AutoNation CEO on the Environment for Vehicle Sales

Is that true globally? Mike? Are you guys one of the biggest in the world. Well, if there's life on other planets, we might not be being be the biggest in the universe. But um, yeah, I think we are. I think we are, and we arned to your point. I mean, think about it. We did seven billion dollars worth of revenue in the second quarter this year, and

the environment for vehicle sales is very good. You and I talked about it a year ago where I said, you know, with this pandemic and shelter in place, America is reasserting sense of independence and they want to decide where they go when they go and how they go and they want a personal vehicle. So demand is strong and automation's performance within that environment is exceptional. Is it

difficult to get UM inventory? Well, on the new vehicle side, there's no question that the manufacturers had a tremendous challenge to restart production, and I have to tip my hat to them. And then earlier this year they really got hit with the shortage on microchips. But I would point out our shipments in the second quarter doubled from a year ago, are only six to seven percent down from UM, but demand is far far higher. So it's not that

the industry can't make anything. Uh, it's that this earlier point that I made, that demand is very strong for vehicles and that's both new and preoped. So give the center, having you know, a little bit of a hindsight, are you surprised that the O E M s had that production difficulty still have that production difficulty, that that perhaps this just in time inventory may not maybe too finely tuned, that a chip shortage of all things can halt Detroit, Well,

it is halting the world. So yes, the entire just in time production system is being rethought because the relative cost of a chip versus the disruption to production is tremendously out of whack, and they're having meetings right now saying why shouldn't we have more of this, more of these chips on hand. That you can't, you can't bring the whole thing uh to such a disrupted state. So that that is a fair point. UH. What no one foresaw though, is that again going back to this god

awful pandemic TOI. Consequences came out of that the consumer reorder, reoriented parking book towards their home. They wanted more space, larger space with more electronics, and they wanted personal vehicles, both of which demand chips. So the demand for chips went up in the housing electronics industry at the same time one up in the avnable bull industry, and therefore we have this chip shortage. You can't build these microchip factories from one day to the next. They're extremely complex.

And that then also asked another whole strategic question, should we be so dependent America on microchips coming out of Southeast Adia? Is this really where we want to be as a country. So all of that's being rethought and rediscussed as a consequence of this pandemic. Well, and we're you know, taking on a ton of debt in order to um figure out what's going on here on a national level. On a company level, you guys are just

killing it right now. And makes me, uh, you know under in a buyer's market, you're just struggling and competing and maybe you're borrowing to try and or our margins are getting hit right now. Um, you know these are good times for you. Are you taking advantage of that too? You know, um, somehow retrench somehow reorganized somehow you know. I mean, you have the money now, so are you Are you looking to change the business a little bit?

While while we're in the will, while you have the gravy train, I feel like we're doing more than running the gravy train. But there's no question in the environment for vehicles is good, and there's no question that automation is outperforming tremendously in that positive environment. And we've done it all. We've dramatically increased revenue with our brand and our customer experience on our digital platform. We use the

digital platform to take out costs. Uh, We reduced by We're doing a much larger business with several thousand fewer employees because our digital tool are so strong and so capable. We have aggressively led the market in uh supplying our our stores with pre owned vehicles when we saw the swords coming in new vehicles. Imagine our pre owned business on a revenue basis is up six year over year. Yeah, I would say that's grabbing the opportunity. Mike. I'd love

to get your thoughts. I mean, nobody has you know, uh, you know, greater feel for where the consumer is, the auto buying consumer is right now, just give us your thoughts on this whole e V transition. How do you think it will proceed? Are you ever going to convince a you know, Matt Miller to go electric? I'm not sure I have to. So the inflection point for the migration,

let's use that word. It's not a stampede, it's a migration. Uh. Despite all the headlines from the internal combustion engine two electric battery electric vehicles is underway. So let me put that in some sort of perspect though. If I go out to which is a long time away, I think, okay, of what's sold new will be all electric, uh, and the vehicles and operation in the United States six seven will be all electric. So this is not like going from the flip phone to the smartphone, where you throw

one thing away. The internal combustion engine vehicles have a lifespan of twenty five years something like that. Are going to be have a useful life that somebody will pay for them and are of value to them. But I'm also not in denial. We love of electric vehicles. We're gonna sell electric vehicles. We offer them from all the manufacturers. They have great stuff coming. But it's going to be

