BEVs.
433
00:22:33.250 --> 00:22:36.700
This goes back a year ago. And they said... The
434
00:22:36.720 --> 00:22:41.839
SU-7 is the worst new EV that we've ever evaluated.
435
00:22:41.960 --> 00:22:43.259
And so I think it gets back to what you
436
00:22:43.279 --> 00:22:46.359
were talking about before. Maybe too many corners were getting cut.
437
00:22:47.119 --> 00:22:49.880
You know, the Chinese government itself or different entities of
438
00:22:49.900 --> 00:22:53.029
the government have warned about involution. I had to run
439
00:22:53.069 --> 00:22:55.589
to the dictionary to find out what that means. Essentially,
440
00:22:55.650 --> 00:22:59.289
it means that they're just eating themselves. You know, they've
441
00:22:59.390 --> 00:23:03.890
created this hyper competition that's, you know, there's fear that
442
00:23:03.930 --> 00:23:07.069
it's going to just Maybe destroy is not the right word,
443
00:23:07.150 --> 00:23:11.849
but it's not good. What do you think? Is China
444
00:23:11.990 --> 00:23:13.750
about to hit an inflection point?
445
00:23:15.890 --> 00:23:16.490
It's hard to predict.
446
00:23:16.569 --> 00:23:20.329
An inflection point is something that is that large and dynamic,
447
00:23:20.589 --> 00:23:25.690
and it's hard to get accurate data there. The other
448
00:23:25.769 --> 00:23:28.890
aspect is it's fairly opaque compared to what I think
449
00:23:28.910 --> 00:23:30.230
we're used to in the U.S.
450
00:23:30.529 --> 00:23:33.390
And Europe, where you have big reporting reports.
451
00:23:34.519 --> 00:23:39.019
Agencies and both third party and government, there's always information
452
00:23:39.059 --> 00:23:42.849
to triangulate on and transparency for consumer safety has always
453
00:23:42.910 --> 00:23:47.150
been very important. That's not always been the reputation within China.
454
00:23:47.190 --> 00:23:50.630
So it starts with, it's hard to know exactly what's
455
00:23:50.630 --> 00:23:55.089
100% true, but by and large, certainly Xiaomi in particular
456
00:23:55.109 --> 00:23:59.150
has had some of the early black eyes in autonomous
457
00:23:59.190 --> 00:24:03.950
driving and crashes and issues there. But what you get
458
00:24:03.990 --> 00:24:06.970
into is, OK, are those because they're poor quality or
459
00:24:07.029 --> 00:24:09.970
is it because they don't have good guanxi or good
460
00:24:10.009 --> 00:24:11.029
relationships with.
461
00:24:11.230 --> 00:24:11.970
Their media people?
462
00:24:11.990 --> 00:24:16.480
Like, it's hard to say that they're necessarily worse, but
463
00:24:16.519 --> 00:24:18.259
the perception is certainly that they're worse.
464
00:24:18.299 --> 00:24:23.119
Therefore, yeah, you're starting to see consumers not want to
465
00:24:23.140 --> 00:24:25.470
buy them. Right. Because, you know, is it going to work?
466
00:24:25.529 --> 00:24:28.150
Is it going to be safe? You know, it's it's.
467
00:24:29.289 --> 00:24:31.890
Chinese consumers are interested in all the same things that
468
00:24:32.309 --> 00:24:35.289
other consumers are as far as getting home and getting
469
00:24:35.329 --> 00:24:38.450
home safely and having a reliable way to get around
470
00:24:39.039 --> 00:24:39.799
if you do own a car.
471
00:24:40.819 --> 00:24:51.289
I actually think the cyclicality that we know to be 12, 18,
472
00:24:51.289 --> 00:24:54.680
24 months for a model year before sales really start
473
00:24:54.720 --> 00:24:56.599
dropping off a cliff, I think in China that's like
474
00:24:56.640 --> 00:24:57.039
six to nine.
475
00:24:58.089 --> 00:24:59.470
So you have a honeymoon period.
476
00:24:59.809 --> 00:25:01.529
And then if you look at a Tesla or a
477
00:25:01.569 --> 00:25:05.349
Xiaomi to have that resilience for a few years, it's
478
00:25:05.390 --> 00:25:11.140
pretty amazing. And, you know, to hammer that point home, John,
479
00:25:11.180 --> 00:25:15.819
about the competitiveness, there are over 700 products that are
480
00:25:16.119 --> 00:25:20.539
sold in China from an automotive standpoint. Less than or
481
00:25:20.640 --> 00:25:23.039
so 56 of them ship more than 5000 units a month.
482
00:25:23.359 --> 00:25:23.900
Wow.
483
00:25:24.680 --> 00:25:26.380
That was according to a government agency.
484
00:25:27.640 --> 00:25:33.180
And so the China market this year will be down
485
00:25:33.200 --> 00:25:35.200
about 18% year over year.
486
00:25:35.880 --> 00:25:36.400
Maybe more.
487
00:25:36.680 --> 00:25:37.539
And so, yeah.
488
00:25:37.759 --> 00:25:38.829
It got worse last month.
489
00:25:39.109 --> 00:25:39.880
It did. It did.
490
00:25:39.900 --> 00:25:41.710
And here's the other thing that I found interesting. So
491
00:25:41.750 --> 00:25:47.109
last month, there were 1.55 million new cars sold in China.
492
00:25:47.630 --> 00:25:49.730
Last month in the United States, it was 1.38. So
493
00:25:49.750 --> 00:25:51.750
almost 1.4 to 1.5. I think if things keep going
494
00:25:51.809 --> 00:25:52.390
like they're going.
495
00:25:56.349 --> 00:25:56.730
The U.S.
496
00:25:56.769 --> 00:25:59.930
Market, maybe not for a full year or anything, is
497
00:25:59.950 --> 00:26:01.569
going to be bigger than the Chinese market.
498
00:26:02.450 --> 00:26:09.779
So the Chinese market historically races to the December timeframe,
499
00:26:09.839 --> 00:26:13.940
and you see the companies double their sales from the
500
00:26:13.980 --> 00:26:14.960
first six months.
501
00:26:15.039 --> 00:26:16.099
December to remember.
502
00:26:16.299 --> 00:26:21.700
Now, the involution part of it takes away some of
503
00:26:21.960 --> 00:26:23.619
the price cut.
504
00:26:24.250 --> 00:26:25.970
Or capabilities, right?
505
00:26:26.009 --> 00:26:29.259
But then you start seeing free charging, you start seeing
506
00:26:29.259 --> 00:26:33.640
0% financing. So there are other mechanism, non-price cut price
507
00:26:33.680 --> 00:26:38.500
cuts that happen. So, and, you know, Xiaomi is kind
508
00:26:38.539 --> 00:26:41.140
of on its heels a little bit. BYD is also
509
00:26:41.960 --> 00:26:45.190
hugely on its heels in the China market. Hence, exporting
510
00:26:45.250 --> 00:26:48.450
is such an important mechanism for them. And Wang Fengfu
511
00:26:48.470 --> 00:26:51.470
a couple months ago said, we're targeting Toyota. We're going
512
00:26:51.490 --> 00:26:54.420
to sell more than 10 million units by 2030. And
513
00:26:54.480 --> 00:26:58.579
so he said long-term, 50% outside of China, 50% inside
514
00:26:58.619 --> 00:26:58.880
of China.
515
00:26:59.099 --> 00:26:59.700
I don't think he.
516
00:26:59.599 --> 00:27:03.289
Meant because we're going to have shrinking market share in China,
517
00:27:03.750 --> 00:27:04.849
but- To.
518
00:27:05.410 --> 00:27:06.369
A goal is a good thing.
519
00:27:06.390 --> 00:27:08.309
Whether you're going to achieve it or not is something
520
00:27:08.349 --> 00:27:08.950
else entirely.
521
00:27:09.430 --> 00:27:11.230
Okay, but one of the things that you guys found
522
00:27:11.369 --> 00:27:16.079
is that 95% say that the company is being outpaced
523
00:27:16.140 --> 00:27:20.140
by technological change. Is this basically like if we look
524
00:27:20.240 --> 00:27:25.819
at- automated vehicles as physical products. We look at AI
525
00:27:26.039 --> 00:27:30.079
as a technical product. This stuff is just getting ahead
526
00:27:30.099 --> 00:27:30.859
of these companies.
527
00:27:31.160 --> 00:27:34.089
Yeah, and it's all of it, but I think we
528
00:27:34.309 --> 00:27:35.329
think of it in a few ways.
529
00:27:35.650 --> 00:27:40.230
One is, again, back to the vehicle becoming a software-defined vehicle,
530
00:27:41.009 --> 00:27:45.170
whether it's going toward autonomy, which I think people five
531
00:27:45.210 --> 00:27:47.559
years ago, maybe a little longer, were saying, oh, autonomy
532
00:27:47.579 --> 00:27:49.059
is going to be here much faster than you think,
533
00:27:49.079 --> 00:27:51.980
and that hasn't. electrification is going to be here.
534
00:27:52.000 --> 00:27:52.220
Yeah.
535
00:27:52.259 --> 00:27:52.420
Right.
536
00:27:52.819 --> 00:27:56.779
Much faster than you think. Yeah, that hasn't happened. So
537
00:27:56.819 --> 00:27:59.400
there's the, what, what is the type of vehicle thing?
