AAH #737 - DEFCON 1 on Trump's Tariffs; Preparing for the Nuclear Fallout

Speaker 1: Hi everybody, thanks for joining us on out of line after hours. Guess what we're gonna be talking about today. Tariffs,

But we're gonna get into the news of the week as well in the second half of the show. Well,

we've got Edgar Fowler, economist with the Center for Automotive Research in Ann Arbor, joining us. Paul Eisenstein from Headlight

Dot News.

Speaker 2: And of course Paul needs no introductions, come on, and.

Speaker 1: Garry, of course, So let's kick it off this way.

Speaker 3: Edgar.

Speaker 1: We can talk all day about the tariffs. We can

debate whether they're good or not. We can debate how

much damage or not they're going to cause, and if they're going to bring back more manufacturing. But they're a

reality now. So let me make you the CEO of

a car company or of a supplier, automotive supplier.

Speaker 4: What do you do?

Speaker 3: Well, there's what can I do in the reality of the current situation and some of that. So we looked

at at car and for me, I should say these are my own views and not that of Center for Automotive Research Center for Motive Research for your listening audience, nonprofit independent think tank. I don't get around for decades

around for decades, but not everybody knows the name. But

so you know, we've done some analysis around how many plants are here in the United States North America. So

if you think about what can I do as a CEO, there are about one hundred vehicle assembly plants in North America currently, about a third of them can supply or are supplying into the US currently. So you have to

then look at just because of your supplying into the US doesn't mean I can build it here. It doesn't matter,

doesn't mean that I necessarily have the platform or the because it's got to go. It gets very granular very quickly.

Can I run the platform down my assembly line? You

get down to where there's something you could do today.

Maybe only a handful of plants can actually produce some of the vehicles that are being exported into the US and produce them here. And I say today, when you've

had guests on your show that will tell you some of the very best that have a flexible manufacturing facility, it can take nine months to make that that change.

So there's what can I do today. There's some limitations,

very clearly limitations around this, and then there are decisions about what can I do tomorrow and out into the future.

And as you all know, and I'm sure your audience understands that all these decisions from a product, from a manufacturing plant, these take a very very long time. So

uh and on many of these decisions that I would if I were to make them today, would I wouldn't even necessarily see the light of day until after this current term for the president. So the first thing I

think the industry will do will pause a bit and try to digest what is happening. What is it costing? Ay?

Can I get the parts? Can I make an adjustment

today to my Can I pivot? How much can I pivot?

And as I just said, there's not a lot that one can do immediately to pivot. And there is no

such thing as a purely domestic vehicle. There's no such

thing as a and I would venture you're really hard pressed to find any vehicle even around the world that is one hundred percent domestically produced, and you know of one hundred percent domestic parts. And I would argue some

might say, well, the Chinese vehicle. But if as they

have aspirations to grow beyond the Chinese market, kid, I would I think it'll be very hard pressed to build vehicles elsewhere in Mexico and elsewhere and still have one hundred percent produced domestic. So yeah, there's a lot. Ye,

it's going to take a lot of thinking and a lot of a lot of work and a lot of panic, you know, sort of room decisions. Can I get the parts?

I mean, I think right now folks are like, what about a part shortage? What about uh uh am I

importer of record? Am I Can I get those parts?

So I think it's a very difficult question.

Speaker 5: All right, All right, Edgard, let me ask you. Okay,

you said there's all these plants in that's serving this country.

So okay, so I'm looking at a list of Ford.

Speaker 2: Plants in the United States.

Speaker 5: Okay, so you've got Flat Rock, Chicago, Dearborn Truck, Kansas City, Kentucky Truck, Louville.

Speaker 2: Michigan, Assembly in Ohio Assembly.

Speaker 5: Okay, all of these facilities are making stuff right, right, they're making So so where does Ford look at those plants and say, hey, you know, we're building the Mustang mach e in Mexico, We're building the Broncos Sport in Mexico.

But these other plants, they're all.

Speaker 2: In the Mavericks. Yeah, that's right, Paul.

Speaker 5: So so they're making all this so it's it's not like there are all these plants with open capacity, that's right.

So you know, and I'm sure that if we had the list of General Motors and Stilantis, I mean it would it would be similar.

Speaker 3: Right, It's a very very small list. What I forgot

to mention this is a great, great point. Even beyond

does that plant have idle capacity, they could accept and produce flex and build more vehicles. You get it. You

get to a very small number. Sure there are shared

platforms and some of those in those plants, and with the right investment, with the right timeline and the right uh uh, but those that decision as takes a long time.

And the other thing I would sort of superimpose onto all of this is that I feel like, in my own view, the clock speed by which this industry is operating is accelerating. It's driven by a lot of the

activity we see in China and about They could throw a lot of engineers at more in some cases than some of the domestic counterparts here in the US, and do and design faster. So if you pause, you know,

it's valuable time because it takes it could take a long time to your question Gary about you know, flat rock building the machee is a decision that could vet to run its full course, could take two I could take four years or whatever. The automators will give you

a much better answer to that than I can. But

it's a very long time, and it's not something that in the approval process and all those things you go through and do that won't happen anytime.

Speaker 4: There's an old phrase, no man as an island, and you could say the same thing about no car company is an island. We have seen in the forty odd

years that I've been covering, and we're all roughly in the same frame of historical reference, we've seen an explosion not just the brands and competition, but of products for individual brands. I mean, you go back to the fifties,

how few vehicles did a giant like Chevy offer. Now

the list is like that. And one of the reasons,

and I'd like to get your perspective on this, but one of the reasons I see is because we do have globalization. There was a time when you had to

build a million cars, you had to build a million copies of a car to justify it. Economically. Mary an Keller,

who you've often referenced, used to talk about you can't make anything under one hundred thousand, and now how many how few vehicles are in that category. You still have

to make one hundred thousand, but you have to find a dozen major markets to accept all of those. And

if you are really looking to build just in the United States, you're going to see a lot fewer products because you can't justify vehicles if you can export them.

