Nobody Should Be Killed in a Volvo by 2020, CEO Says

SoundCloud and at Bloomberg dot com. Well earlier, we spoke with Lex churs Macker, senior vice president of the America's Region and president and chief executive officer of Volver Cars of North America, to talk about the new x C sixty, their new plant in Charleston, and electric vehicles. We kicked things off by asking Lex how Volvo has managed to increase both the price point of cars as well as the volume. Take a listen. I think it's it's fair to say that we are on a turnaround in the

United States. We have been out of sight, out of mind. Now with entering the market with absolute fabulous products, we are a to and grow because we have the right products and also increase our price steps because the products are very competitive compared to compared to the rest of the market. So it's a little bit of a rare situation, low volume, start great products, and by that we can

combine those factors. I wonder if you could just help people a little bit about Volvo, because your parent company obviously based in China. Geely Automotive, the largest, one of the largest manufacturers of automobiles in the world, described the split between the United States and China as far as

your markets go, volume and so on. I think what you see in the in the in in China happening now is that their their their volume prediction for two thousand seven, the total market is twenty seven million cars, whereas in the United States, as you know, we're operating between sixteen and seventeen. It's it's only two years ago, probably one and a half year ago, if I remember well, that they passed the US the sixteen million borderline. So what we see in in China is extremely rapid growth.

How concerned are you about the rebound in commodity prices steel in particular, as China does stabilize their growth and how expensive it is becoming too manufacturer cars Now at the moment, I am not so worried at all. I think it's that at the end we are we're working in a in a in a free world with free economy, and at the end we will we will resolve it. But of course, I mean steel production is a generic issue, but it's it's not our biggest concern for the moment.

So what's your biggest concern? My biggest concerns here in the United States is to secure sustainable growth. I mean, we want to go as soon as possible to a one percent market share. That's exactly where we were in two thousand four. That's what our retailers are are aiming for. They have invested accordingly, and we have all more as such is on a on a on a great path. So my major concern is to get sufficient cars to

the United States to enable that growth. Can you tell us what volumes you're doing in the United States currently and what your goals are um At the moment, we are operating around thousand units, and that's why I would like to end up somewhere between in the United States between ninety and nine five thousand units. And that's that's based on supply. It's not necessarily based on demand because demand is higher, especially on the ex ninety So just

tell us about the new plant in Charleston, South Carolina. UM. We decided about two years two and a half years ago to build a plant in South Carolina. We wanted to be in the United States. This is this is we have been in the US for more than sixty years.

This is more or less our second home market, UM, and we we took a deliberate choice to be in the United States already two years as ago and for exactly the reasons I said, this is our whole market, this is where our customers are since long and we have faced very loyal retailers. So we wanted to give a very clear signal United States. It is how concerned are you about pushing into the US at a time when auto sales numbers are coming down and there is

concern about deteriorating resale values of cars. That is an issue. And I think what we what we face generally is that we all want to get to the sixteen and a half seventeen million units in the US and that that drives and sentenced and that's not necessarily sustainable. In respect of the factory in South Carolina, it will be

a global factory. We will produce as sixty on the new based on the new platform, same as the x C sixty and we will also export as sixties to the rest of the world, so we're not only dependent on the US market. Although it isn't labor more expensive here. It is, but at the end, you know, it's it's it's it's about you produce where you sell, and we have a global manufacturing footprint. That's why it's so important to stress that it's not only about the US. We

are a global company. We produce cars in Europe, we produce cars in China, and depending on the demand and the model, we distribute them all over the world. And that's one of the reasons why I'm very concerned about the adjustable text discussions here at the United States, because that is that's not aligned with free trade, that's not in line with what we face in the automotive industry,

a very global footprint. The Swedish government has made it a policy in order to eliminate the use of fossil fuels, particularly in automobiles. What kind of hybrid or electric cardio bills can we expect to see from Volvo. We took in two thousand eight the deliberate choice to abandon five cylinders and six cylinders and to focus on very fuel

efficient force force cylinder turbo engines combined with electrification. So we are totally on track with ever demand any government where ever in the world is putting on on environment. We strongly believe in electrification. We will launch our first full electrical car in two thousand nineteen. And those markets where electrification does not bite yet, we have extremely fuel efficient engines in all our car ranges, so I feel

very comfortable with actually any demand. What about self driving cars? And Evolvo had been making a big push, pulled back after some high profile accidents. Where is this now? Um Autonomous drive is an integrated part of our vision. We have a vision that by twenty nobody should be killed or heavily injured in Evolvo, and that's quite a statement.

