Need For Independence Drives Auto Demand

at Bloomberg dot com slash podcast. Now, I want to bring in Mike Jackson is the CEO of Auto Nation and one of the most respected figures in the industry, UM dealing a lot of cars even before the pandemic. Mike tell us about the your experience during the pandemic and what it's like now as we as we poke our heads out well, I think um the pandemic was a scarring events for Americans, just horrific, unimaginable, But from a business point of view, it had two significant impacts.

One know in the housing industry. In the second or automotive housing, they want more space eight and they want the space to be nicer. And then when they leave their house, they want to control the environments that they're in. They want their personal vehicle and they want to control who's in it, when, where it goes. So this independence

of American spirit was built out by this pandemic. So that is dramatically increased demand for individual automobiles and that led to a fourth record quarter for automation with an increase in our revenue year over year, increase UH in gross profit. We had cost measures that we also put in place. Hence our earnings per share tripled compared to a year ago. So the environment is good, no question though.

Interest rates is very supportive of housing an automotive. But within that automotive UH segment, Auto Nation with its brand, it's great experience with one price on pre owned, a digital platform. Coast to coast, UH performed extraordinarily. Well, hey, Mike, talk to us about the chip shortage. We we've been hearing so much about this, and you've been in the news making some, um, you know, some clear statements about that.

Give us a sense of what that really means for your business and how long the chip shortage you think is going to affect the auto industry in this country. Well, we'll have more demand than supply across the board since April May of a year ago, when you hit this inflection point where American sumer woke up and said listen,

I want, I want. Personal transportation inventories were, of course for new very low then because the plants were closed for eight weeks, ten weeks, twelve weeks depending on the manufacturer. UH and you had this extraordinarily high demand. Now the chip shortage means they can't meet the demand and UM shipments are still pretty good, but um and it's much better than a year ago. There's no comparison to the shuftdown period. This chip shortage is more a disruption of

a very complex global manufacturing system. So the headline remains we have more demand and supply. The way we are managing it as a company is that we've adjusted margins on the new vehicle side and we're selling incoming vehicles, preselling incoming vehicles that at a much higher rate than normal, so everything comes in and goes out. And on the

volume side, we've aggressively purchased pre owned. We put very good values on the trade ins for our customers, so that's a win for them and hence we're able to increase our pre owned business by year over year. I talked to all of Colonnas, the CEO of Daimler, a couple of days ago and he told me, in terms of the chip shortage for them, they're prioritizing the higher margin vehicles. So the new e q S, for example,

they're gonna prioritize that in the S class. Of course, I see that you had last year bigger growth in your premium luxury segment that you did in domestics and imports. Is that part of that equation. Premium luxury is in the high thirties as a percent of our business. Uh. And with the largest retailer of Mercedes in the US was a good friend of mine, know him a long time. He's an outstanding CEO. All is not the only one

who's come to that conclusion. And we clearly say, and here's an epiphany that the manufacturers saying, let's put the chips in the highest demand vehicles, which by the way, are also the highest margin vehicles for them. I think that, Uh, the industry didn't always do that in s decades. And the consumer, just like in the home, is looking for a bigger vehicle with more content and hence more chips in that particular vehicle, and the manufacturers are prioritizing that.

And let's not produce vehicles for which there's very little interest toward demand. I mean, let's give the customer what they want. Wow. Okay, that's a stroke of genius. I like it, and it's been very um. I think it's I think it may have changed the industry long term that there is much rather than being so production driven all the time and overproducing, let's really focus on what consumers want and have a good balance between demand and supply. I just want to ask you a quick question speaking

of industry changes. We only got thirty seconds here, but I've heard that Amazon may come into the market. Do you think that they're a potential threat. Amazon is a great company, and they've been coming into automotive for I think thirty years. I've been hearing that, so listen. It's a big, complex business, and I like our position with our brand, our experience in our digital platform. Well Auto National do well. I have a lot of card dealer friends and they wanted me to ask if you have

any stories for sale? Do you have anything out there that you're willing to give up? But I'm guessing the answer right now is no. I knew it would be Mike Jackson, the CEO of Auto Nation. The stock has soared Um, has been time today. Absolutely, this is Bloomberg. We've got an old fashioned bidding war in the railroad business. Canadian National launching a thirty billion dollar bid for Kansas City Southern. That comes on top of Canadian Pacifics offer