538
00:27:59.420 --> 00:28:01.960
Then there's the content in the vehicle, right? So people,
539
00:28:02.599 --> 00:28:03.940
if you were in, I went to, we were in
540
00:28:03.960 --> 00:28:06.369
Munich for the auto show last year, and there were
541
00:28:06.390 --> 00:28:08.970
a number of, of companies that had set up showing
542
00:28:09.009 --> 00:28:11.809
how AI was going to be in the vehicle. And
543
00:28:11.849 --> 00:28:15.789
it was wildly underwhelming, but the things they were talking about,
544
00:28:15.809 --> 00:28:18.029
you know, it's going to recognize your face and know
545
00:28:18.089 --> 00:28:19.150
what temperature to set.
546
00:28:19.210 --> 00:28:26.130
It's like, Why? I don't need that. That seems crazy.
547
00:28:26.970 --> 00:28:29.369
Can it recognize anybody on earth and know what temperature
548
00:28:29.410 --> 00:28:30.250
they want it set at?
549
00:28:30.289 --> 00:28:30.529
Maybe.
550
00:28:30.690 --> 00:28:33.269
But even then you go, everybody on earth isn't going
551
00:28:33.289 --> 00:28:34.029
to drive my car.
552
00:28:34.069 --> 00:28:37.349
So there was a lot of that AI, but people
553
00:28:37.410 --> 00:28:40.950
are putting those into at least their cycle plans. And
554
00:28:41.420 --> 00:28:45.980
so whether you're in the OEM space or the tier suppliers,
555
00:28:46.000 --> 00:28:48.279
you're thinking about what are these things that I have
556
00:28:48.319 --> 00:28:52.410
to be developing, right? And then you get into the
557
00:28:52.569 --> 00:28:56.690
AI impact on systems and how do I build and
558
00:28:56.809 --> 00:28:59.009
how do I do my finance, all of the other
559
00:28:59.269 --> 00:29:00.930
aspects of technology.
560
00:29:00.950 --> 00:29:04.690
So it's, what am I going to put my stuff into?
561
00:29:04.910 --> 00:29:08.309
What am I making to put into that car? And
562
00:29:08.349 --> 00:29:10.869
then how am I running my business? They're all moving
563
00:29:12.150 --> 00:29:15.029
and impacted by different things in different ways. And it's,
564
00:29:15.190 --> 00:29:18.990
and it really, it's, it can be overwhelming and, you know, it,
565
00:29:19.619 --> 00:29:21.359
There are a lot of people that just don't even
566
00:29:21.400 --> 00:29:27.789
really know how to think about agentic AI in terms
567
00:29:27.829 --> 00:29:29.190
of what should I do with.
568
00:29:29.069 --> 00:29:29.910
This thing, right?
569
00:29:29.930 --> 00:29:33.710
I mean, just scratching the surface of having it simplify
570
00:29:33.750 --> 00:29:34.690
reports and whatnot.
571
00:29:34.730 --> 00:29:37.509
And I think a lot of people early in their
572
00:29:37.650 --> 00:29:39.369
journeys find that, oh.
573
00:29:39.589 --> 00:29:41.140
Boy, I got to I have to double check this
574
00:29:41.180 --> 00:29:44.200
thing five times before I can. You know, we use
575
00:29:44.259 --> 00:29:46.960
it to create PowerPoint documents and the things that we get.
576
00:29:46.980 --> 00:29:50.319
I'm like, I would fire somebody if they handed that
577
00:29:50.339 --> 00:29:51.059
to me the first time.
578
00:29:51.079 --> 00:29:51.240
Right.
579
00:29:51.559 --> 00:29:53.259
That's that's not the job that we do.
580
00:29:53.319 --> 00:29:56.559
And so it will probably come along through training and
581
00:29:56.599 --> 00:30:00.180
experience and, you know, People like us will get better
582
00:30:00.200 --> 00:30:03.640
at using it. People, executives and people in business roles
583
00:30:03.660 --> 00:30:05.619
will get better at using it and it will get
584
00:30:05.720 --> 00:30:07.769
better to meet them in the middle. So there's not
585
00:30:07.980 --> 00:30:11.509
such a such a gap. But for now, it's there's
586
00:30:11.529 --> 00:30:13.970
just so many different things that you could constantly be
587
00:30:14.009 --> 00:30:16.470
thinking about that you become paralyzed.
588
00:30:16.710 --> 00:30:18.410
I think there's a lot of that is what you're seeing.
589
00:30:18.430 --> 00:30:22.769
It's just this paralysis of which thing because there are some.
590
00:30:22.630 --> 00:30:24.829
You can kind of ignore and just not and you'll
591
00:30:24.849 --> 00:30:27.819
get left behind and some you You just won't sell any,
592
00:30:27.900 --> 00:30:29.140
you won't have a product to sell.
593
00:30:29.359 --> 00:30:31.079
You know, you're going to be making buggy webs and,
594
00:30:31.319 --> 00:30:32.400
you know, there's no more horses.
595
00:30:32.839 --> 00:30:35.299
Hey, we got to take a quick commercial break. Give
596
00:30:35.319 --> 00:30:36.859
a shout out to our sponsors. We'll be back to
597
00:30:36.880 --> 00:30:39.400
talk a lot more about the news in the automotive industry.
598
00:30:42.579 --> 00:30:44.079
Making a life full of memories.
599
00:30:44.799 --> 00:30:45.960
One road trip at a time.
600
00:30:46.700 --> 00:30:48.150
That's what really matters.
601
00:30:48.670 --> 00:30:52.190
Bridgestone Weather Peak Tires with a 70,000 mile limited warranty.
602
00:30:56.779 --> 00:30:59.960
The automotive industry continues to evolve and so do the
603
00:31:00.039 --> 00:31:03.579
opportunities to define it. BorgWarner, one of the world's most
604
00:31:03.640 --> 00:31:06.160
admired companies, gets its partners where they need to go.
605
00:31:06.759 --> 00:31:12.259
Let's do something big together. All right, we're back talking
606
00:31:12.279 --> 00:31:15.440
all things automotive here. To me, the biggest news that
607
00:31:15.480 --> 00:31:18.000
came out this week, and I think this is a
608
00:31:18.539 --> 00:31:23.160
pivot point for the industry, is Tesla posted a video
609
00:31:23.180 --> 00:31:27.900
showing that it is using unboxed assemblies. make the cyber cab.
610
00:31:28.460 --> 00:31:31.160
I think this is going to be, this is my opinion,
611
00:31:31.380 --> 00:31:34.019
it's going to be as revolutionary as the moving assembly
612
00:31:34.079 --> 00:31:39.089
line was when it first appeared in 1913. But Tu,
613
00:31:39.150 --> 00:31:39.829
what do you think?
614
00:31:40.730 --> 00:31:41.490
I think it is too.
615
00:31:41.509 --> 00:31:46.750
I think it's pretty revolutionary for the automotive industry. My
616
00:31:46.809 --> 00:31:50.329
challenge with Tesla is, you know, are they going to
617
00:31:50.369 --> 00:31:53.960
continue to be able to sell enough cars to really
618
00:31:54.000 --> 00:31:56.940
make cyber cab relevant? Because I think we believe that
619
00:31:57.059 --> 00:32:00.940
FSD to be the superior product globally for intelligent driving.
620
00:32:01.140 --> 00:32:04.539
Does that translate into robo taxis? Number one, number two,
621
00:32:05.160 --> 00:32:08.910
if we take China off the board for Tesla or FSD,
622
00:32:08.970 --> 00:32:12.170
because it's still not fully approved for the China market,
623
00:32:12.710 --> 00:32:16.019
does that continue to make them, this trillion and a
624
00:32:16.039 --> 00:32:19.259
half dollar company that creates the flexibility for them to
625
00:32:19.299 --> 00:32:20.119
do whatever they want.
626
00:32:21.539 --> 00:32:23.019
Gary, you're into manufacturing.
627
00:32:23.039 --> 00:32:23.460
What do you think?
628
00:32:23.579 --> 00:32:24.519
Unboxed assembly?
629
00:32:24.539 --> 00:32:33.609
I don't think it's a Model T moment. I'm sorry.
630
00:32:33.950 --> 00:32:35.690
I just don't see that.
631
00:32:37.069 --> 00:32:41.599
Because I think that this underestimates what other manufacturers do.
632
00:32:42.019 --> 00:32:46.009
have been and are doing in terms of different approaches
633
00:32:46.029 --> 00:32:47.069
to putting things together.
634
00:32:47.809 --> 00:32:50.230
And so all credit to them.
635
00:32:52.109 --> 00:32:57.029
We're all fascinated by things like FSD and cyber cabs
636
00:32:57.109 --> 00:33:02.029
and cyber trucks and the product. But it's big credit
637
00:33:02.049 --> 00:33:05.549
to these guys for working on the process, which gets
638
00:33:05.630 --> 00:33:09.809
like zero attention, right? I mean, who cares about manufacturing?
639
00:33:10.390 --> 00:33:11.410
No one, unless you're in it.
640
00:33:12.130 --> 00:33:14.650
Yeah, you do. I care a lot about all of
641
00:33:14.690 --> 00:33:15.490
us sitting here.
642
00:33:15.509 --> 00:33:17.289
But you get my get my point.
