AAH #807 - Unboxed Assembly Will Revolutionize The Industry....Or Maybe Not の全文書き起こし

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.