And significantly, and I want to get into this point, you can't afford most of the affordable products that are in this market.

Speaker 3: That's right. We have an affordability issue now before we

go down and put tariffs things where a large swath of America. Some of my colleagues at CAR have done

a more detailed analysis around affordability that that's an issue now.

And this certainly doesn't solve that part of it. And

I think part of you raise an issue that you may not have realized or intended to necessarily, is that if to try to implement tariffs on a number of these vehicles where you have fifty different configurations of the same vehicle, And how do you put a tariff code a tariff you know, when the content, you know, I'm not exaggerating, can have three different powertrains from three different places, can have be assembled in the in the US, be

assembled in Canada or Mexico and Canada at the same time.

Where the current you know, when you read it on the sticker price and you go up on the ALA content on the vehicle says domestic that the domestic by law, they mean Canada and the US. How do I you

take that particular and try to ascribe and put tariffs on that when you in fact, it's far more complicated when you have five different, six different versions of that vehicle that's sold here.

Speaker 4: And that's unusual to four. I actually call this not

liberation day. I call it the Accountant Employment Act.

Speaker 1: Yeah, there's going to be and to what extent can you gain the system? And what I'm getting at is

my understanding of it is the tariffs will be put on the non US content. I'm talking about Canada and

Mexico right now, because I think that's where you know, the Detroit three especially are going to be focusing and others to Toyota, Honda and whatnot who have got plants in both countries, because if your US content is higher, the impact of the tariff is going to be less.

And I think transfer pricing is an area of opportunity to start gaming the system. So, for example, if you

make in the United States a fores cylinder engine that you ship to Mexico, and let's say for argument's sake, that engine is that the transfer price is twelve hundred dollars, I want to make it fifteen hundred dollars. And the

transmission that was a six hundred dollars transfer price, Let's make it eight hundred dollars. So you increase the dollar

value of the American content to mitigate to some extent the impact of the tariffs. I mean, if I were

a CEO, I'd been trying to figure out how do I gain the system here?

Speaker 3: Well, we as independent researchers or a trying to answer the question about what's the terriable value on these vehicles, just as a customs agent will be doing that as well.

So what we heard yesterday is a framework. It's not

they are allowing Secretary of Commerce needs nine months to be able to answer that question about what is US reasonable US content. It's a very very complicated question, much

more than I think.

Speaker 1: In fact we should I'll interject right now, as of right now, there are no tariffs on USMCA parts coming in from Canada or Mexico because they haven't figured out how to apply the tariff yet.

Speaker 3: That's right, That's exactly right.

Speaker 4: Well, then, by the way, to interrupt you one second, will there be retroactive.

Speaker 3: There can be too, So they they in the now we're all reading this real time and learning this real time.

I mean that it's the ink is still maybe you know, it's still wet as to as to yesterday. Uh. They can.

So they've given the the they're giving the the agents the uh enforce enforcing the h tariffs. Uh. They are

giving them some UH. They're allowing them to determine and

to uh for themselves. Are is someone gaining that system

is are and they have the ability to uh levy in this The penalty is the full twenty five percent.

Speaker 1: They say, if you overstate the value, that's right, you you get the full twenty five percent tariff on the vehicle.

But what if I say, well, look, I've been holding back on you know, my transfer pricing here, my material costs have gone up, my my labor costs have gone up.

And oh, I've suddenly realized that twelve hundred dollars engine is now a fifteen hundred dollar engine. And so I've

increased the dollar content of my Mexican assembled vehicle so it has less of a tariff. Also, you know it's

the tariff. My understanding is it's freight on board. You're

paying the tariff on the value of the vehicle as it comes across the border on a trail, a truck or a train. Why not, again, in your transfer pricing

gaming system that I'm promoting here, you lower the price of the vehicle value in Mexico. Because let's say Ford

makes the baky E in Mexico, Mexico is going to sell it to the United States. Within Ford, why not

say okay, instead of I'm making up a number. Instead

of forty eight thousand or forty thousand dollars, it's thirty five thousand dollars. So me, Ford of Mexico loses money

on every Machi, But Ford, United States marks it up and make you know, and what does it care? You

know that it's it all goes into the Ford account.

At the end of the day. But it seems to

me there's gonna be a lot of gaming of the system wherever possible.

Speaker 2: Okay, but what does this mean to consumer?

Speaker 1: Okay, so the person who consumer's going to pay more money?

Speaker 2: So I mean that.

Speaker 5: I mean so, you know, regardless of the company. What

comes down to is, you know, Paul's going to go want to buy a new vehicle?

Speaker 4: Not anymore?

Speaker 5: Well, Paul wanted to buy a Mokey. What will all

this do to Paul?

Speaker 1: Give prices are going to go up, There's no two ways around it.

Speaker 3: The current AALA are based on estimates before the model year even happens. So these are based the best itself

reported by automakers best effort, and it's by car line, and so you can get into variations around but not necessarily it depends. There are other rules It gets very

very complicated, are on engines, transmissions and how that value is determined, not necessarily by car line, but by car model.

Did you build the engine yourself or is it is being supplied by an outsider? So it is all subject

to estimates currently, So it is one of the hardest things I think we're going to see is this how does this whole thing get implemented, and it's going to take I can't imagine it not taking nine months to get this all sort of sorted out.

Speaker 4: The other thing is how will the automakers communicate it to consumers, because obviously they're going to want to pass blame.

They're going to want to say we tried.

Speaker 3: Well.

Speaker 1: Volkswagon's already pretty much tempted that it's going to put on the Manroney on the sticker. P I, here's what

you're paying for the import tariff. Now, having said that,

I believe what automakers are going to do is spread the cost of the tariffs across their entire model line so that you don't have certain models jumping by ten thousand dollars in price.

Speaker 4: So a Maverick, which is to a price sensitive market, could go up even on a base model several thousand dollars you would pay. You would swallow some of that

on the Maverick, you're saying, and then move it up to.