from just last week of about twenty billion dollars. Let's break it down. We do that with Tony Hatch. Tony is a principal a b H Consulting. Tony is one of the leading and longest serving rail analysts on the street. He knows all of these companies intimately. Well, Tony, thanks for joining us here again, the two Canadian rails looking at Kansas City Southern. What's the rationale behind behind their interest? Well, Um,

the rationale really is that there's terrific growth potential. These both of the offers were really contingent upon where the success was contingent upon synergies, very different from most historic mergers in the rail industry, which have been about removing duplicate efforts or economies. So I think they both see Mexico being a tremendous growth market. Whether or not we get a big increase in near shoring and other things, that's been the fastest growing market in North American freight

for some time and will continue to be. And I think the both of the networks fit with the Kansa City southern pretty well. Tony. How much green space is in this industry? I mean, do you just if you want more railroads, do you have to buy other railroads? Are are they going to be building out more network? Well? Um, basic this is sort of like the whole thing about real estate. You know, they don't make any more of it. Building a railroad is prohibitively expensive, Uh, fighting etter, you

have to buy them. If you want access, direct access, owned access to markets, you need to purchase it or cut some other kind of deal. You can't simply build into it. Uh you know what, the cost would be astronomical? All right, Tony, So behind this deal, I think, you know, even someone like me who hasn't looked at, you know,

a rail stock in thirty years. I look at the map here and I see, you know, the Canadian routes and then I see them connecting down into Kansas City and then going all the way to Mexico, and it just seems like this is just a great play on just North America and trade kicking back in and maybe getting some better trade agreements. Um, is that kind of what these guys are thinking. That's absolutely what they're thinking.

I mean this so you know, I hate to say it's a NAFTA or U s m C A play because un that's going on for a while, but this truly links the continents, links all three players in the continent, uh, in the three countries. In addition, it's a big North South play. And what is you know, heretofore been really an East west world. If you look at the big four US railroads, they really work in an East West phenomenon. So this is a way of attaining a different type

of growth than we had been seeing. I mean, Kensdy Southern had been the fastest growing railroad for the last many years. The Canadians have been one and two, uh and three, all three of us. Are you really talking about the railroads here involved in this little fractus are all the ones the most focused at this point in growth? And the market se as you talked about in the

trade situation, really is supportive of that. Even if it's great, a great commercial play, there's a point when the price could just be too high, right, I mean, we all agree that getting the first n f T on people art would be an incredible opportunity. But for sixty nine million dollars, that's too much. So at what point does UM does this asset get too expensive? You know, of course everything and everything has a value. I don't think there're anything near that. It doesn't mean that we'll see

another bid. This wouldn't surprise me this morning. But you know, I think the idea that they're saying that they could be you know, that the synergies will be created pretty quickly makes a lot of sense, and we'll get more information as this process goes along. But we haven't reached the point of saturation here. This will make money for the buyer at both of those prices, even the higher one UM and I think potentially it didn't even hire one. But I don't see any but any of the other

carriers getting involved at this point. But I think that you're right. You know, there is a point in which you pay too much for the growth. We haven't hit that level yet. Wait. I got a quick follow Okay, Uh, what was Paul like as a young employee. It's very good to hear his voice. He was kind of hate to say this publicly. But he was pretty good. You know, I wouldn't expect saying that, but but he was. And

he does know this stuff better that he's letting on here. Um, this will be an interesting story that The question to me is the regulatory aspect you haven't asked about him? Happy to talk about it. I think it could hash mustard, But it's getting a little more complicated than it was just late last night when I went to bed. Fascinating. So Tony, thanks for coming on. We really appreciate it. Love getting your perspective here. Chat with you going forward.

But again, a big big deal UH in the railroad business in this country as both Canadian railroads taking a big, big liking to Kansas City Southern Tony Hatch principal at A B H Consulting, that's his consulting firm. He talks all the rig railroads, talks the institutional investors. He's got his UH finger on the pulse of that industry and he was a very good guy to learn the industry from. UH. So I can say that much and I still know revenue ton Miles, Matt, that's the key metric for your

earnings models. How much did you make moving a ton of freight. Well, we're all buying more and more stuff online. It seems like there are boxes in front of every door across America on a daily basis. But what about the jewelry business? Has that gone online? Has that gone digital? Let's check in with Tom Nolan. He's a newly appointed CEO of Julie firm Kendrick Scott. Tom, thanks so much

for joining us here, love to get your thoughts. Just starting out, how has your business, the jewelry business been impacted by the pandemic. Yeah, thanks for having me on. I appreciated good morning. Um, you know, two thousand twenty, the year of COVID and even leading into has really been. It's been a fantastic year for us from our business perspective, challenging one for our society obviously, But um, we really