And with passive safety and active safety alone, we do not manage to reach that statement because we know that of the accident is caused by distraction of the driver. There's only one tool which can resolve that, and that is a tautomers drive. So we continue to to roll out very aggressively our development plan and and and Uber you mentioned it is one partner. We see one accident that doesn't that doesn't hold us back. It's it's a revolution, so it will be a snak umpy roads and there

are you know, there are sometimes some obstacles. That was Lex Cursor Macker, senior vice president of the America's Region and president and chief executive officer of Volvo Cars of North America. He was talking about the new X sixty, their new plant in Charleston electric vehicles, as well as breaking into a US market or expanding a presence in a US market that currently has a couple of road speed bombs just based on the long deterioration as well

as lower resale values of cars. Many of the automobile companies here say that they are leading the charge when it comes to automated driving systems and the latest technology inside the cabin. Maybe not. Sam Abel Zamid is a senior analyst for mobility for Navigant Research. He's based in Detroit, but luckily he's here with us today. Sam, thanks very much for being with us. And you okay, you give away the the answer here. I keep thinking, you know,

maybe it's Ford or GM or maybe Mercedes. Somebody's got this great you know in cabin technology. You're saying, uh, that's not the group you need to be paying attention to. Well, what we did was we took a look at a lot all of the major companies that are developing automated driving systems and took a holistic look at who is best positioned to actually succeed in commercializing the technology, not just the core technologies of a self driving car, but

who can actually make a business out of it. And when we did that and scored scored these companies on ten different criteria for strategy and execution, we came out with several of the major automakers as the leaders in the space. Overall, uh SO, um Ford and GM came out on top for just slightly ahead of General Motors, followed by Reno Nissan Alliance, and then Diemler and um Weymo, the Google self driving car spinoff uh came in seventh overall.

Uh we scored them highest for vision and for technology. But they have no manufacturing capability, and you know they're they're talking to O E. M s about partnering to produce cars for them they can install their their platform on and and developing the services. But right now they don't have that piece. And some of the other companies

that have obviously gotten a lot of media attention. Like Tesla and uber Uh, they actually came quite a bit further down in the rankings UM based on factors in Tesla's case um poor qualit and reliability of the cars they built today, and um uber um their technology just doesn't actually seem to work all that well and their

company as a business doesn't seem all that sustainable. Well, Sam, you know, I have to bring this back to recent market action where all of a sudden, Tesla's market cap surpassed g MS, which was a surprising landmark to a lot of people. If Tesla is in seventh place or way down there, right, I think twelve place, sorry, twelve place when it comes to their ability to commercialize self driving technology, what does that mean about current valuations? Well,

I'm not a stock market analyst or financial analysts. I'm a technology analyst and look at the business side of it. But um, frankly, you know, it's it's a mystery to me how how they have such a valuation. I mean, I hear you know, uh people investors talking about their talking about their the company's future potential. But frankly, they haven't really demonstrated they necessarily have a long term future

as a large scale automaker. UH. Building cars at small scale, they haven't done a particularly good job at product quality and reliability. UM, they certainly haven't been profitable, and UH as as they scale up to larger, you know, higher

volume vehicles at lower price points, UH somewhat UH. Counterintuitively, customers that buy mainstream cars in the thirty thirty five thou dollar price point are actually much have much higher expectations of quality and reliability than customers buying premium cars. Those affluent customers that buy a hundred thousand dollars in up cars often have more than one vehicle, and they're not necessarily reliant on a specific vehicle to be running

every day. People that you know, company customers that buy toy To cameras and Honda accords, don't buy them because they're exciting or sexy. They buy them because they know they're gonna get in that car every morning, turn the key,

press the start button. It's gonna beat, it's gonna fire up, and take them to work, to school, wherever they need to go, and if they need service, it's gonna be handled promptly, something Tesla has not demonstrated a capability to do so far, and if they can't execute properly on launching the Model three, they could be in serious trouble. I gotta say, you know, when you said press the start button, that just took me all the way back

to the nineteen sixties. You know, the turn the key, press the ignition and you know, maybe play a little bit with the throttle. Now you've been working almost twenty you worked twenty years working on electronic control systems. Uh in in the automobile. I've always wanted to know the start stop capability relatively new. Right you stopped at a red light, the engine cuts off then instantly turns on. But we're going to see more innovation like that. And

who was responsible? Do you know who came up with that? Uh? You know, I I'm not sure who did the first auto start stop systems. Most of them were implemented in in Europe by a number of European manufacturers, UM, Folkswagen, BMW some of the first ones. Um. And we're going to see more stuff like that, yeah, absolutely, Um. You know they're they're very cost effective solutions that give you, you know, two three four percent more fuel economy, especially

in city driving. Uh, and so that it doesn't cost much in manufacturers will use that to improve their fuel economy in a way that isn't going to add a lot to the sticker price of the car. Sam, when you were analyzing which companies were most adept at making a market out of autonomous driving vehicles, did you get a sense of what the true self driving car would look like, the one that actually would be sold that