Speaker 2: What I'm saying, charge more for the Ranger in order to deal with the Maverick.

Speaker 1: Yeah, So even if you know the FOURD escape made in the US, it will go up by several thousand dollars so that the Maverick doesn't go up by five thousand dollars. So I believe what the automakers are going

to do is spread the pain, so to speak, so that, like I said, you're going to have some trucks that could have ten thousand dollars tariffs on them easily even more than that.

Speaker 4: So that brings up one of the questions. I'm curious

what you think about this. We have had a honestly

a vindictive president. I mean he has made that very clear.

It's not something I say out of politics. He has

shown great vindictiveness. Will he punish automakers if they do,

in fact pass these tariffs on? And if so, what

does that mean?

Speaker 3: So I, as a financially honest I don't know how they couldn't pass on a substantial portion. I can't. And

it's difficult because again, everybody to some extent is going to have to pass something along, so's it'd be difficult to say, you know, the industry, it's going to impact everyone.

As I said, there's no such thing as a domestic a vehicle, even some of the vehicles built here with the American Engine and America transmission still have you know, this is a supply chain that we know evolved over a century. Really, I mean Henry Ford was building things

in Mexico very very early on in the twenties, in the twenties. So, and it's by cost, and we get

down to your question, John, it's that average transaction price is pretty close to fifty thousand dollars now and most and there's a huge swath of America that can't afford uh, you know, five thousand dollars additional or more of.

Speaker 1: In fact, a lot of them will no longer qualify for bank loans or lease. You know, the financial companies

are going to look at them and say, sorry, you.

Speaker 3: Can't do it. That's right. Can you imagine being underwater already?

Essentially before you're driven the vehicle off a lot because you're paying you know, some kind of surplus serve you know, tariff on a vehicle because you're not when you go to trade your vehicle and they don't care you paid twenty five percent or twenty percent more for that vehicle versus it's the market price that's what you get.

Speaker 2: So the residual value of the vehicle is taking it as well as which you're saying.

Speaker 3: No, I'm saying that, you know, if well, this could get into a much more detailed conversation about aftermarket vehicles, and I'm not sure the best person to talk on all those things. But I mean, the reality is my

my vehicle when I go into trade it in, is you know worth. It's the market. You know, if they

use the Kelly Blue Book and all the traditional sort of benchmarks, and you always think, yeah, we're a little more than that. Come on, guys, but that's what it is.

It's not regardless of if I paid twenty twenty five percent more for it today. So that was I was

always cognizant, you know, buying a car during the COVID lockdown, I mean and shutdown. I'm very very I didn't want

to payer sticker because I'm never going to get that money back. Well, these are these are challenges, I think.

Speaker 5: All right, So so John John buys a car with a tariff on it. I have bought the same model

car before the tariff went on it.

Speaker 3: Right.

Speaker 2: He and I go in the same day to buy another car, trade it in to trade it in.

Speaker 5: Right, So it's going to be advantageous to me and even more disadvantageous to John because he paid the tariff price and they're still going to price it at like, sorry, these cars are worth It.

Speaker 4: Gets even stranger if if I'm reading it right, we know that Trump can whimsically back off of stuff in a hurry if he just decides, well, look for whatever, what.

Speaker 1: The tariffs are about negotiating This is just the first step.

This is the tip of the iceberg of what this is all about. He wants a whole bunch of other

things from the world. The tariffs are a way of

getting their attention. Give it a little bit of time.

It's going to inflict pain. This is his whole you know,

modus operandi and negotiating and then towards the end of this year he's going to say, why don't we talk about this and maybe we can give you some relief with the tariffs.

Speaker 4: The problem is you get people that there'll be millions of people that have bought vehicles to your point that have been tariffed, and all of a sudden they're going back to the market and they're going to be underwater.

You're going to have a real bad situation.

Speaker 1: Well, it already happened, like Edgar saying in COVID, prices went up thirty percent, and I mean they went up across the board. Everything. Dealers were charging thousands of dollars

over MSRP, and anybody who bought in that time got kicked in the rear when it came to residuals.

Speaker 3: But I do agree with John, this is bigger than the automotive. This is just the beginning industry. This is

just the beginning.

Speaker 1: This is a restructuring of the global trading system. That's

what Trump is after.

Speaker 5: That's right, Okay, So here's an economic question that you may or may not have an answer to. Trump has

said that he expects the auto tariffs to raise between six hundred billion and one trillion in revenue in the next two years.

Speaker 2: Is that conceivable.

Speaker 3: It's very difficult for our analysis to come anywhere near that.

And I do have to be careful. Are economist? I

am a financial ana by economists gets after me from playing economists every day an economy It's okay, I was like, I do play economists, but well, you know, they get into other things about what about the impact on demand of the vehicles? You know, like you raise prices by

twenty percent there's traditional economic models that are going to get tested. Here.

Speaker 1: Bank of America says it's going to shave twenty percent off sales.

Speaker 3: That's yeah, that's the old the economics sort of the elasticity some of the calculations of the models that people run that that relationship has been thought to hold for a long time. But uh yeah, so that's a whole

nother that's the economic side of it. But to your question, Gary,

from a from a financial uh standpoint, it's very difficult for us to see how this it has to be in concert with everything else and all this other retailitatory talk and other TIFFs. You won't get there, you know,

on the backs of the automotive industry.

Speaker 6: Yeah, yeah, so you know, Trump mixes numbers and stuff up all it was interesting. There's just like a fifty

percent delta between those terms, like right, But I think if you look at total US imports, not just automotive, which I think is three trillion plus and you apply the tariff to that, you could probably get to that number if everything went honky dory and at work, which is but word auto.

Speaker 4: So yeah, I know he auto, but you know, he also was surprised by the word grocery, which he found very attractive word. I have a problem with this in

the if you look you listen to what Trump said yesterday, there were so many errors, there were so many misassumptions.