weather the storm remarkably well. I would say we were for sure an outlier, and I'm really proud of the team and what a great job they did do in it. So what have you been doing to sell more stuff online? I mean, I imagine, you know, sometimes I'll go around and look at watch I'm not really a jewelry guy, but I'll look at watch websites and they have kind of developed into more interesting places I guess to spend time, but otherwise, you know, I just need to see a

picture and I know if I want it. Yeah, you know. I think our our business has always been really experiential. And then it's from when Kendra started the company twenty years ago. It's been been a really experiential business and we lead that to brick and mortar and retail, and so it was a it was a challenge for us as more customers migrated to the web business to create that experience and and deliver it to folks online. I think at the end of the day, what we've really

always focused on. We know that the customers are boss. I mean she she ultimately signed my paychecks and all of our companies paychecks, and and it's important that we're meeting her and him wherever they are. And I think what we saw was that everybody migrated online when brick and mortar stores were closed. We managed to have a successful retail the year last year. We're still having a

successful retail year this year. And additionally, on top of it, and there's huge incre mentality and what happened in the web business um and we just tried to pivot and move very quickly to meet them where they where they wanted to buy. And as everybody is seen in the markets and the macroeconomic indicators, I mean, there was a lot more discretion your income. People weren't going on vacations,

they weren't taking trips the same way. So I think folks like yourself, we're looking for things to do in a lot of ways, and I think we're fortunate to be on the receiving end of that. And our brand just means a lot to a lot of people. It's philanthropies and the core of it and the heart of it, and we always try to do good. It's it was remarkable year and it taught us a lot and it made us all better and stronger and faster. So who

do you compete with? Uh, Tom? You know, now as your as your business kind of you know, becomes a little bit more digital, you know, yeah, first and foremost, I think are we our largest competitors ourselves? Right? I mean, we just we're always competing against doing better than we did the day before, the year before. But we're in the jewelry space and accessory space. Brands like Kate Spade, brands like Tiffany's and Tom and James, Bablo, bar Pandora Oriana.

I'd say brands like that are the ones that we were competing against on the day to day basis. So what kind of spending do you expect from stimulus? Have you seen a big boost from the checks that went out or do you think we're going to see, you know, post pandemic, a huge spending splurge. Yeah, I think that

we all saw it. I mean, if you're if you're paying attention to networks and stations like y'alls, there was definitely an increase in stimulus spending, and I think there was a lot of consumer brands around the receiving into that. You know, it's the market is you know, is so so challenging. I mean, it's really more it's harder to figure out that there never has been before us. So I think for us, we think about controlling the things

that we can control. If we know that if we make a great product, if we focus on the customer, if we deliver a great experience, we make our web experience as good or better than our retail experience, we're

going to continue to win. So you know, I can't control what what happens in the market, so we can control the things that we do, and I think when we when we do that, well, we're gonna continue to be successful and win, all right, tom So, it just gives a sense of how much of your business now is sold in stores, you know, the brick and mortar versus online, and how do you think that split might develop going forward? Yeah, so so two thousand nineteen is

probably the best indicator is a benchmark. In that year, almost six of our business was brick and mortar and retail about it was was online. At the end of last year, it almost was. I think at the end of this year it's going to be pretty close to that as well. As it relates to our direct consumer business. We have a meaningful wholesale business as well, but I'm continue to still build pretty bullish on the retail side of things. I think it has also created some nice

inventory opportunities and the right kind of places. We always focused on outdoor centers primary for us, and those those certainly got through COVID better than others. Um. But I think that there's been such a pent up demands. I was with some folktion of Cowboys last night and we're talking about this. There's been such a pent up demand for people to get out and get back to normalcy. I think the web customer has change and forever and

it's always going to be dominant force. But I also think that there's this demand of people wanting to get back out and return to normalcy. They're going to a sporting event, going shopping for themselves or somebody in their lives. And I we've seen a little bit of that regionally where states that open up a little bit sooner, like Texas in the southeast, and I anticipate seeing a little bit more in the markets that we're a little bit

more behind. So at the end of this year, we're gonna be real post to answer your question, but I think retail still is going to be meaningful for us and all the other retailers. Some things to think about it that way, and business too. I would just add one more thing is that we're small footprints. Um, you know, in the jewelry of business, we don't have sizes. We don't need huge, big, monster storytelling retail spaces, so it helps us economically as well. Tom grad spending some time