we'd end up seeing possibly in the next couple of years. Um, I think a good hint of the direction we're going to see as cars like the Chevrolet Bolt ev UM. You know, when GM was designing that car, they specifically factored in mobility services ride hailing services as one of the potential use cases for that car, which is why it has the form factor it does. It's a relatively short wheelbase, it's a little bit taller, it's very easy

to get in and out of. It's actually got a lot of room for for four or five adults, uh, even in the back seat. Uh. So they designed it for that kind of application, and now it's their primary platform that they're using to develop self driving technology and what they're going to planning to deploy with lift in the next few years. Well, fascinating stuff. Thank you so much for training us. How is sam Abu Wilsa Sammon

Abu Wilsamond? Yeah, you pronounced it place buil Salmon. Thank you. Uh. Senior analyst of Mobility at Navigant Research joins us here at the New York Auto Show at the Javitt Center, Uh, talking about autonomous cars and how Ford and GM he a leg up on the Tesla's and the Google's of the world despite all the hype. This is Bloomberg. I want to learn more about Puerto Rico, in particular a new study that shows that bondholder losses maybe substantially bigger

than the current ratings suggest. Michelle Caski is back with us. Michelle. We are so happy to have you back. She's a Puerto Rico reporter UH for Bloomberg News and she joins us from our Bloomberg eleven three oh studios. Michelle, can you talk a little bit about why bondholders might be in for bigger losses than Puerto Rico ratings currently suggest. Well, they might be in for bigger losses just because there's

so much uncertainty surrounding this. According to municipal market Advisors UM and Analytics, and they, you know, their their whole theory is, look, you know, everything is still so up in the air, and how do we really even know um that you can get what Moody's is estimating UM that you could get, which would be the on the lower end of thirty five to sixty five cents on the dollar, right, UM. This uh, this report that's challenging the ratings is coming from Matt Right, Matt Fabian, a

partner at Concord, Massachusetts based Municipal Market Analytics. He was talking in a note that was distributed on Tuesday. I find it interesting that, frankly, there are even ratings at a time when there's so much ambiguity. I mean, is there anything that you can kind of anchor your estimates on at this point? Well, Fabian doesn't even anchor his

estimates on anything. He comes out and he says, look, you know, we're not even going to um speculate on arrange because it's just there's what what could happen in

the future is just so unknown. And he also talks about how it's ultimately what will need to happen is something that we haven't seen yet, which would be um, whether the federal government gets involved in some sort of way more than they have already, not not in the sense of writing out a check, but um, creating some sort of super bond, or where the I R s would you maybe collect Puerto Rico's um taxes or creating something like the New York UM New York Municipal water

what what they did in terms of a really complex security structure. So again, and these are all speculations, but because of that, UM, that's why many people are just reluctant to really kind of put a gauge on this and so zooming out. I mean, there's seventy billion dollars of Puerto Rico debt outstanding. A lot of it is held by hedge funds who came in late to the game as speculators, buying the bonds at a discount, but a lot of it is still held by mutual funds.

I mean, how big could the losses be at this point for retail investors who have money and some of these funds well there, I mean, they are gonna have to say there's going to be some sort of a loss. Right now, The most actively traded Puerto Rico g O trades at today is training trading at sixties six six sixty five cents on the dollar. And that's down from well, how much is sent down when it first sold? It's sold at. Um, let's see here, it's sold it was

in thees in cents on the dollar. So it's sold at it's sold at a discount, right, but that was right, it's sold at a discount. Indition, you're talking about a body that is traded down pretty dramatically after being sold in two fourteen, So we're talking, you know about three years later, it's lost about a third of its value. And those those uh, those losses are going to be felt across the board. So what are the deadlines coming up? To give people a better sense of what to expect

respect to losses? I mean, I know that the governor has managed to solidify, uh some kind of deal with some bondholders. What negotiations lie ahead? Well, right, actually this day as we speak, um, there are GEO and and Cofina sales tax bond holders and others um talking today. Um, how how far that will progress? Where they'll get We'll

we'll see, UM. Some people are doubtful that they'll really be able to hammer out in an actual and agreement before May one, which is when a legal stay that sort of shields and protects Puerto Rico from from litigation, that that will end and uh, and then the any lawsuits that are currently in the works will um be able to move forward and um and and we'll see what happens after May one. Who are the main firms that are leading the charge on behalf of the creditors

to negotiate with Puerto Rico right now? You mean the main the main investors, I mean Franklin, Yeah, Franklin, Templeton and Oppenheimer are two of the biggest mutual funds out there holding Puerto Rico debt. And then there's just a whole slate of hedge funds out there as well, UM that that hold the debts. So but pretty much, I mean, Franklin and and Oppenheimer are the ones that that bought