He got it totally upside down about about the cause of the Great Depression, which is a direct result of smooth Hawley. A tariff, a radical tariff strategy identical to

what we have now. And if you look at history,

we've never seen tariff's work on a large scale. We

see individual ones work. Often when you have.

Speaker 1: One, I'd point to the chicken tax.

Speaker 3: It's off your economics textbooks. I mean, this is the

time to your point, Yeah, you.

Speaker 4: Didn't let me finish. But for a handful of very

narrow trade battles, and usually you just wind up working.

There's one thing shrimp or trucks or what have you, that get affected, but by and large it doesn't affect the broader picture. My concern is that I don't know

if Trump or his people have enough full understanding of historical nature of tariffs, and that they are Oh, I.

Speaker 3: Think they do.

Speaker 1: I think I'm not see so, Edgar, have you run into the sky. Stephen Moore Miran. Mirran am I ra

n for the name. So anyway, I highly recommend everybody

look up the sky Stephen Mirran and his paper that he published last November, which is a user's guide to restructuring the global trading system. It is absolutely the blueprint

that Trump is following. If you want to know where

he's going to take this, read it. It's your roadmap.

It'll tell you exactly where he's going at.

Speaker 5: Except there's one problem with his argument, which I don't think any administration we want, is that he Mirron argues that you don't have the reserve currency, so the United States.

He's saying that the reason that we have such trade deficits with other countries is because we're the reserve currency.

Speaker 1: Right I need the world uses the dollar, right, so we're.

Speaker 2: The standard of the world right right, So he's saying you got to give that up.

Speaker 1: No, he's not saying that, is he No, no, no, no.

In fact, his paper says, we don't want to give that up because it gives the US enormous economic power except instability.

Speaker 3: People are mobility.

Speaker 4: People are increasingly talking about going away from that, and this could kick it off.

Speaker 3: They could.

Speaker 1: It's probably not going to happen, but I would read his paper.

Speaker 4: No.

Speaker 1: But what is what he's saying is, look, the US is the currency reserve or the reserve currency of the world.

All oil is conducted in dollars. There is actually more

demand for dollars outside of the US than inside of the US, and that's propped the dollar up artificially high.

And that's what's gutted our manufacturing base. We can't sell

stuff overseas because our dollar is too strong. So that's

what's this is all precipitated about.

Speaker 3: And this is part of the you know, it's what he's done. What Trump has done with a single you know,

stroke of threat to the pen is set in motion a number of these, you know, like ripple waves both that impact all of us in every way. Is for

you know, if there's the currency, A lot of these things are very indeterminate, and you see Wall Street now trying to reprice risk saying what does this mean for who's the winners the losers? What does it mean for

the dollar? What does it mean for our foreign our debt?

And there's these are these are these are big questions.

Speaker 1: Right, And what Mirrn argues is you don't come and drop all these terriffs down in one big bang. You

you talk all about what you're going.

Speaker 3: To do for a lot.

Speaker 1: You didn't read that, You've you phase it in over time.

And it only works if other countries value their currency, because then even if we slap the teriff on something, if their currency goes down in dollar terms, doesn't cost us much anymore, any much more. And the other thing

is if other countries retaliate with their own tariffs, then this doesn't work. And yeah, I think Trump has played

his hand badly when it comes to that part of the theory.

Speaker 4: I think overall, it's a badly played hand. And we

saw that when he talked about Ukraine. He didn't play

a good negotiating and he has this great reputation as a negotiator. So far, in just ninety days, I've seen

him do what you would call incredibly bad rounds of negotiation.

And he's just getting started.

Speaker 1: Well again, it's we're just at the very beginning of this.

We're going to have to see where it all goes.

Speaker 5: So I thought it was interesting that one of the things he talked about was increasing manufacturing jobs. And because

I do silly things, I stumbled upon a paper that was written by the Federal Reserve with a fascinating title disentangling the effects of the twenty eighteen twenty nineteen tariffs on a globally connected US manufacturing sector.

Speaker 2: Okay, so this is done by the Fed and in the money the money quote.

Speaker 5: Is quote, we find that terriff increases enacted in twenty eighteen are associated with relative reductions in manufacturing employment and relative increases in producer prices.

Speaker 3: No jobs.

Speaker 4: Look what's happening already. Now, true, doge played a role,

but we had the third highest unemployment numbers just come out that we've had period, and we're seeing first signs that going into the second quarter it won't just be cut in the federal system. Whirlpool just cut what six

hundred and fifty one jobs of the Mana plant, and others are signaling they're going to do that. I think,

you know, you may say, well, this has to take time to get hold and move stuff back, and obviously you talked about timing, but the reality is it's going to be a while at the very least. Well, we're

just going to take one job cup after another in absolutely every sector. And at what point to people, including

those who were the strongest in the MAGA community, start to say, wait a second, I'm getting hurt. I thought

it was going to be him who's getting hurt.

Speaker 5: And it's funny you mentioned Whirlpool because in twenty eighteen, Whirlpool lobbied the Trump administration to put tariffs on washing machines and they put on tariffs ranging from twenty percent to fifty percent, and lo and behold and deserted. Gets

to your point, John, that between February twenty eighteen and twenty twenty three and twenty twenty three is when the tariff ended, the cost of laundry equipment rose by their four percent.

Speaker 1: Of course, that's what's going to happen. You know, everybody's

going to.

Speaker 5: Raise their price, and so even even in cases where the laundry equipment was being made here already, right, Yeah, those prices went up absolutely.

Speaker 1: I mean it's like during the COVID the chip shortage.

You know, the prices of every vehicle went up, even the ones that were not affected by the chip shortage.

Speaker 4: So we got we had an election that some would say was influenced by the price of eggs.

Speaker 1: Now what well, now, let's get off the whole tariff and political thing and get into the news of the week, because we've devoted the first half of the show to that and here, I know you've got a list of things, but I think one thing we got to talk about is Q one car sales.