643
00:33:17.089 --> 00:33:21.299
About how it, you know, they tend to have like
644
00:33:21.400 --> 00:33:24.039
the seat way over there at the table.
645
00:33:24.299 --> 00:33:24.500
Right.
646
00:33:25.079 --> 00:33:27.559
Not among these these guys. And so.
647
00:33:27.980 --> 00:33:31.500
So, yes, it's, you know, putting these things together because.
648
00:33:32.779 --> 00:33:37.200
I might argue that when smart developed its manufacturing system,
649
00:33:37.539 --> 00:33:41.359
it was far advanced compared to unboxed assembly.
650
00:33:42.130 --> 00:33:42.410
Okay.
651
00:33:42.609 --> 00:33:45.690
They had everything and they were all coming in at different,
652
00:33:45.829 --> 00:33:48.069
you know, it was brilliant.
653
00:33:49.910 --> 00:33:50.490
In their plant.
654
00:33:50.539 --> 00:33:51.799
And I guess it was in France.
655
00:33:52.660 --> 00:33:54.009
But what's your sense of it?
656
00:33:54.420 --> 00:33:57.940
I agree with you in that it's not a model
657
00:33:57.960 --> 00:33:58.839
team moment for me.
658
00:33:58.880 --> 00:34:01.700
It's because there are so many other things you have
659
00:34:01.740 --> 00:34:03.519
to do differently in the design of the car to
660
00:34:03.779 --> 00:34:07.359
make all this stuff work, right? That not everybody's going
661
00:34:07.380 --> 00:34:11.369
to be able to follow and Are all of those
662
00:34:11.449 --> 00:34:16.369
advantages that the thing that everybody has to do or
663
00:34:16.829 --> 00:34:17.429
by the time.
664
00:34:17.269 --> 00:34:18.650
You can make those changes, there's going to be a
665
00:34:18.690 --> 00:34:20.010
next new thing anyway. Right.
666
00:34:20.070 --> 00:34:24.949
So as opposed to, you know, being Apple chasing the Zune,
667
00:34:25.380 --> 00:34:28.480
they just leapfrog and go and launch the iPhone.
668
00:34:28.519 --> 00:34:30.599
It's the same thing like, OK, that. Yeah. Yeah.
669
00:34:30.739 --> 00:34:32.460
They've set up a great ecosystem and they can take
670
00:34:32.500 --> 00:34:36.179
advantage of that thing. Automakers ought to be thinking about
671
00:34:36.800 --> 00:34:39.840
how do I. make the next iterative step, but it's, yeah, it's,
672
00:34:39.940 --> 00:34:42.260
this is not the thing that everybody's gonna start doing. It's,
673
00:34:42.280 --> 00:34:45.239
it's a, it's great improvement, but there, there are other,
674
00:34:45.800 --> 00:34:47.260
other systems to work in.
675
00:34:47.239 --> 00:34:50.369
That, that, uh, are likely even more advanced, even, uh,
676
00:34:50.469 --> 00:34:51.550
have additional benefits.
677
00:34:51.610 --> 00:34:54.409
I actually have a Zune by the way, where I
678
00:34:54.449 --> 00:34:58.210
believe it's different is because we know that the automotive
679
00:34:58.250 --> 00:35:01.659
industry is a copycat league and the Chinese will quickly
680
00:35:02.559 --> 00:35:06.280
try to incorporate this new way of manufacturing a vehicle.
681
00:35:06.780 --> 00:35:11.699
And it'll become ubiquitous across factories. That's the difference, right?
682
00:35:11.719 --> 00:35:16.429
Because if they think they can squeeze out efficiencies, and
683
00:35:16.650 --> 00:35:20.030
they're already the most efficient manufacturer in the world for
684
00:35:20.210 --> 00:35:23.570
multiple things. And that's where I think the influence is
685
00:35:23.590 --> 00:35:24.199
a little bit different.
686
00:35:24.239 --> 00:35:25.320
Because the car.
687
00:35:25.159 --> 00:35:29.139
Guys, they're not risk takers, right? But the Chinese have
688
00:35:29.159 --> 00:35:33.909
to take risk because... after 12 months, the vehicle they
689
00:35:33.949 --> 00:35:36.269
just rolled out is now falling off a cliff from
690
00:35:36.309 --> 00:35:40.670
a sales standpoint. So they have to also continue to innovate.
691
00:35:41.030 --> 00:35:44.320
And they also look at the sales side, but the
692
00:35:44.340 --> 00:35:47.639
manufacturing side, because if you've been to a Chinese factory,
693
00:35:47.739 --> 00:35:51.699
a good part of it, there's no people. And final assembly,
694
00:35:51.719 --> 00:35:53.320
there's still a lot of people going on and stuff
695
00:35:53.360 --> 00:35:56.150
like that. But They'll be quick to adopt it if
696
00:35:56.190 --> 00:35:57.949
they feel it gives them advantage.
697
00:35:57.989 --> 00:36:00.730
Okay, but does this mean that everything in this auto
698
00:36:00.750 --> 00:36:03.170
industry is predicated on what is done in China?
699
00:36:04.369 --> 00:36:09.449
I think that everything's happening at once. We're moving over
700
00:36:09.489 --> 00:36:11.449
to clean energy except for the United States. The rest
701
00:36:11.489 --> 00:36:15.389
of the world is. We're moving into front-end and rear-end
702
00:36:15.429 --> 00:36:18.510
gigacasting with cello pack for the battery pack to kind
703
00:36:18.550 --> 00:36:22.800
of keep the vehicle together. So vehicle manufacturing, to me,
704
00:36:22.840 --> 00:36:25.440
in 15 years is going to be commoditized. We can
705
00:36:25.539 --> 00:36:28.019
debate about how it's going to be built, but the
706
00:36:28.059 --> 00:36:29.679
value add is not going to be in the manufacturing
707
00:36:29.699 --> 00:36:32.699
because the Chinese eat out all the costs, you know,
708
00:36:32.780 --> 00:36:37.519
the major benefits to that. And we can take away
709
00:36:37.619 --> 00:36:42.599
the excess capacity by forcing them or creating policies that
710
00:36:42.619 --> 00:36:45.440
say you have to build a joint venture here, hire locals,
711
00:36:45.860 --> 00:36:48.920
but they're going to bring those manufacturing process because the
712
00:36:48.960 --> 00:36:53.519
joint venture partner will also want those efficiencies in the U.S.,
713
00:36:53.579 --> 00:36:56.739
in Canada, in Mexico. And so I don't look at
714
00:36:56.760 --> 00:37:00.510
it as China dictating. I look at it as the
715
00:37:00.570 --> 00:37:03.690
largest market in the world by a factor of two
716
00:37:04.489 --> 00:37:06.889
dictating to the rest of the world how they should
717
00:37:06.929 --> 00:37:07.800
manufacture things.
718
00:37:08.219 --> 00:37:11.860
See, I do think this unboxed assembly, this modular, it's
719
00:37:11.900 --> 00:37:16.260
modular assembly really, is going to be a game changer
720
00:37:16.300 --> 00:37:20.730
from a manufacturing standpoint. It slashes the footprint that you
721
00:37:20.750 --> 00:37:23.869
need for the plant. It allows you to take 40%
722
00:37:23.869 --> 00:37:28.780
of the workstations and the workforce out of the plant.
723
00:37:29.300 --> 00:37:32.219
And when labor costs are so disparate, especially in the
724
00:37:32.260 --> 00:37:35.320
United States versus just about anywhere except for Northern Europe,
725
00:37:36.409 --> 00:37:39.610
that takes care of a lot of the labor cost problem.
726
00:37:40.960 --> 00:37:44.579
But it's also your cycle time drops dramatically with this.
727
00:37:44.860 --> 00:37:49.969
Tesla is claiming a 10 second cycle time with the CypherCab.
728
00:37:50.230 --> 00:37:52.429
And they're talking about going to a five second cycle.
729
00:37:52.829 --> 00:37:56.730
I don't necessarily believe those numbers. In fact, I don't
730
00:37:56.769 --> 00:38:01.090
believe them. But it shows the possibility of being able
731
00:38:01.110 --> 00:38:03.780
to build cars much more quickly with a lot less
732
00:38:03.840 --> 00:38:06.860
people and a lot less CapEx. I think that's a
733
00:38:06.880 --> 00:38:07.659
game changer.
734
00:38:08.599 --> 00:38:10.159
You guys remember that startup?
735
00:38:10.570 --> 00:38:15.469
Arrival, who's also talking about smaller factories and regional. And
736
00:38:15.590 --> 00:38:17.889
so that kind of reminded me a little bit of that.
737
00:38:18.030 --> 00:38:22.409
Local Motors, too. They weren't doing the modular approach. They
738
00:38:22.429 --> 00:38:26.539
were going to 3D print everything. But yeah, I think
739
00:38:27.940 --> 00:38:31.300
Tesla's doing it. Ford's going to do it next year.
740
00:38:32.780 --> 00:38:35.920
Toyota had shown a bunch. Toyota had a project going
741
00:38:36.019 --> 00:38:38.199
called the Bev Factory.
742
00:38:38.989 --> 00:38:40.610
It sort of has been diluted.
743
00:38:40.670 --> 00:38:42.429
I think maybe it was too disruptive.
744
00:38:42.610 --> 00:38:44.659
Maybe because people aren't buying electric vehicles.