a gradual migration, not a stampede. Yeah, I mean, I'm still I'm gonna get there eventually, but I'm waiting for, you know, the new raptor to come out. The raptor are to come out. I want to get there. You've got that hummer. I could even maybe talking into that Humber at all electric converse. Well well well wait, well wait, I just need one more big V eight and then I'm gonna switch switch over. But Mike, it's always great to talk. I just bought my last V twelve, and

the last one made I'm very happy V twelve. That's that's on another level. But of course, your stocks at an all time high. So you can do that, Michael Jackson. There you see of Auto Nation stock trading right now at a hundred and seven dollars and fifty three cents, as I said, in an all time high. It's but it's an incredible chart to look at. Um. And because the business has done so well, I'm always looking on the on the website. Uh. And there is drive Electrified

right there on the website. So they are definitely pushing and selling those cars. This is Bloomberg, Matt. When I was on the South side, boy, you had to get the Pittsburgh at least once a year to see the good folks at Federated Federator at Hermes. Now I would tend to do it during a baseball or hockey season. I can catch a game. R J. Galli, Senior portfolio manager, head of the bond group at Federator Hermi's he joins us. I was an equity guy, r J. So I never

bothered you. But boy, I look at the tenure one point to zero percent. What do you make of this treasury market right here? Well, good morning, and I have my glasses on so I can see. Um. You know, it's been brutal. Uh. You know, Frankly, we as a firm, especially the duration pot which on the chair of and we sort of assess what we think are the likely drivers of raids and position accordingly within our actively managed

fixed income funds. We've had a pretty significant short on for for what I would say has been a painful pain trade. Um. I think initially markets moving, Yeah, exactly, markets have trouble moving. When everybody's position to one side of the boat, you know, it moves the boat, and so some of that is is just the sort of the way markets work. I think it's clearly been inflamed, however, by the fact that there was some sense that we're

moving past COVID. The delta variant uh was was not ppping up on the UK, but it's certainly crept up on the United States and then in the last number of weeks. Um. That's not the only factor, though, you know, the US has been a pretty good place to put money for yield for foreign investors if you hedge out the f X risk again or Euro based investors getting much higher yields here than they are on their home markets. So there's been reasons that capitals found its way to

our shores. We felt that that would be a temporary technical boost to treasury prices and pushing yields down. UM. Now, you know, with the delta variant, it's it's been a little humbling. We had a pretty good confidence that our call was gonna work, uh drive driven by inflation and growth, and then there's a lot of headwinds to it right now. Yeah.

I was talking to UM a portfolio manager this morning who was saying, you know, people should maybe buy treasuries as a hedge, as insurance in case everything goes wrong. But that has to be terrifying to do, especially at the long end, you know, because if then all of a sudden um rates rise a hundred basis points, you're out twenty percent of your capital. If he was talking about t buills where you're not taking a lot of price risk, I think he's got a point. But I'm

with you. Like to buy ten year or thirty year treasuries as insurance, that's insurance that could sort of burn you up if you don't have the house fire. I mean, that's just not prudent. Our vue has been all along that even though real yields now, have you have returned to you know, basement levels the ten year tips right now that are negative hundred and eleven basis points. The economy is not in that basement. These really yields fundamentally

should not preside for much longer. That's right. GP Morgan says, these yields indicate an expectation of only a half percent GDP growth of the next twelve months, even though the JP Morgan analysts who said that expect more than three and a half percent of GDP growth over the next

twelve months. So what's Yeah, there's a huge disconnect I think between what is what is an intact economic recovery with huge supports from fiscal policy that's still being spent, but albeit out of diminishing rates, And this idea of peak growth makes very little sense if you look at the charts for forty years. It is true that when you hit peak growth in an economic recovery, thereafter rates tend to somewhat decline. But all those other periods, really

yields were astronomically positive and high. You know, we are at a period now where really yields are shockingly low and negative. So attaching that explanation to this seems to be a bit of a reach. I think really this started is technical and now has become a concern. Is the COVID nightmare is still all very fresh in our minds and it's not yet over. I do think some of it is capital flows, some of it is foreign flows, A good bit of it is shortcovering and pain trade.