Speaker 5: So it doesn't it almost seem as though Q one car sales, especially as we got into March February, Yeah, that it it became fictional.

Speaker 2: Well it is real, but I mean.

Speaker 1: It was just like people pulled ahead, People were worried about getting hit by tariffs and ran out to buy a new car before the prices went on.

Speaker 2: So so how does it mean?

Speaker 5: So is it reflective of the real market or is this going to be a case of the first quarter will be the outlier because the subsequent quarters.

Speaker 2: Will be so affected by the topic we don't want to talk about anymore.

Speaker 3: Difficult for me to see how with all of this, when prices are going up, how there isn't an impact.

I don't know if it's one. I don't know if

it's the Bank of America and the deep respective. John

Murphy does a tremendous amount of work rely a lot of that that haircut as far as the risk to auto sales for the industry. You'll hear that from others

as well. We'll see if that but it we were

I was personally operating at fifty thousand dollars average transaction price.

Things are sort of had been kind of plateauing, and there's some talk of concern of peak auto because if I'm a publicly traded company and I still have to generate positive shareholder returns and my top line is significally capped, and I thought that's where we were heading. Was kind

of a we're there. I would argue, yeah, we've been there, Yeah,

we've been there. That's right. So it's difficult for me,

Gary to see how we wouldn't have some correction a number of things. I mean, we didn't talk about battery

electric vehicles and some of the tax credits, those kinds of things coming off those So there's reasons for plaid consumers are rational as much as we can be, there's a point where become I think we become irrational but largely rational. And that's what we saw.

Speaker 4: I think.

Speaker 3: I mean, I think although somebody, as you said, Paul, I know others that I know, I ran out make sure I got my car before I wanted to manual to.

It's a whole other kind of right.

Speaker 1: Yeah, you're you've just increased in esteem in my book there, Edgar, anybody who drives a transmission's got to be good.

Speaker 3: I got one of the last golfers come in the US. Yeah.

Speaker 1: See. My outlook is that the Q two will probably

be pretty good because even more people are going to rush out now they know the tariffs are real, and they're going to rush out. And so the companies that

are quote unquote stuck with high inventory right now are going to look pretty damn good. And the ones that

operate on low inventory, even though that's the most efficient way to like Toyota, Honda, and Subaru, they're going to be the first ones to feel the impact at the Terrorif I.

Speaker 4: Got I can't say which one I promised. I would

not even remotely point a person. But of the three

manufacturers you mentioned, one senior person told me he to start feeling price hikes, bringing price hikes on their products within quote weeks, not months. Weeks.

Speaker 1: Yeah, well, you know, on the ones coming in from overseas, not not just North America, it will be immediate. But

but you know, if you look at Ford, Hyundai has very high inventory. Stalantis has high inventory. I mean I'm

talking over one hundred days. I mean, these guys can

probably run to the end of June without any issues.

Speaker 4: Yeah, but inventory, I think for the first quote it was down. I read the number today and I believe

it was seventy seven thousand U It's not a huge drop, but first quoter inventory was down.

Speaker 1: Yeah, but I mean we're still up around close to three million units in inventory, so that's a lot to work through. That's a whole quarter's worth of sales.

Speaker 5: But this then gets back to the question of whether they're going to increase the prices of the vehicles that they haven't toy because get while of getting is.

Speaker 1: Good, right, Well, Ford just announced discounts today, you know, employee pricing. So I think they're going to use this

as an opportunity as others are raising prices. They're saying, hey,

we got a deal, and I think Ford is you know, you got lemons, you make lemonade.

Speaker 4: So Ford during the first quarter.

Speaker 5: Ford was down one point three percent during the first quarter, while General Motors is up sixteen point seven percent.

Speaker 2: I mean for quarter, right, that's a huge hit. So

here's the one that really struck me though.

Speaker 5: Is Stilantis down twelve percent? Okay, so we talked about

them like most of last year, and so John, why is it not better?

Speaker 3: Boy?

Speaker 1: That's a great question. Gary, I I can't give you

any great insight. You know, we know that their their

product lineup is aging. They don't have the hybrids that

everybody seems to want right now. Their pricing was out

of whack. They're getting it in in.

Speaker 4: Line, but it's there's the mid size cheap.

Speaker 1: They claim they're seeing green shoots with their efforts, but uh, it hasn't worked obviously with sales down that much.

Speaker 4: Fiat hasn't worked. It was up. Yeah, Fiat doesn't work.

Alpha doesn't work. Mass Roddy's not doing very well. Uh,

Jeep still needs the mid size model. Ram is recovering

a bit from some of the problems they had.

Speaker 1: They said retail they did pretty good with Yeah, right.

Speaker 4: I mean non existence.

Speaker 3: My concern is that some of these new models that do have the Jeep and when the E rev come, are they new enough in the in the from the viewpoint of the consumer, to be you know, to drive sales and to turn that around. I mean, e RAT

I think is its own kind of unique.

Speaker 1: I'm very bullish on e RAT so long did they price them right?

Speaker 3: Yeah, it's a very exciting that the performance is really right. Yeah,

it's a very interesting.

Speaker 4: What we're wrong with Ford? Though?

Speaker 1: Ford claims that it did poorly with fleet sales and that's what they're blaming it on. Also, they dropped the

edge and last year they did about thirty five thousand units.

If you put the thirty five thousand back in, for argument's sake, they would have posted an increase in sales just on that one of the brand.

Speaker 4: If I'm made, we talked about before the show, we have to talk about now Tesla. That was a disaster

first quarter, absolute disaster, over three times the drop of the consensus forecast.

Speaker 3: Yeah.

Speaker 1: My read though, is we've got to wait until the end of the second quarter to really sift through what's happening at Tesla, because we do know its plants were down for model change over for the new why and so the pro Tesla faction will argue, you can't judge the sales until that gets straightened out, and I buy that argument. I'll wait until the end of the second

quarter to see what's really happening here. I personally think

there's no question that Elon has alienated so many potential Tesla buyers that it's going to hurt them. But by

how much I'm going to wait.