745
00:38:45.760 --> 00:38:48.480
Well, I don't think you need electric vehicles to use
746
00:38:48.519 --> 00:38:49.019
this process.
747
00:38:49.039 --> 00:38:52.800
But electric vehicles are much simpler to manufacture in terms
748
00:38:53.000 --> 00:38:56.760
of components than internal combustion engine vehicles are.
749
00:38:56.949 --> 00:38:59.789
So we've got to keep that in mind. I'm glad
750
00:38:59.809 --> 00:39:00.630
he's agreeing with me.
751
00:39:02.469 --> 00:39:05.250
Well, you know, except for.
752
00:39:06.239 --> 00:39:10.059
what the gas tank fuel lines exhaust uh.
753
00:39:10.000 --> 00:39:12.780
But but an entire power train if your battery pack
754
00:39:12.820 --> 00:39:15.300
becomes the structure of your vehicle and you have the
755
00:39:15.610 --> 00:39:19.030
the front giga casting in the rear gig casting voila
756
00:39:19.449 --> 00:39:21.969
okay you've got most of your vehicle right there and
757
00:39:22.010 --> 00:39:24.389
everything else is gravy.
758
00:39:24.050 --> 00:39:26.639
Right yeah yeah i mean not literally but yeah a
759
00:39:26.659 --> 00:39:28.599
lot of it just becomes the the things that make
760
00:39:28.659 --> 00:39:32.039
it uh you know fun uh drivable rather than just
761
00:39:32.199 --> 00:39:34.250
this but the yeah putting the structure together like that
762
00:39:34.289 --> 00:39:37.750
but you know there was the promise of additive manufacturing
763
00:39:37.769 --> 00:39:41.210
that hasn't really come together but how how long might
764
00:39:41.230 --> 00:39:43.880
it be before you could 3d print a car, as
765
00:39:43.929 --> 00:39:46.699
opposed to having a gig of casting are how long
766
00:39:46.780 --> 00:39:49.619
before you have something like that, where you are it.
767
00:39:49.719 --> 00:39:53.300
And it gives you completely different choices about the form
768
00:39:53.340 --> 00:39:56.619
and function and size and making changes rapidly. All of
769
00:39:56.659 --> 00:39:59.739
those things are that's, that's the kind of thing that
770
00:39:59.760 --> 00:40:01.599
I'm talking about. Like somebody else is going to figure
771
00:40:01.619 --> 00:40:03.780
out the next new thing. And then, you know, doing
772
00:40:03.820 --> 00:40:07.079
this modular assembly is can also going to seem old
773
00:40:07.119 --> 00:40:09.969
fashioned in some aspect. Maybe that's the right answer. Maybe,
774
00:40:10.119 --> 00:40:12.849
maybe it's some other thing that, comes along. But yeah,
775
00:40:13.369 --> 00:40:17.469
I absolutely think that not every company and not every
776
00:40:17.510 --> 00:40:19.530
vehicle can be done like that, which.
777
00:40:19.409 --> 00:40:20.010
Is why it's not.
778
00:40:20.429 --> 00:40:23.800
Yes, it's certainly going to benefit the companies that can
779
00:40:23.840 --> 00:40:26.960
take advantage. But the design choices you have to make
780
00:40:27.400 --> 00:40:29.059
now a couple years ahead of.
781
00:40:29.039 --> 00:40:31.780
Time, drive whether you can do those things. And if
782
00:40:31.800 --> 00:40:35.380
you're not already. Is it still a couple of years, though?
783
00:40:35.460 --> 00:40:39.050
Because, you know, Chinese can go from clean sheet to
784
00:40:39.250 --> 00:40:39.989
job one in 20 months.
785
00:40:41.139 --> 00:40:44.139
Yeah but i mean yeah a couple years i mean a.
786
00:40:44.159 --> 00:40:46.159
Year or a year and a half wow but there's
787
00:40:46.179 --> 00:40:48.739
a chinese company working on modular.
788
00:40:48.280 --> 00:40:50.599
Probably right yeah then nine months from now we're gonna
789
00:40:50.659 --> 00:40:53.659
they're gonna and you're probably right those companies that are
790
00:40:53.699 --> 00:40:56.380
just going oh well let's just start making let's do
791
00:40:56.440 --> 00:40:59.539
something different because they don't have a huge legacy cost
792
00:40:59.559 --> 00:41:02.639
they can pivot quickly but uh the the large western
793
00:41:02.679 --> 00:41:05.119
oems are just that's a ship that is too big
794
00:41:05.159 --> 00:41:06.960
to turn that fast yeah i mean you saw what
795
00:41:07.570 --> 00:41:09.489
What Ford had to do to do that, they had
796
00:41:09.530 --> 00:41:12.369
to create that skunkworks that Jim liked to talk about
797
00:41:13.710 --> 00:41:16.630
and kind of keep it far from the mothership, right?
798
00:41:16.690 --> 00:41:19.909
Very intentionally so that they could try and make those
799
00:41:21.710 --> 00:41:22.829
choices that.
800
00:41:24.150 --> 00:41:27.949
The typical OEM development system would not allow you to do.
801
00:41:28.030 --> 00:41:31.010
So it's cultural as much as it is anything else.
802
00:41:31.030 --> 00:41:32.969
It's cultural. It's process. It's absolutely right.
803
00:41:34.469 --> 00:41:37.980
So here's another big story that broke this week. John
804
00:41:38.019 --> 00:41:41.679
Duffy came out, he's the Secretary of Transportation in the U.S.,
805
00:41:42.239 --> 00:41:44.559
came out and really excoriated Ford.
806
00:41:44.800 --> 00:41:47.650
I got some beautiful quotes from Mr. Duffy about Ford.
807
00:41:48.329 --> 00:41:51.070
He's talked about, and this is broken in the Wall
808
00:41:51.090 --> 00:41:52.789
Street Journal, so we've got to give credit to Ryan
809
00:41:52.829 --> 00:41:55.630
Felden for doing this, but here are among the things
810
00:41:55.670 --> 00:41:56.050
that Mr.
811
00:41:56.090 --> 00:41:56.610
Duffy said.
812
00:41:57.550 --> 00:42:02.300
The company's, quote, reliance on technologies of foreign adversaries, close quote,
813
00:42:02.679 --> 00:42:07.260
isn't sustainable for America, quote, While the DOT recognizes the
814
00:42:07.300 --> 00:42:11.119
intense competitive pressures of the global market, the company's recent
815
00:42:11.139 --> 00:42:15.199
strategic decisions paint a troubling picture of a foundational American
816
00:42:15.260 --> 00:42:19.599
brand actively intertwining its future with Chinese state-backed enterprises.
817
00:42:20.119 --> 00:42:20.639
Close quote.
818
00:42:20.920 --> 00:42:22.380
We've talked on the show about how.
819
00:42:23.460 --> 00:42:26.639
Lincoln will be bringing back the Nautilus from manufacturer in
820
00:42:26.889 --> 00:42:27.429
China by 2030.
821
00:42:27.429 --> 00:42:27.570
Okay.
822
00:42:27.570 --> 00:42:27.909
2030. Okay.
823
00:42:27.929 --> 00:42:36.780
A multi-weir... a multi-year window of reliance on Chinese manufacturing
824
00:42:36.820 --> 00:42:41.550
while depriving skilled American workers of vital manufacturing jobs. We
825
00:42:41.590 --> 00:42:44.130
talked last week about the Geely partnership in Spain that
826
00:42:44.250 --> 00:42:49.730
Ford has established. He said that, quote, helps strategic adversaries
827
00:42:49.829 --> 00:42:51.989
secure a vital foothold.
828
00:42:51.610 --> 00:42:54.670
In Western markets. And I'll leave you with this one.
829
00:42:55.469 --> 00:42:59.289
When a company intentionally chooses to deepen operational dependencies on
830
00:42:59.329 --> 00:43:03.239
strategic competitors, it fails to act as the reliable partner
831
00:43:03.630 --> 00:43:07.889
the American public, and this DOT require. So this is
832
00:43:07.909 --> 00:43:11.010
the Department of Transportation talking about one of.
833
00:43:10.929 --> 00:43:12.869
The crown jewels of American manufacturing.
834
00:43:13.329 --> 00:43:16.510
The most American company according to rankings.
835
00:43:16.590 --> 00:43:21.000
And here's the craziest thing. Last week, the White House
836
00:43:21.059 --> 00:43:25.579
put out a press release with Donald J. Trump's name
837
00:43:25.679 --> 00:43:30.079
on it and Vance's name on it. praising the American
838
00:43:30.199 --> 00:43:34.300
auto industry for bringing all this work back and specifically
839
00:43:34.440 --> 00:43:41.179
cited Ford's manufacturing plant of batteries in Michigan and the 1,700
840
00:43:41.179 --> 00:43:42.070
jobs that it created.
841
00:43:42.219 --> 00:43:44.699
The $ 3 billion, 1,000 job.
842
00:43:44.739 --> 00:43:48.849
And that was launched hours after Duffy's.
843
00:43:49.429 --> 00:43:53.949
So within hours of each other. So what's going on, too? Well,
844
00:43:56.090 --> 00:43:58.050
I think I'm going to be a homer.
845
00:43:58.840 --> 00:44:01.559
It's a bit unfair for Ford to be called out
846
00:44:01.639 --> 00:44:04.780
because there are a lot of other companies. Stellantis owns
847
00:44:04.780 --> 00:44:06.360
19% of Leap Motor.