with you, Tom Nolan, CEO of Kendra Scott. Now we're bringing Fiona Sincana Senior Mark could find a senior financial markets analysts City Index. It's a retail division of stone X and Fiona, let me start by asking you about what we're seeing in U s docks um investors selling off buying into bonds even with you know, these huge growth expectations and inflation fears. What's happening in the US

equity market today. Yes, so what we're seeing is we said we we we sort of had record high struck last week with the Dow in the SMP and then today is the second day of losses that we're seeing. So we sort of set off yesterday, we're seeing another still off today, and there is that sort of there

is this feeling of risk off trade going on. We've got demands for sort of riskier assets such as equity is sort of really coming off invested litten to pull risk off the table, when whilst we've got sort of the more safe haven such as the US gold just taking higher. I think the big concern here is with these rising COVID numbers again, so well, the US is doing a very good job at reopening and getting vaccines

out there. The rest of the world of very much sort of India and Pakistani can talk with Asia, the situation is much more concerning, and I think there is this fear about how that's going to impact on the global growth and global economic recovery. So if you know, we're just you know, about ten the way through this first quarter earning season, we've seen some names and when you think about the banks, lest we've put up some huge numbers, yet the stocks, uh you know, are flat

or down on the news. Is that suggests to you that this market is priced too close to perfection it does, or even slightly slightly overextended. It could be. I mean, we did have some really strong data at the end of last week as far as the U S data on retail PUS and inflation. With bolts so higher, we'd have some great UM numbers from the banks as well. So so really we were with those really strong numbers sitting at all time high UM, and then we've had

this sort of sort of doubt to come in. There are some concerns about where we might be going forward. I think there's also a lot of high high expectations for this earning season and when expectations are so high, it does make it very difficult to please the market. So sort of you know, to have a really good upside surprise is given me much harder um. And so that does mean that sort of any slight um concerns or any niggles that the market could have to see

the stocks fall off quite quickly. How important our Netflix earnings to text docs? I think these are going to be really important. They're really going to be closely watched. I mean, if we think about it, that the first three months of this year, they were still lockdown um uh sort of measured imposed and so that does support the stay at home steam really boosted Netflix across the past year. But we've also got heating up competition. There's

a big focus on content. So I think there's going to be a really really close watch on how these are going to perform and also what that means for other text stops coming forward to next week when we've got the big US TEX stops coming through. So these are really going to be sort of you know, setting the trends and letting investors sort of have an idea to how that stay at home play is still in going on, or whether we are sort of on that

customers rotation out of that. So if you know, kind of on the other side of the typical tech traders, you've got a cyclical trade and a trade into small cap stocks that's been working for a lot of investors. Really since September of last year. That cyclical rotation trade, if you will, has really been paying off. Is that's something you expect to continue. It could do. It's something that I think we could still seem much more room

for the cyclical to to gain. But it just depends now and what happens as far as the COVID situation globally is taking place. So if we feel that, if if the dissentiment concerning COVID is really starting to to unnerve investors again, then we're just going to see a hold back on that rotation into cyculical them back into grad.

But if we can get under this, this sort of draw a line under this COVID concern, which I think we're still some way off for the moment, that then that would mean that would have a much stronger move back into ciculical. So I think that the trade isn't over, but I just think the timing on it is not quite right in the moment. You just got a minute left.

I want to get your thoughts on cryptol. I mean, I know it doesn't seem to be influencing financial assets that much, but the run up has been amazing and now the slump this week, oh completely. I mean it has been one wild ride. And I mean if that's something that crypto is really well known for, its sort of loose why off twings, and it's definitely not disappointing as far as that's consent, and it's been one that

we've been watching extremely closely. We have those those highs as we have the the I p A from coin based, and then it's sort of the slumped down afterwards has been absolute spectacular. But that's what we expect from crypto, right, that's sort of those big moves exactly what it's all about. So just yeah, it's definitely some type for those rides. Fiana, thanks so much for journing us. We appreciate a Fiona Sinkata, senior financial markets analysts at the City Index, Thanks for

listening to the Bloomberg Markets podcast. You can subscribe and listen to interviews of Apple podcasts or whatever podcast platform you prefer. I'm Matt Miller. I'm on Twitter at Matt Miller ninety three. On bo Sweeney, I'm on Twitter at pt sweeney Before the podcast. You can always catch us worldwide at Bloomberg Radio