Speaker 4: To the end of the second five I would suggest that even with the changeover, he's alienated so many people, they're not going to get him. I had a discussion

with a reputation consultant last night for a story, and he was saying, yeah, but what they lose on the left, they're going to gain them the right. I just don't

see that. For one thing, Even with that sales pitch

that Trump did on the lawn a month ago hyping Tesla products, he's still generally anti EV and most most of the people in his in his cult are as well.

Speaker 3: I went, John, I give another quarter to see with some of the changeovers, some of the noise, you know, uh sort itself out. But that's another quarter of him

being the way he is and very outfront and uh driving hard with you know, all the dosee work that he's in disruption and everything happened in there. So I'll

give him one more quarter, just for the benefit of some of this noise right around a launch. But uh,

there are there's around the world. I don't know.

Speaker 1: And there's another thing to take into an account to.

So much of the stock price is based on the robotaxi business that could be potentially very, very valuable. But

if people don't want to buy Tesla's because they don't like Elon's politics, the hell if they're going to get into one of his robotaxis and to launch this business in Austin, Texas, which is a liberal bastion within in Texas, I think has got disaster all over it. Even if

these things work brilliantly well from a technical standpoint.

Speaker 3: There's a number of hurdles. Uh. You know, he will

as he does test some of the economic models around.

You know, if if, if in fact he can roll this out, there's a regulatory uh challenges around. I mean

it's it's still would start as best as I can tell regionally in places like Costin, et cetera. But there's

so many things that have to be sworted out. I

still can't when you remove the driver, there's so many other indirect costs around maintaining the vehicle uh and things.

Uh uh you know, I bet in robot. You know

some of the test fleets and the car was in terrible shape from somebody at a wonderful night out at the bar. But you know these are costs, direct costs

that you know well.

Speaker 1: Rental companies face the same thing. You know, this is

not new, whether there's a driver or not, the same issue.

Speaker 5: So, Paul, you drive a lot of cars. So to

what extent do you think that the availability of good evs from other manufacturers are is these good evs are having an effect on the sales of Tesla?

Speaker 2: Oh?

Speaker 4: Absolutely. If you look at what has happened with Tesla,

it's become the stale EV car company. The Model three

refresh was way overdue and way underdone. We'll have to

wait to see what Juniper. The Model why refresh is

really like I have not seen it yet. You know,

they're focusing first on China. It doesn't look like it's

going to be a breakthrough, and it will still have a lot of the issues that they have before. In

interior that is so so Oh, it's not going to be the luxury interior that some others are trying to put into vehicles of the same price. The image is

weakening there there's no entry level product. The cyber truck

has become the joke rather than the halo, and it's rubbing off. You have people who everywhere people go they gesture.

It used to be the thumbs up, Now it's two fingers over and it's I know people, you guys know.

I'll mention by name Bill Maguire from Motorology, very well followed on Facebook and elsewhere. And Bill who used to

if I said anything negative about Musk or Tesla eighteen months ago, I would be in a flame war with him.

Now Bill sold his Tesla, he didn't buy another electric interestingly enough, but I know too many people who are getting out of them or saying I'm going elsewhere, and they have so many options. Hyundai GM's numbers are looking

very good.

Speaker 1: Cadillac more coming from more coming, Cadillac.

Speaker 4: Finish strove to them the Optic and Optic and Escalate IQ.

Speaker 1: So Cadillac finished Q one with nineteen percent of its sales as electrics, and that's before the Optic or the Escalate IQ. Really those they actually had sales, but they

haven't wrapped up yet. I'm very bullish on the Optic.

I think it's going to sell well. I think for

the price, it's a hell of a package.

Speaker 5: It's the first modern Cadillac like I can remember. I mean,

it's I think it's astonishing.

Speaker 4: I'd actually I think people are going to look at that over the lyric, even if they could afford both. Interestingly,

Optic comes only in all wheel drive, where lyrics started as rare and then added it. I think Optic is

going to be a real success story if they don't have more quality problems.

Speaker 2: But you were mentioning the So I'm one of the judges for the Words Interior UX Awards, and so I've been driving like thirty some cars to and the interior of the Optic is just like, it's amazing.

Speaker 3: Compare that to a Tesla, Yeah, it's just amazing.

Speaker 4: I think Tesla has a lot of basic product problems.

And I think that Musk really got distracted, not just by being with Trump. He was bored. He bought himself

a social media giant, which suggested that he wasn't really paying attention. And he's a micromanager. That's a problem. I

hear a lot of decisions just got delayed, a lot of changes got delayed. Where is the entry level model

you're gonna have VW, You're gonna have Hyundai, You're gonna have Kiya, You're going to have Ford in short order.

And at what point their market share is already down below forty percent.

Speaker 5: So, Edgar, you mentioned in passing earlier that you know, the notion of the incentives on evs that exists, Pratt's going away. I mean it takes an act of Congress

for that to happen.

Speaker 3: That's right.

Speaker 1: It hasn't happened.

Speaker 4: The the.

Speaker 5: Infrastructure build out of the charging stations that's been that has been put on hold though.

Speaker 1: That's been put on hold. But remember, I don't know

how many billions have already been allocated to the States.

It's now in the States. You know, lap build the

damn things. You know, it's been years. We've had so

few installed. And you know, one of the biggest problems

is getting permits. The time to get it takes so

damn long to do anything in this country. It's ridiculous.

Speaker 5: So what what what impact do you think that would have on sales of evs going forward, especially as we're looking at the situation where.

Speaker 2: The Biden.

Speaker 5: Regulations or mandates or whatever we want, you know, go way in terms of emissions, and you can start building hemis again and smiling.