848
00:44:07.940 --> 00:44:11.090
They may not know that now. You blew it too.
849
00:44:11.550 --> 00:44:15.829
Well, Slate is using Goshen batteries from Indiana, LFP batteries.
850
00:44:16.030 --> 00:44:16.409
So I.
851
00:44:18.369 --> 00:44:20.750
Don't, you know, in talking to a few of the
852
00:44:21.530 --> 00:44:24.010
car guys that I talk to on a regular basis,
853
00:44:24.659 --> 00:44:27.860
it's this going back and forth, vacillating back and forth
854
00:44:27.900 --> 00:44:32.000
between what policy should be one person in the administration
855
00:44:32.059 --> 00:44:34.239
saying X, the other person saying Y.
856
00:44:34.679 --> 00:44:36.219
And I think it has to be.
857
00:44:36.510 --> 00:44:40.690
Infuriating or very frustrating for automotive executives, especially the ones
858
00:44:40.730 --> 00:44:45.869
that feel like they're doing their part to be very American,
859
00:44:45.929 --> 00:44:49.510
very Michigan. So those two things, I think, and then,
860
00:44:49.769 --> 00:44:51.289
you know, Truby's response.
861
00:44:50.869 --> 00:44:54.809
Was- Mark Truby being the head of communications at Ford.
862
00:44:54.909 --> 00:44:58.610
So here's the opening paragraph of his response. Secretary Duffy's
863
00:44:58.650 --> 00:45:01.570
letter is a wrongheaded attempt to capture headlines at the
864
00:45:01.639 --> 00:45:03.780
expense of a company that has done more for American
865
00:45:03.820 --> 00:45:07.719
manufacturing than virtually any other in the nation's history. You
866
00:45:07.760 --> 00:45:11.199
don't hear car companies saying stuff like that against the administration.
867
00:45:11.239 --> 00:45:12.460
I mean, it just doesn't happen.
868
00:45:13.500 --> 00:45:13.659
Yeah.
869
00:45:14.039 --> 00:45:16.480
Well, it's against Sean Duffy. I don't think it's against
870
00:45:16.500 --> 00:45:19.050
the administration per se. I mean, when you say this
871
00:45:19.090 --> 00:45:21.429
guy is just saying this to go out and grab headlines.
872
00:45:22.360 --> 00:45:25.380
And we should remember, what, six weeks ago, seven weeks ago,
873
00:45:25.420 --> 00:45:27.619
within two weeks of each other, Farley was on stage
874
00:45:27.679 --> 00:45:30.070
at a conference, said, we just need to build better
875
00:45:30.130 --> 00:45:32.489
cars that are competitive against the Chinese. And then a
876
00:45:32.510 --> 00:45:35.389
week or two later, Bill Ford was on stage, and
877
00:45:35.429 --> 00:45:38.210
he said virtually the same thing. We just need to
878
00:45:38.250 --> 00:45:42.190
just suck it up and design better cars that can
879
00:45:42.230 --> 00:45:42.869
be competitive.
880
00:45:43.309 --> 00:45:44.829
And I'm all on board for that.
881
00:45:45.030 --> 00:45:48.610
Yeah, my point earlier is that competition is good for
882
00:45:48.670 --> 00:45:50.389
the consumer side. It's not always good for the people
883
00:45:50.409 --> 00:45:52.389
that are currently in the game, but the end customer,
884
00:45:53.489 --> 00:45:56.530
the economy, the global kind of competition is all good
885
00:45:56.570 --> 00:45:56.849
for that.
886
00:45:58.130 --> 00:46:00.269
You know, what do we think? It's political theater.
887
00:46:00.289 --> 00:46:03.690
I mean, it seems clear that it's political theater and
888
00:46:04.050 --> 00:46:06.829
what headlines they're trying to grab. But yeah, I agree
889
00:46:06.849 --> 00:46:10.050
with you 100%. It's unfair to call out any one company.
890
00:46:10.409 --> 00:46:14.070
They're all doing it. And this industry has a long
891
00:46:14.139 --> 00:46:20.280
history of cooperation between competitors of all kinds, right? one
892
00:46:20.340 --> 00:46:22.559
type of company is the enemy is also a little weird.
893
00:46:22.800 --> 00:46:26.780
I mean, yes, there is, certainly there is some government
894
00:46:26.920 --> 00:46:32.719
support of Chinese manufacturers, but it's not ubiquitous. It's not always,
895
00:46:33.679 --> 00:46:36.599
you know, the Chinese stealing our secrets. They did a
896
00:46:36.800 --> 00:46:41.559
very effective job of getting Western automakers to have their JVs, right?
897
00:46:41.579 --> 00:46:43.840
They made that requirement. The Chinese have learned to be
898
00:46:43.940 --> 00:46:47.699
more than copycats, right? That is the reputation they had.
899
00:46:47.719 --> 00:46:52.690
They're no longer that. Turnabout's fair play. Why shouldn't Ford
900
00:46:53.190 --> 00:46:59.489
learn from what the Chinese are doing and bring that technology?
901
00:47:00.210 --> 00:47:01.690
You might be concerned. I mean, he might have a
902
00:47:01.909 --> 00:47:05.230
valid point if Ford was giving away its technology to
903
00:47:05.250 --> 00:47:07.489
the Chinese. That's not what we're talking about here. I mean,
904
00:47:07.690 --> 00:47:11.510
this is about Ford also getting improvements because the Chinese
905
00:47:11.550 --> 00:47:15.340
have surpassed other parts of the world in a lot
906
00:47:15.380 --> 00:47:16.000
of ways, right?
907
00:47:16.019 --> 00:47:18.489
Not in every way. They're not better. but they're doing
908
00:47:18.530 --> 00:47:21.030
things differently and there are things to learn there. Why
909
00:47:21.070 --> 00:47:24.639
wouldn't we want that to come back this way, right?
910
00:47:24.679 --> 00:47:26.260
We're not protecting anything.
911
00:47:26.519 --> 00:47:29.940
And the idea of having Chinese manufacturers build in the
912
00:47:30.079 --> 00:47:32.679
US seems like a good thing. What are we trying
913
00:47:32.699 --> 00:47:35.840
to protect with tariffs and having an industry is what
914
00:47:35.889 --> 00:47:36.690
if we go to war?
915
00:47:36.789 --> 00:47:39.010
We've got to have those factories. Well, if those factories
916
00:47:39.050 --> 00:47:42.570
are here, Then we have those batteries, right?
917
00:47:42.610 --> 00:47:43.300
Knock on the door.
918
00:47:43.889 --> 00:47:46.650
Yeah, no, that's 100% right.
919
00:47:46.769 --> 00:47:49.409
That's what you try to protect by having a robust
920
00:47:49.469 --> 00:47:54.750
industrial base, robust steel manufacturing, aluminum, all of these other things.
921
00:47:54.929 --> 00:47:58.329
That makes sense to me. I don't love the tariff situation.
922
00:47:58.349 --> 00:47:59.650
I think there are better ways to do it. But
923
00:48:00.190 --> 00:48:03.289
I can understand that. But to say, well, we can't
924
00:48:03.309 --> 00:48:07.090
have the Chinese manufacturer, that's political. That's not business. That's
925
00:48:07.130 --> 00:48:07.710
not economics.
926
00:48:08.070 --> 00:48:08.909
I would add that.
927
00:48:09.449 --> 00:48:12.630
We have one opportunity because they aren't here yet to
928
00:48:12.809 --> 00:48:16.989
create a framework as restrictive as we need it to be.
929
00:48:17.309 --> 00:48:19.610
Data needs to be here on US servers, not even
930
00:48:19.650 --> 00:48:22.789
North America, on US, whatever the case is. If we're
931
00:48:22.809 --> 00:48:28.570
concerned about connected vehicles, blah, blah, blah. And I have
932
00:48:28.710 --> 00:48:31.769
every confidence that most of the Chinese automakers would still
933
00:48:31.789 --> 00:48:34.449
sign up for it. You need to source from local
934
00:48:34.849 --> 00:48:37.849
tier ones or tier twos. I think they'd be okay
935
00:48:37.869 --> 00:48:40.340
with it. Now, they would have heartburn because they probably
936
00:48:40.360 --> 00:48:43.000
need to redesign some aspects of their vehicles for the
937
00:48:43.059 --> 00:48:45.420
local markets. Because, you know, in China, you might be
938
00:48:45.480 --> 00:48:48.000
using Ali cloud and you might need to use Amazon cloud.
939
00:48:48.179 --> 00:48:50.750
So user experience can be different, things like that. But,
940
00:48:51.510 --> 00:48:54.349
you know, they're already using NVIDIA Silicon for most of
941
00:48:54.369 --> 00:48:58.289
their vehicles, Qualcomm, Snapdragon for the front. And so this
942
00:48:58.349 --> 00:49:00.909
is not unusual for them. They're the most global automotive
943
00:49:00.929 --> 00:49:03.719
market in the China market. And there's tons of suppliers there. So,
944
00:49:04.989 --> 00:49:08.039
They know how to do this. They're not going to
945
00:49:08.059 --> 00:49:11.960
give away the farm at the very initial negotiation, but
946
00:49:12.340 --> 00:49:18.030
we can create the right framework and have the OEMs
947
00:49:18.090 --> 00:49:23.599
here influence that policy. Because you had mentioned earlier, everybody's reacting,
948
00:49:23.659 --> 00:49:26.360
everybody's kind of like, the.