We still like being short, but I have to admit it's been humbling. We're looking for an opportunity to reassess at somewhat higher yield than today that make more sense in you know, the medium term, than what we've seen on our screens right now. It feels it feels like a kind of the momentum e type market here are j Is Is there something that you guys are looking forward to perhaps reverse that momentum? Is it a data point? Is it perhaps an incremental positive data point on the

delta variant? Is it something technical? What are you looking forward to perhaps turn this thing around? Well? Up till even today, we've been feeling that in that repeated inflation prints will convince enough in the market that they need greater compensation for the inflation risk, which is clearly biased to the upside. That the transitory argument will apply to many components of the c p I and pc PC, but not enough of them and inflation will be too

strong relative to the Fed Zone expectations. That's a narrative. I think Powell almost has come around to their acknowledging that inflation risk is to the high side, and they're saying if it doesn't prove to be the translatory, they may act differently. So we felt that the inflation data, just the drumbeat of continued inflation, would sort of cast a shadow over the transitory argument and help reest that yields to somewhat higher levels than where they are today,

still not record levels. We thought that maybe the tenure would be closer to it with a one seventy uh come the end of you know, the third quarter, maybe two percent by the end of the year, and we

haven't thrown the talent on that. I do feel that the delta variant story as we head into the fall, I know it's still very much summer, but when you start getting more and more people inside, we need the vaccination to take the narrative back, and right now the vaccination narrative is on the wayne and instead we're having more political controversy over vaccines and you're seeing lower vaccinated areas get more cases, and possitalizations have picked up. While

we're on bitcoin, let's talk about TikTok. They launched a new resumes program in here in the US, enabling people to post job resumes, job pitches, or job well, I guess like apply for jobs with videos. Angie Hannah joins us. She's the global Chief Talent Office or for our g A. And this is kind of like a new era I guess that we're entering. I would think you don't take somebody seriously if they give you a TikTok resume video. But I guess you know, I'm just too old, Angie,

is this legit? It's it's funny that you you say that, because I have the same reaction at first, Um, and thought would I even do such a thing since I have my nine year old begging for TikTok all the time. However, Um, as I looked into it a lot further, it's I think it's a pretty brilliant idea. What for me? It

really allows companies to engage in a meaningful way. Um, I think it will be for more of the gen z. However, Um, I've had a couple of different people since TikTok launched this reach out to me different platforms to talk about more integrative ways of hiring. And so I think that this is this could be a you know, a place where people could get niche career advice. They also can really show who they are, which is what I love

about it. People can be really authentic and resumes, there's so much about what you've done versus what you can do. But I think I think this is I think it's it's a really interesting way for companies to engage with talent. It does actually show who you are. Though you know, I have to say growing up um here in New York and in the Great State of Ohio and then moving to New York, I was always taught that you don't include a picture with the resume because you don't

want that to influence. Now, in Europe, it's a standard part of your Yeah, at least in Germany it's it's it's it's standard. But of course everybody in Germany looks the same. Right, are there going to be any issues with that? You think? You know, that's it's a good question. I think time will tell um you're right. Standard practice wasn't to have a picture on there. I think now more than ever, with all the things going on in the world. UM, I don't think it's a I don't

think it's a bad thing at all. I do think it allows people to be more authentic and actually show some of their you know there yourself, Angie. UM, I'm just gonna hear the markets here, the dow off just about eight points here, we keep two point two. And let's talk about just hiring in general. Here we Matt and I hear from company CEOs all the time that they have a hard time, uh, finding people to fill slots. Is it as simple as just paying people more money? Now?

Good question. We you know, my industry we're seeing seeing this, UM. It's it's not about just paying more money at all. People After what we've gone through in the last year and a half, people want choice, they want flexibility. We're still in a pandemic, you know. Let's be honest, and I think after the last year and a half, people have spent a lot of time UM thinking about what what they want to do. And even within our own organization,

we've seen an uptick in our internal mobility program. People wanting to UM switch careers all together, moving into a different departments. And so I think I think we're gonna have to. Companies are really going to have to not only give that flexibility, but create more choices and more opportunity for people. And money is something we're also seen. And they want to work remotely and they want to you know what they want. They want your boss to

be nice to you. I read a story today about some boss said, you know, he had a gun to his employees heads. Obviously he didn't. Really, that's a figure of speech. When I was a kid, that's what your boss said to you. Apparently now that's considered bullying and it creates I can't remember. They call a toxic culture. Toxic culture. That's bad, right, that is bad. It is bad, yes, and it is. It is happening more and more. Um that. Yes, people,

do you want more of that flexibility? Again, it's we everybody's been working from home over zoom or you know whatever platform people use, and and so yes, they do want some different, uh, different opportunities and they do want to see um an environment where they can thrive. And you know, I have to agree, I think you get the best set of people when you're not holding a gun to their head. And so I think I think that companies shifting a little bit more to a growth mindset.