Speaker 3: There's a lot to the charger. I was involved with

a charging startup company. I left car for a short

time and came back and we were doing at the time, a good friend of mine, he's brilliant, Tom Waters, was using an oontomized cell phone data to study charging behavior like you could. You could geo fence two of the

same chargers and you could go to a look at a market like Santa Clara in California has much higher you know, density, much further along the curve, adoption curve, and look at you know where they come from, how much they make, how long they stay there, and you can see problems with I appreciate the nevity that charging is is one of the biggest hurdles. I mean, I

think we all talked to consumers about it's the range anxiety and where do I charge this thing? And the

charging experience is very poor. But we could study you

can see very clear trends. It should be no surprise.

But a lot of the funding that the states are getting there was a rush to get them out is and we can talk about this for now, but a lot of them are put using an old using traffic modeling from you know in many states. I'm not calling

out anyone, but from twenty nineteen and before using this is internal combustion vehicles that are you know, where do we stop to fill up gas when we need it to go up to northern Michigan. But if you actually

look at the charging behavior using cell phone data and where are people charging outside of their home or apartments, et cetera, you see a very different pattern than where these are being put As far as and I'm not trying to criticize you know, the administration or anyone that these are very important issues. One of my biggest pet peeves,

and this might sound really funny about how these the dollars being rolled out, I think you should put a sign out that says, you know, as we're driving on the freeway, EV chargers here or whatever.

Speaker 1: I've been arguing this for a year.

Speaker 3: Yeah, yeah, you don't know.

Speaker 4: Where they are unless you have the app, and it's not always accurate.

Speaker 3: And my my thing is some of my friends would already push back, well, say well I have an app, I don't. I'm for you.

Speaker 1: It's for the people who don't have an EV that's exactly who say there's no place to charge, And if they start seeing that little icon of a plug that indicates like there's a charger at this exit, they'll go, oh my god, there's chargers everywhere, and.

Speaker 4: There are a lot more, as I found when I did drive up north. One of the dangers of following

the patterns, trying to see where people are charging, is that it may reflect the limitations today. I have an

F one fifty Lightning. Yeah, there are places I don't

necessarily drive. Of course I have access to gas vehicles,

so I can switch, but I don't go certain places with the Lightning because I know it's going to be more difficult to charge if I saw, if I knew there were charges in more places, my driving pattern with the F one fifty Lightning would change.

Speaker 3: Well, yeah, and it will. And so you're exactly right.

I don't And someday at some point where we have enough of these vehicles, I mean, we don't want to compromise in our driving behavior. Our you know, these are enablers,

as we all know, to get from point A to point B. For someone you'd like to have a lot

of fun driving from point A to point B and that's as much fun as anything else. But so I

spent a lot of time doing the research and with an iPad sitting out in nova behind it a Walmart at the charging station. I'm sure, and I've seen fights.

I've seen, you know, I've seen for queuing. I've seen,

so you can have deserved that the model is not working.

You can observe. So if I'm Walmart, I expect some

some I'm going to capture some of those EV owners that part that that charge. Uh we measure it was

about seven percent of people actually went into that Walmart's that's all. So the model isn't working for a retailer.

The I never saw anyone getting anywhere close to the advertised charging you know, speed, power, right throttle back. I'm

talking to you know, someone with a Porsche tie Can, and there were a couple of them part there. None

of them went into Walmart. None of them, you know,

never got anywhere close to it. So there has to

be a lot more we have to reimagine. So we

were looking at studying the behavior people choose like a better retail experience. It's not it's not necessarily, I don't

I'm not trying to be glib and be uh, but you know the way it's being rolled out in the back of a parking lot or in the back of a gas station. The retail model hasn't emerged yet that

recognizes it's twenty to thirty minutes and falling. At some

point you can you can. We did a lot of

modeling in advanced kind of looking at how many populations wou support. We were looking at trying to establish a

new retail concept. And there are a couple of things

like Rove out in around LA that are doing some interesting things saying, look, recognizing that I have to sit here for twenty to thirty minutes at best maybe or if maybe topping it off and going out. But anyway,

a lot of these things aren't contemplated and quite studied.

They've looked at we got money to spend, spend as fast as we can, and when you do that, you get what you get. And that is part of the

It's both the challenge because we have to change that because you know, the minute you have Paul a good experience with your light Year f one fifty, you're going to tell your friends about it. And it just so anyway,

there's a lot of thought. And what really cancerns me

is that the things that are on pause, we're moving into a period where we get stuck. And I mean

some of this is natural, it's just you know, inherently nothing moves in a for a while. All the forecasts

with this hockey stick, and that's when, as an investor in a financial annals, I get spooked. But you know,

a lot more work has to be done there, and you know, we were thinking about it, and once it works, it will get copied all over the place, right, And so there's some interesting initiatives happening. But you brought up

a great point, John, and that even at the utility are not set up to respond to a request a you know, I'm a business owner. I want to put

an EV charger. I think it might be good for

my customers. I'm not calling out utilities either. But you know,

if you look at some of the data that's online, you can see overlapping grids of you know, what power is actually available at a location. I did this for

looking at for a business out in the arbor, and so number one, you can't tell it's it's the data is poor. Secondly, you go to the utility and any

respective utility. You know, I don't call anyone out and say, well,

what does it cost me? And they go, what do

you want? You're like, well, I don't know what I want.

You know, I want to level two, a level three.

I don't know, Like, well, until you know the power or whatever, they're set up to do the install not to help you like be proactive and establish the business case and to do the things that are necessary to get this to really roll out and to really take because once it takes hold, I think and becomes obvious, I don't know that it's you. Look at who was

getting the line's share of the heavy funds. Here in

the state of Michigan, there are many are gas stations or established.

Speaker 4: One around the corner from me now and does Bridge Oh, I don't know.

Speaker 3: The mayor is a good friend of mine, Brad Scott's.

Uh but uh yeah. So there's a number of things

that have to and and I'm worried that we're getting bogged down and well.

Speaker 1: Maybe hey, hold on, because we're getting down to the end of the show. I want to get to at

least two more topics here. Volvo dumped its CEO and

brought so.