949
00:49:26.300 --> 00:49:29.010
OEMs used to be able to influence policy. And I
950
00:49:29.050 --> 00:49:29.909
think if we can.
951
00:49:29.849 --> 00:49:34.530
Get back to that and know that The consumer is
952
00:49:34.610 --> 00:49:35.690
the beneficiary.
953
00:49:35.750 --> 00:49:38.050
It's got to be bigger than the OEM. I think
954
00:49:38.090 --> 00:49:40.550
the industry's got to talk with one voice. So it's
955
00:49:40.610 --> 00:49:44.039
the suppliers. It's the dealers. I would even argue labor's
956
00:49:44.079 --> 00:49:47.000
got to be part of that. And they disagree with
957
00:49:47.360 --> 00:49:49.900
a whole bunch of things, but there's certain core things
958
00:49:49.980 --> 00:49:53.480
of supporting a U.S. auto industry that they can agree on.
959
00:49:55.039 --> 00:49:57.710
Volkswagen Group was able to get their supervisory board, which
960
00:49:57.769 --> 00:49:58.670
is filled with labor.
961
00:49:58.710 --> 00:50:04.869
How did they pull that off? I guess my question in.
962
00:50:13.130 --> 00:50:15.590
The, the productions that they've announced that they want to
963
00:50:15.630 --> 00:50:17.860
make over the next several years, is that still enough?
964
00:50:17.889 --> 00:50:20.699
The 9 million, as you had mentioned, is that, is
965
00:50:20.739 --> 00:50:21.579
that deep enough?
966
00:50:21.980 --> 00:50:26.059
You know, it's a, it's probably necessary, but not sufficient. Um, there,
967
00:50:26.159 --> 00:50:27.920
there are other things that I have to do now
968
00:50:27.960 --> 00:50:29.519
in terms of job cuts. Is that enough?
969
00:50:30.219 --> 00:50:32.869
Maybe that that's a hard question to answer without, uh,
970
00:50:33.469 --> 00:50:36.550
really studying it, but they're also going to have to
971
00:50:36.570 --> 00:50:39.309
do other, they've been shedding brands. That's certainly one. They're
972
00:50:39.329 --> 00:50:42.030
going to have to get a lot more competitive in
973
00:50:42.050 --> 00:50:47.570
their own right. You'll probably see some more tie-ups and partnerships,
974
00:50:47.639 --> 00:50:51.199
different aspects of this. And we'll, we talk about Ford
975
00:50:51.219 --> 00:50:55.739
partnering with the Chinese company. When is VW or will
976
00:50:55.760 --> 00:50:59.019
VW do something like that? All of these are potentially
977
00:50:59.059 --> 00:51:02.800
on the table, but to just recognize that the markets
978
00:51:02.840 --> 00:51:05.019
you play in are not as big as they used
979
00:51:05.039 --> 00:51:06.639
to be and don't require.
980
00:51:06.260 --> 00:51:09.469
As many people. Yeah. That's a very tough thing to
981
00:51:09.510 --> 00:51:11.050
get done in Europe, as you all know.
982
00:51:11.190 --> 00:51:12.630
So one of the things I wonder about is, so,
983
00:51:12.769 --> 00:51:16.949
so Volkswagen announced today that it's going to cost them $ 18.
984
00:51:15.630 --> 00:51:18.190
6 billion for restructuring.
985
00:51:18.429 --> 00:51:18.650
Okay.
986
00:51:18.710 --> 00:51:20.449
So it was money out the window, right?
987
00:51:21.289 --> 00:51:24.190
And, you know, we look in this country, the amount
988
00:51:24.210 --> 00:51:28.829
of money that was charged against the EV thing that
989
00:51:28.849 --> 00:51:29.590
didn't work out.
990
00:51:29.630 --> 00:51:29.809
Right.
991
00:51:30.050 --> 00:51:34.400
I mean, How do these companies deal with these billions
992
00:51:34.440 --> 00:51:36.590
and billions of dollars that go out the window and
993
00:51:36.630 --> 00:51:39.030
yet the margins on the things that they make are
994
00:51:39.050 --> 00:51:39.789
so very small?
995
00:51:41.329 --> 00:51:46.389
So the write-offs are often accounting, right? And they happen
996
00:51:46.429 --> 00:51:48.789
over multiple years. They don't all hit at one time
997
00:51:48.809 --> 00:51:53.179
or they certainly don't hit cash all at one time.
998
00:51:53.219 --> 00:51:57.780
Many of these things are just write-offs of accrued losses, right?
999
00:51:57.820 --> 00:52:01.619
Things that they've just been kind of carrying. Um, so
1000
00:52:01.639 --> 00:52:04.480
writing off it, whether it's 20 billion for one company,
1001
00:52:04.480 --> 00:52:06.960
18 billion for another, this is, this is not like
1002
00:52:07.590 --> 00:52:09.690
all of a sudden they have to shell out cash, right?
1003
00:52:09.710 --> 00:52:12.269
But it was still money that was spent.
1004
00:52:12.369 --> 00:52:14.449
It was just went up in smoke. Yeah.
1005
00:52:14.590 --> 00:52:17.170
Well, yeah, they, they recognize that it's money that they're
1006
00:52:17.210 --> 00:52:19.409
not going to get a value from in the future.
1007
00:52:19.469 --> 00:52:22.090
So they have to say, this is cost of goods
1008
00:52:22.199 --> 00:52:25.340
that we were holding is whether they capitalized or whatever.
1009
00:52:26.130 --> 00:52:29.989
But, yeah, it is a way to clean up the books.
1010
00:52:30.010 --> 00:52:35.190
You know, you often see this happen in in-court restructurings.
1011
00:52:35.210 --> 00:52:39.699
You can also do it simply as a one-time restructuring cost.
1012
00:52:39.719 --> 00:52:42.440
That's not uncommon. Some companies do that like every year,
1013
00:52:42.780 --> 00:52:45.760
not to the tune of $ 18 million, but a billion
1014
00:52:45.800 --> 00:52:49.699
or two almost every year if you're large enough.
1015
00:52:49.860 --> 00:52:53.090
And, you know, the margins already increase.
1016
00:52:53.429 --> 00:52:55.610
And I could consider that, right? And, you know, there
1017
00:52:55.630 --> 00:52:59.800
are some companies that will go multiple years in negative profitability,
1018
00:52:59.840 --> 00:53:01.099
certainly negative net earnings.
1019
00:53:01.639 --> 00:53:03.900
But, you know, that's why they have EBITDA.
1020
00:53:03.920 --> 00:53:06.559
We all know what Charlie Munger used to refer to
1021
00:53:06.739 --> 00:53:08.679
as EBITDA as a certain kind of earnings.
1022
00:53:08.960 --> 00:53:11.840
Let me ask you, how does that different from an
1023
00:53:11.900 --> 00:53:15.639
American car company that spent 5.6 billion, I think? I
1024
00:53:15.679 --> 00:53:18.820
think Autoline had talked about 5.6 billion in warranty costs
1025
00:53:18.860 --> 00:53:22.190
last year. Like how, from an accounting standpoint, How is
1026
00:53:22.230 --> 00:53:24.829
that different than this 18.7?
1027
00:53:24.829 --> 00:53:31.570
Yeah, warranty accounting is differential calculus. It's very, very complex
1028
00:53:31.750 --> 00:53:40.139
because you're kind of projecting both future unknowns and current
1029
00:53:40.380 --> 00:53:46.639
unknowns on sometimes imperfect data, right? And so these billions
1030
00:53:46.679 --> 00:53:52.389
of dollars that companies recognize are often projections that go
1031
00:53:52.510 --> 00:53:53.809
out five and.
1032
00:53:53.510 --> 00:53:54.750
10 years on the balance sheet.
1033
00:53:55.090 --> 00:53:55.269
Yeah.
1034
00:53:55.469 --> 00:53:57.289
I mean, they, they, it's a root from a gap
1035
00:53:57.329 --> 00:54:00.590
accounting standpoint, they reasonably have to recognize that, Oh, we,
1036
00:54:00.730 --> 00:54:02.289
we had a problem on the set of cars that
1037
00:54:02.309 --> 00:54:04.429
we don't know exactly what the boundary is.
1038
00:54:04.449 --> 00:54:05.610
So we have to make it this big.
1039
00:54:05.650 --> 00:54:07.909
And now, you know, you don't know how many people
1040
00:54:07.969 --> 00:54:09.429
are actually going to bring that car in for that,
1041
00:54:09.610 --> 00:54:12.150
that repair or recall or whatever it is. You don't
1042
00:54:12.170 --> 00:54:14.570
know how many cars actually still exist because, you know,
1043
00:54:14.610 --> 00:54:16.710
cars go out of the market or they crash, whatever.
1044
00:54:17.230 --> 00:54:22.809
And so it's, They make reasonable estimations. And then over time,
1045
00:54:23.309 --> 00:54:25.070
one of the things that we've helped a couple of
1046
00:54:25.110 --> 00:54:28.809
companies with is how do you minimize the actual cost?