It's probably what we could call that. Just get over right now to Lewis. Navalier is the chairman, CEO and c i O of Navalier and Associates, And I guess you know the most important thing. Well, I'd like to ask you what is the most important thing to focus on this earning season, because it seems like especially companies that have stable margins that can pass on input costs, that can deal with inflation are doing best correct, and the ones that provide strong guidance are definitely going to

be rewarded. You know, this is peak sales and arrange momentum because of easy ear year comparisons. But those few stocks that will sustain strong sales arens momentum um should break out as leaders. I expect the market to them more narrow, more fun, the night focused and um. You know, we're very fortunate where we have three weeks of very strong earnings coming out now and that should help the

market turn here. All right, when you get a day like today, Louis, you know again we're off two point three on the DOW, on on the SMP healthy one day short term pullback or are you're reading anything more into this? Well, I have to watch the volume. If the volumes high, it's going to continue. But we've been in an asselin market for some time, so what I expect is we might get a reversal, maybe as late as the last hour today. UM. A lot of it

also depends on the e t F world. You know, E t s do trade at premiums and discounts, and if those discounts today starting to widen a bit, that will cause a panic in the e t F world. And so we don't want to see that because then the market would feed on itself. But you know, the market to maut of crowd, we just have to exhaust the selling pressure. So it will be interesting to see

how long it lasts. I mean how much. If I look at treasury yields at one seventeen, if I look at you yields, it negative one point one percent or even lower. Right now, that just freaks me out, you know, because like JP Morgan says, um, that means the bond market and these are supposed to be the smart guys, right this is the smart money. That's what we said in the in the eighties and the nineties. This is a smart money. The air forecasting economic growth of zero

point five percent over the next year. So is that part of the sell off? Uh well, it's clearly the short term oasis. Okay, but yeah, we're all freaked out that inflation spikes and an interest rate spell that's not normal. Um. I was personally freaked out by Thursday's producer price index because it was service costs and those costs aren't going

to back off. So although we have oil and lumber and some other commodity costs back enough, the core rate inflation is going to be suvenly high, and I don't think it's gonna be as transitory as that said wants. The other thing is we're definitely entering and menteur. Our government is doing what Europe's doing, and the problem is that means we may be on the road to negative rates,

and uh so there's a flight for yield. Um. You know, the corporate demand for bonds is unbelievable, and I've been saying that, you know, corpor heels mighty being shoving Trevor Kurgie Oels Lolla but nothing makes any sense right now. But when the dust settles, stocks are great buy and of course the stock market heels more than the bonds and socks are still at tax avenge. All right, Louis, I've been trying to get my colleague Tom keenan entry

point into this market. So when you get some of those panic phone calls, which you may get on a day like today, do you tell folks to say, hey, we're still constructive on this market. Look, this is as as perhaps a buying opportunity. What do you what do you say? I tell the and I do have those calls today, um, and I had some last week. I tell everybody that UM in social buying pressure to add

last week after the inflation numbers. And I tell everybody the shorts love to try to use the strong stocks just before it needs to come out, but when er needs to come out, they'll run for cover and we'll be sorting all this out there very quickly. So, UM, you know, we are glossy over sold right now. So we're going to bounce and the marketstantially awfully, So if you're brave, you can jump in today otherwisely for the

volume and then jump in. So the market. I mean by the dip has been a strategy that works well, Um, you've been a winner if you've been pacting that strategy. But UM short treasuries hasn't. What do you do in fixed income? You do? Dividend growth is what you do. You can get a yield of three four um. Uh, you want to buy stocks at double the divends every six seven years, so that could be you know, Costco,

Kroger Sgate Technology. You know, there's plenty of stocks out there that you that have very nice shields and then are going to continue to grow their dividends. But do you think that we're going to see UM treasuries yields continue to fall if we are doing modern monetary theory,

which is unlimited money printing. Yes. And uh. I asked at Ardini that personally a few weeks ago, because you know, I subscribe to services and he admitted that we are doing mode montery theory us and when we're gonna have negative rates and he couldn't a grass that yet and I don't think any of us can. But look what happened and your look how Britain resisted negative rates and now their rates are negative. Thanks for listening to the

Bloomberg Markets podcast. You can subscribe and listen to interviews with Apple Podcasts or whatever podcast platform you prefer. I'm Matt Miller. I'm on Twitter at Matt Miller V three. On ball Sweeney, I'm on Twitter at pt Sweeney Before the podcast. You can always catch us worldwide at Bloomberg Radio