Speaker 4: Uh Hocken Samuelsen is.

Speaker 1: Bad is back and uh Jim uh Roan out. What

do you think, Paul?

Speaker 4: It was interesting when Rowan came in because he wasn't an auto guy. If you remember, he came from Dyson.

He's a technology he's a technologist, and of course Dyson has tried to get into more technology and blew a couple of billion dollars if I recall trying to get into autumn and then said no. So I don't know

if they thought that Jim had enough experience from that, but he clearly lost confidence of the board.

Speaker 1: Right, Garry, how do you read it?

Speaker 3: I think that.

Speaker 2: The momentum of Volvo isn't.

Speaker 5: What there is an expectation it should be at this point for the products that they're rolling out. And I

think that the board basically said, you know, it wasn't so bad when Somemison was here before.

Speaker 3: We need a car guy.

Speaker 2: Let's try let's try to do that.

Speaker 4: I'm surprised Sumuson came back in. I mean, he's what

seventy four and he's from Sweden. When you know seventy four,

you should be well into your wonderful.

Speaker 1: Yeah, but he probably loves volve all. He developed his

whole career to it. They went to him and said, yeah,

we need you back, man, it's your duty, and he said yeah no.

Speaker 5: They backed up the Swedish version of the Brinks truck to their his.

Speaker 3: Now.

Speaker 4: The interesting thing is he was a big believer and I think he still will be a big believer in evs.

So if evs are the problem that Volvo's having, I don't see him as the change agent.

Speaker 1: Well look, maybe he's the guy that can sell them.

Speaker 4: But Okay, enough of him.

Speaker 1: Last topic, which I think is bombshell actually, and we're probably going to have to do a whole other show on this, but reports came out of China this week that the Chinese Communist government wants to restructure all the state owned enterprises. I think this is massive news. It's

been you know, covered over by all the talk on tariffs.

But Edgar, I don't know if you know much about this or what do you think.

Speaker 3: I don't probably know any more than what you've described, John, but it could this be one of the ripple waves of you know, these things are on tariffs and other kinds of things in that it's a dogfight there. It's

clear they've strong language, but sort of poison the well.

I mean they can't. You know, this is this is

when there's too many players. I mean, there will be

a rationalization. You know, it's their style to be to

try to manage that. Uh, that's a that's a tough thing. Uh,

it needs to happen. But imagine I mean you can

think about a scenario where as we figure out tariffs and as we we figure out these things, and it takes time. I mean this the strong leaders will emerge.

I think there's a couple that are clearly and there's a probably a top tier that are you know, uh or yeah by d yeah, yeah, but those are not state owned. Well that's right, that's right.

Speaker 1: It's the state owned ones that the central government wants to restart.

Speaker 4: Remember, one critical thing about China is that there's a there's a fundamental battle that has been brewing for a number of years. When you say state owned, remember that

can mean any of the states in China, can also mean the local militia and so on. It's a peculiar,

almost feudal structure when it comes to how the government's operations are set up over there, and I think you're probably seeing Chi saying enough of this, where you know, Chian owns this and this, Sescheuan owns this and so on, and everybody's battling one another for control, and the central state back in Beijing is saying, now we want to run this, and you guys, we have to get you under the thumb. I think this is far more than automotive.

Speaker 1: But you know, to your point, Edgar, too many car companies, with too many brands, with too many models, with too much over capacity. Nobody's making any money or barely, and

it's only getting worse. And they've hit peak auto too,

I would argue, And so I think the central government realizes we've got to rationalize this. Here's the problem I

see is to your point, Paul, it's not central government owned.

These car companies are owned by provinces and cities. Beijing's

got one, Shanghai's got one, et.

Speaker 4: Cetera, delicious individual regional military groups, and it's almost like the National Guard of Michigan car companies.

Speaker 5: I mean, but I mean, isn't the point that there I mean, one of the reasons there are so many car companies there was because of local employment.

Speaker 1: Exactly, great, exactly, And so basically.

Speaker 5: You know, the the region or the state or the city or the whatever it's called there, it's just basically like, oh, we needy, so what she doesn't like?

Speaker 3: Right?

Speaker 1: So I see this policy pitting the cities and the provinces against the central government because to your point, exactly, Gary, these car the state owned enterprises exist to create jobs.

Speaker 3: That's what they're there for.

Speaker 1: And when the central government comes in and go, wait a minute, we got to start closing down plants, we got way too many.

Speaker 5: Right, I mean, well because really good things was It was the amount of money that was being spent in order to prop up these jobs, right. I mean, so

so the local city would borrow money from wherever, they would sell land to whomever and get money to keep these jobs going.

Speaker 2: I mean what happens when the jobs are gone.

Speaker 3: They're going to have to manage that's the part they're going to have to manage, clearly, that employment component. If

they can manage that and divert them into other industries, then we won't be talking about well, I mean it'll they'll be leaner, even more competitive, more competitive. Yeah, that's right,

And I think what you know we didn't talk about in all this tariff staff is that only zero point five percent China direct imports into the US today, So that's not as part of this tariff. Yeah, we can

talk about tariffs for a whole other show, but that's not even part part of it today. Yeah, and so

but yeah, they've got to manage the employment piece of that.

Great point.

Speaker 1: Well, look, we're gonna have to wrap this up. This

has been a great discussion. Paul. Great having you back

on the show. Edgar, awesome to have you here. We're

going to definitely have to have you back. And Gary,

you and I are gonna keep on doing this well.

And oh, I want to make one mention to the audience too. We're starting a membership drive. You can do

it on YouTube, you can do it on Patreon. We

really need your support and if you like shows like this to continue, please step in. It's only a few

bucks a month anyway, that's going to keep us going.

But anyway, thanks so much for watching. We'll see you

next week.

AAH #737 - DEFCON 1 on Trump's Tariffs; Preparing for the Nuclear Fallout

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