1047
00:54:28.869 --> 00:54:31.889
How do you make it less expensive to fix both
1048
00:54:31.909 --> 00:54:34.929
by lowering the cost of the parts that you're using,
1049
00:54:35.340 --> 00:54:40.980
giving the dealers better instructions, holding dealers accountable to doing
1050
00:54:41.000 --> 00:54:46.460
the repairs properly the first time. oftentimes what we find
1051
00:54:46.619 --> 00:54:49.139
is when we talked, we talked earlier about software and hardware,
1052
00:54:49.219 --> 00:54:49.880
which one is it?
1053
00:54:50.679 --> 00:54:52.650
You'll get repairs that come.
1054
00:54:52.489 --> 00:54:56.030
Through where it's hard to know whether it was, do
1055
00:54:56.050 --> 00:54:57.869
I just need to reflash this thing or do I
1056
00:54:57.909 --> 00:55:00.070
have to replace this module? And you have lots of
1057
00:55:00.210 --> 00:55:04.239
cases where modules get replaced in the tune of multiple
1058
00:55:04.280 --> 00:55:07.840
thousands of dollars versus what should have been a 20
1059
00:55:07.840 --> 00:55:11.699
minute job of just reflashing a thing. making sure that
1060
00:55:11.739 --> 00:55:14.300
you have the right rules, the right support, all those things.
1061
00:55:14.539 --> 00:55:16.679
Those are the ways that you can reduce them. And then,
1062
00:55:16.699 --> 00:55:17.340
of course, the other one.
1063
00:55:17.320 --> 00:55:22.650
Is recognizing and dealing with the problem quickly. You can
1064
00:55:22.670 --> 00:55:23.230
minimize all that.
1065
00:55:23.269 --> 00:55:26.289
But by doing all those things, it's just minimizing your
1066
00:55:26.389 --> 00:55:30.750
future expected outlay of cost.
1067
00:55:30.789 --> 00:55:33.989
And so it's almost the adverse of that, right?
1068
00:55:34.139 --> 00:55:36.159
This is the case where they've spent all this money
1069
00:55:36.199 --> 00:55:39.320
with the expectation that they're going to get a return
1070
00:55:39.460 --> 00:55:41.480
on it. and they realize, nope, we're not gonna get
1071
00:55:41.500 --> 00:55:43.360
a return on that, we just have to write it,
1072
00:55:43.760 --> 00:55:45.360
treat it like an asset, we have to write that off.
1073
00:55:45.760 --> 00:55:50.130
This is lowering the projected cost, either by reducing the
1074
00:55:50.230 --> 00:55:52.289
number of times you're gonna have to repair it, or
1075
00:55:52.309 --> 00:55:55.610
the cost of repairing it, and then being able to
1076
00:55:55.630 --> 00:55:56.610
carry that forward.
1077
00:55:56.650 --> 00:55:59.070
So do either of these situations have an effect on
1078
00:55:59.130 --> 00:56:01.570
what they spend on other things, like in terms of
1079
00:56:01.809 --> 00:56:02.570
product development?
1080
00:56:03.349 --> 00:56:05.449
Yeah, I mean, you know, if you had infinite money
1081
00:56:05.510 --> 00:56:07.329
to do everything, you don't need strategy anymore.
1082
00:56:07.409 --> 00:56:08.269
So yeah, I mean, you.
1083
00:56:09.550 --> 00:56:14.190
Only and, you know, the you can have a fortress
1084
00:56:14.230 --> 00:56:17.429
balance sheet and for the just in case.
1085
00:56:17.710 --> 00:56:17.849
Right.
1086
00:56:17.889 --> 00:56:22.090
If you have another financial crisis like we had, what, 2008,
1087
00:56:22.090 --> 00:56:24.630
nine into 11, all of that type of thing, you
1088
00:56:24.650 --> 00:56:26.570
can have something. That's what a lot of OEMs kind
1089
00:56:26.590 --> 00:56:31.139
of have right now and suppliers don't. You we we
1090
00:56:31.179 --> 00:56:33.900
keep saying that we keep expecting and I think the
1091
00:56:33.920 --> 00:56:36.559
shoe will start dropping pretty quickly as interest rates are
1092
00:56:36.579 --> 00:56:38.179
staying high longer.
1093
00:56:38.880 --> 00:56:43.050
Suppliers are really stretched. They do not have a lot
1094
00:56:43.070 --> 00:56:47.210
of capital. They do not have reserves. The OEMs are
1095
00:56:48.130 --> 00:56:52.389
funding more than they used to, the suppliers, to provide
1096
00:56:52.630 --> 00:56:54.250
assistance to keep them out of bankruptcy.
1097
00:56:54.590 --> 00:56:57.219
At least the OEMs have learned it's more expensive for
1098
00:56:57.260 --> 00:56:59.800
a supplier to fail than to kind of make it
1099
00:56:59.840 --> 00:57:02.239
their problem. But at the same time, they also can't
1100
00:57:02.280 --> 00:57:07.460
afford to just have suppliers be drunken disorderly with no repercussions, right?
1101
00:57:07.500 --> 00:57:12.110
And so there's a balance there. But yeah, right now,
1102
00:57:12.150 --> 00:57:16.130
it's really complex, really tight for the suppliers in particular.
1103
00:57:16.809 --> 00:57:19.340
But the OEMs, everybody has to make choices about what
1104
00:57:19.360 --> 00:57:22.880
you can do. And with the OEMs, oftentimes, it's what
1105
00:57:22.980 --> 00:57:27.889
can my supply base afford to invest in and hold
1106
00:57:28.150 --> 00:57:31.010
until I'm paying them for two. I mean, billions of
1107
00:57:31.050 --> 00:57:34.369
dollars can a company genuinely sit and wait until PPAP
1108
00:57:35.110 --> 00:57:37.530
if it's two years down the road, or if I'm
1109
00:57:37.570 --> 00:57:42.179
helping develop a new electrical architecture that I then cancel.
1110
00:57:43.099 --> 00:57:46.980
That's billions of dollars that some suppliers spend that then, okay, well,
1111
00:57:47.280 --> 00:57:50.400
the supplier didn't go and say, I'm going to invest
1112
00:57:50.440 --> 00:57:53.119
my money at risk. They said, I would help you
1113
00:57:53.219 --> 00:57:55.380
develop this thing that you're going to sell in your cars.
1114
00:57:55.420 --> 00:57:57.590
Now you're still not going to Sell those cars.
1115
00:57:58.550 --> 00:57:59.389
I need that money back.
1116
00:57:59.469 --> 00:58:03.090
That's how those things go is everybody thinks they're investing
1117
00:58:03.130 --> 00:58:06.269
in something that's going to sell. And then if the
1118
00:58:06.389 --> 00:58:10.510
plan changes while you've all that money, that's how that happens.
1119
00:58:10.820 --> 00:58:13.320
I think there's a couple of Asian battery companies that
1120
00:58:14.400 --> 00:58:16.639
could relate to that over the last few years.
1121
00:58:16.659 --> 00:58:19.000
That's interesting what you're saying about suppliers. Was it all
1122
00:58:19.019 --> 00:58:22.360
these EV programs that got canceled? Why are they in
1123
00:58:22.400 --> 00:58:24.260
CapEx straits right now?
1124
00:58:25.090 --> 00:58:28.409
Well, so it's a lot of things. I mean, it's
1125
00:58:28.429 --> 00:58:30.789
all over the industry, right? Because one of them is
1126
00:58:31.510 --> 00:58:34.550
the cost of material has just gone up so much, right?
1127
00:58:34.909 --> 00:58:38.969
And so if you think of it, if you're making this, right?
1128
00:58:39.010 --> 00:58:41.550
And okay, if I'm going to sell this to an automaker,
1129
00:58:41.630 --> 00:58:44.789
I will generally have said, okay, it cost me this
1130
00:58:44.829 --> 00:58:46.530
much to make this piece. And then this much to
1131
00:58:46.570 --> 00:58:48.179
make this part, this much to put the label on,
1132
00:58:48.199 --> 00:58:49.380
this much to put the water in.
1133
00:58:49.389 --> 00:58:52.000
And then I need to make money. So I have
1134
00:58:52.059 --> 00:58:53.079
a margin that I make.
1135
00:58:53.380 --> 00:58:53.579
Right.
1136
00:58:53.760 --> 00:58:55.659
And we sign a contract. OK, I'm going to start
1137
00:58:55.860 --> 00:58:58.789
delivering this. And tomorrow I double the cost of all
1138
00:58:58.809 --> 00:59:04.409
the raw material. Automakers are not giving me higher profit.
1139
00:59:05.469 --> 00:59:10.070
They might agree to increase the price of just reflecting
1140
00:59:10.090 --> 00:59:13.610
the raw material. Now my margin as a percentage has
1141
00:59:13.650 --> 00:59:18.840
been cut significantly, right? If labor, transportation, raw material, if
1142
00:59:19.139 --> 00:59:22.000
every aspect of my business gets more expensive, which it
1143
00:59:22.059 --> 00:59:25.619
has over the past two years for most companies, my
1144
00:59:26.159 --> 00:59:29.539
relative margin, my gross margin and net margin as a
1145
00:59:29.599 --> 00:59:30.860
percentage plummet.
1146
00:59:31.619 --> 00:59:32.320
And that's where you get.
1147
00:59:32.260 --> 00:59:36.280
Into your ability to borrow, your ability to use cash,
1148
00:59:36.320 --> 00:59:39.940
and how much gets taken up in working capital that
1149
00:59:40.000 --> 00:59:43.840
I can run out of. And that's where bankruptcy happens
1150
00:59:43.960 --> 00:59:46.219
is I run out of the ability to buy the
1151
00:59:46.300 --> 00:59:50.429
next lot because I have payment terms and I have da-da, right?
1152
00:59:50.630 --> 00:59:54.170
That's the thing that we're expecting is you have both
1153
00:59:54.210 --> 00:59:57.090
that impact, you have volumes not hitting, right? So I
1154
00:59:57.130 --> 01:00:02.269
have also bought equipment, tooling, and facilities with the expectation
1155
01:00:02.289 --> 01:00:04.949
I'm gonna sell you 2 million of those a year
1156
01:00:05.570 --> 01:00:06.590
and you only buy 1 million.
1157
01:00:07.530 --> 01:00:10.739
But my assumption is- I still gotta pay for two shifts.
1158
01:00:10.780 --> 01:00:13.260
I've gotta pay for all the things, all the investment
1159
01:00:13.320 --> 01:00:15.920
I made and all of the fixed costs, right?
1160
01:00:15.940 --> 01:00:18.719
So you have a variable cost problem and you have
1161
01:00:18.760 --> 01:00:21.440
a fixed cost problem that's hitting this industry all at
1162
01:00:21.460 --> 01:00:25.739
the same time and interest rates are high. And so
1163
01:00:25.780 --> 01:00:28.159
if I'm gonna service my debt on top of all
1164
01:00:28.179 --> 01:00:31.300
of these things, There are a lot of companies that
1165
01:00:31.340 --> 01:00:33.679
are just, they get to, there's an edge that you
1166
01:00:33.699 --> 01:00:36.360
get to where, you know, nobody's going to lend to
1167
01:00:36.380 --> 01:00:41.360
you anymore. And that's where somebody has to either declare
1168
01:00:41.409 --> 01:00:45.829
bankruptcy or sell off, you know, hack off limbs and
1169
01:00:45.889 --> 01:00:48.730
sell your kidneys. And, you know, that's what we're starting
1170
01:00:48.750 --> 01:00:49.949
to see some of the German companies have.
1171
01:00:50.090 --> 01:00:50.710
Yeah.
1172
01:00:50.769 --> 01:00:54.050
As a former sourcing guy, normally the purchase orders say
1173
01:00:54.989 --> 01:00:59.519
the supplier, if material costs shift plus or minus, 10
1174
01:00:59.519 --> 01:01:00.980
or 15%, you got to eat it.
1175
01:01:01.920 --> 01:01:02.179
Right.
1176
01:01:02.900 --> 01:01:06.719
So, so there is a, there's a ceiling on, on
1177
01:01:06.800 --> 01:01:10.719
inflation and changes in material costs, but normally the supplier
1178
01:01:10.739 --> 01:01:12.719
will eat up to 10, 15% of that.
1179
01:01:13.119 --> 01:01:16.719
How imminent is this problem with suppliers?
1180
01:01:21.000 --> 01:01:23.719
It's ongoing, right? I mean, it's the, some of it
1181
01:01:23.760 --> 01:01:24.949
has started.
1182
01:01:24.510 --> 01:01:32.769
Another year of, declining volumes, like if China's down 20%
1183
01:01:32.769 --> 01:01:37.730
and Chinese cars start going someplace else or they're still producing,
1184
01:01:37.769 --> 01:01:41.469
but these are suppliers that don't sell to the Chinese
1185
01:01:42.070 --> 01:01:44.900
and the erosion of volume is for the Western automakers,
1186
01:01:45.840 --> 01:01:46.420
another year of.
1187
01:01:46.440 --> 01:01:48.679
That, you'll have a lot more.
1188
01:01:49.139 --> 01:01:52.380
It'll be a significant increase going into probably Q1, Q2
1189
01:01:54.039 --> 01:01:58.309
as if interest rates remain high, which No indication they're
1190
01:01:58.329 --> 01:02:01.989
not going to remain high. If volumes don't come back,
1191
01:02:02.030 --> 01:02:04.190
which there's no real indication that we're going to suddenly
1192
01:02:04.230 --> 01:02:07.449
see a 10% increase in volumes in either Europe or
1193
01:02:07.469 --> 01:02:11.389
the U.S. That's what we're looking at.
1194
01:02:11.789 --> 01:02:15.349
There's a certain irony to this as well because the
1195
01:02:15.389 --> 01:02:18.750
Chinese are kicking tires on brownfields in Europe because a
1196
01:02:19.389 --> 01:02:23.480
lot of factories in Europe are underutilized. The Ford is
1197
01:02:23.679 --> 01:02:26.829
a prime example. I think Valencia was running at like 35%.
1198
01:02:26.829 --> 01:02:27.449
Yeah.
1199
01:02:28.360 --> 01:02:32.960
Okay, so Ford could not do that in perpetuity. So
1200
01:02:33.039 --> 01:02:36.059
this made a ton of sense. Spain is now like
1201
01:02:36.119 --> 01:02:39.039
the new Detroit of Europe because there is so much
1202
01:02:39.079 --> 01:02:40.460
foreign direct investment.
1203
01:02:40.059 --> 01:02:40.800
Going into that.
1204
01:02:41.489 --> 01:02:45.730
And if we allow the Chinese to enter, they might
1205
01:02:45.789 --> 01:02:47.489
be the only ones that can bail out the tier
1206
01:02:47.630 --> 01:02:52.289
ones if the legacies continue to shrink, right? And so
1207
01:02:53.110 --> 01:02:56.829
there's a certain– Because the Chinese are the ones growing
1208
01:02:56.869 --> 01:03:01.250
and building factories overseas, not the legacy automakers. I mean,
1209
01:03:01.269 --> 01:03:04.389
they're shifting chairs when they're hiring people because they're letting
1210
01:03:04.429 --> 01:03:08.530
go X thousand and hiring people with the right skill set.
1211
01:03:08.610 --> 01:03:12.670
And so this is where I'm torn, right? Because as
1212
01:03:12.849 --> 01:03:18.070
a capitalist, let's build affordable things that people want so
1213
01:03:18.590 --> 01:03:22.860
companies can be profitable. But yeah, I'm fearful of the
1214
01:03:22.940 --> 01:03:27.050
companies in Michigan because... We all know that the products
1215
01:03:27.070 --> 01:03:28.269
are pretty good, right?
1216
01:03:28.289 --> 01:03:30.440
They're competitive. Yeah, for sure.
1217
01:03:30.739 --> 01:03:32.920
The reason you see it go to Europe first, partly
1218
01:03:32.960 --> 01:03:35.679
because they haven't had as much of a blocking mentality
1219
01:03:35.699 --> 01:03:40.380
about it, but that region has long had much lower
1220
01:03:40.460 --> 01:03:42.590
utilization of their plants because you can't close a plant.
1221
01:03:43.110 --> 01:03:46.079
So they just figure out how to deal with it.
1222
01:03:46.769 --> 01:03:48.489
And now they're getting to that point where if you're
1223
01:03:48.510 --> 01:03:52.219
sitting at 35% long enough, you just have to close it.
1224
01:03:52.349 --> 01:03:54.360
Oh, here comes a company that wants to build here.
1225
01:03:55.389 --> 01:03:57.519
That starts to sound pretty good, right?
1226
01:03:57.639 --> 01:04:00.340
That problem is not nearly as big in the U.S.
1227
01:04:00.380 --> 01:04:03.440
because it's just far easier for us to close down
1228
01:04:03.480 --> 01:04:06.860
manufacturing and then whether it's move jobs or not have
1229
01:04:06.880 --> 01:04:07.300
the jobs.
1230
01:04:08.119 --> 01:04:11.409
It's just an easier legal environment to do that.
1231
01:04:12.630 --> 01:04:14.630
Look, I hate to cut off the conversation. This is
1232
01:04:14.670 --> 01:04:17.309
going really well, but we have come to the end
1233
01:04:17.329 --> 01:04:19.889
of the show. Dan Hirsch, thanks so much for coming on.
1234
01:04:19.929 --> 01:04:21.550
This has been fascinating. We're going to have to have
1235
01:04:21.590 --> 01:04:22.130
you back.
1236
01:04:21.989 --> 01:04:23.940
In Continue this discussion.
1237
01:04:24.260 --> 01:04:25.780
Two, we'll have you back as well.
1238
01:04:25.920 --> 01:04:26.440
Awesome.
1239
01:04:26.519 --> 01:04:28.719
And Gary, you and I will continue to do this.
1240
01:04:29.420 --> 01:04:29.860
We're good.
1241
01:04:29.880 --> 01:04:31.699
I want to thank all of you for having tuned in.
1242
01:04:32.989 --> 01:04:37.130
Auto Line After Hours is brought to you by Bridgestone Tires,
1243
01:04:37.590 --> 01:04:42.389
solutions for your journey. And by BorgWarner, the automotive industry
1244
01:04:42.449 --> 01:04:46.869
continues to evolve and so do the opportunities to define it. BorgWarner,
1245
01:04:47.050 --> 01:04:49.980
one of the world's most admired companies, gets partners where
1246
01:04:50.000 --> 01:04:53.170
they need to go. Let's do something big together.