in UM at full price. So they're they're they're they're they're on the hug for a lot of the laws, and they hold a lot of different types of Puerto Rico debt. So well, it's a messy situation. I'm sure we'll have you back to talk more about what's going on. Michelle Casky, thank you so much for joining us. Michelle Casky is Puerto Rico reporter for Bloomberg News. Talking about the situation. We're talking seventy billion dollars of debts spread

across mutual funds, hedge funds. A new governor came into place, Congress did allow a Fiscal Control Board to get in UH to oversee the finances of Puerto Rico, and yet they signed off on a bill recently on a budget that would materially reduce the potential recoveries for bondholders. There's a lot at stake, a lot of people are watching, Michelle. We really appreciate you joining us. Yesterday, President Trump was interviewer.

I should say The Wall St Journal published an article in which President Trump was interviewed saying that I think our dollar is getting too strong, and partially that's my fault because people have confidenced me. While the dollar plunged major move UH and people were wondering what this means for the path ahead to break this down. I want to bring in Bob SnCH, Global strategistic AMers to pure

pont Securities. Bob was the fall of the dollar yesterday in response to President Trump's comments, or has the decline in the green back come from something else? You know, at least I think it's, Uh, it's pretty fundamentally driven. Look, we've had a pretty good rally in the bond market over the last week or so, and uh, as we look at at the movement in the dollar index, particularly against major currencies, is really very consistent with the interest

rate differential between the US and those same countries. So you know, I think that you know, if you look at the dollar move I'd say more has been related to changing interest rates and interest rate differentials, and a very small part of it was was really in response to the president's comments. I mean, the dollar took about a three quarters quarters of a percent hit um on the initial which is a big deal for the dollar.

But that's it's a big deal for the dollar. Well, I mean, yes, I guess in a in a short period of time. But it's regained two thirds of that um this morning. So basically the dollars down dollar indext is down about a quarter of a percent from where it was before those comments were published. Bob, if you could just speak a little bit more about currencies. But in this case the Japanese yen and the euro, as well as falling tenure US treasury yields, doesn't that send

a non inflationary kind of risk off signal? You know, it definitely sends a risk off signal. We've seen that in uh in movement into the end, which which you know that that risk off movement in the end persists despite the fact that Japan has you know, huge, huge deficits and uh uh and their own long term pro blums. But but certainly, I think we had an interesting test this morning. Uh if you look at a two d day moving averages, is one of those that the technical

guys will look at for sort of trend movements. One S five is dollar yen's two hundred day moving average. We went down and tested that having closed or gotten below it. So I think that's an important one to watch in terms of risk aversion in this movement in

in dollar yen. But I think in general, um again, I think it's it's been this retreat in interest rates, uh you know, ten year yields, you know, down a good fifteen basis points in the last week, and I think that's been the key driver of the of the week er dollar in particularly dollar yen, which is which is sensitive to ten year interest rate differential. So um. Again, I think a lot of it's going to depend on what happens to to rates from here and uh, you know,

and I think the dollar will respond accordingly. Do you think that ten your treasury you will continue to fall? Doesn't seem to be but it is not supposed to be doing that at at the moment, right And bank lending also in the United States that period to befalling. Yeah, on the bank lending side, I think a lot of that is companies that are just very liquid um. And obviously capital spending has not been a has not been robust, and so the demand and need for capital frankly um

isn't all that great in terms of yield. Certainly, the market got caught off sides after the March of f o MC meeting. I think a lot of people were short bonds. But I think the one thing that is sort of creeping into market sensitivity is that this little bubble of inflation that everyone was focused on, I think

is fading pretty quickly. Obviously, when you look at year over year inflation numbers, it looks like February UM for many countries will have been the peak, and that's when oil prices and and gasoline prices were up the most on a year on year basis. But you look at China, inflation has suddenly retreated to below one percent. Europe a year from over to the Eurozone, the headline cp I touched two for a month and is now retreating their

core numbers only zero point seven. So I think after a focus early in the year, that maybe inflation is picking up around the world, and and maybe yield levels will be picking up. I think we are seeing this turn globally UM that inflation pressures are cooling a little bit, and with the market that was heavily short US treasuries, there's been a pretty painful shortcovering rally. I think in

that market. You know, Bob just going back to the dollar, because I really was struck by President Trump's comments, especially ahead of a Treasury report that we're expecting that should address UH some of the same issues. I mean, can you just put in a perspective how unusual it is for a standing president to comment about the strength of

the dollar, especially in a year where it has declined. UH, And at a time when in recent, very recent history, a strong dollar was you as a positive and a sign of strength of the economy, or so at least an official said, yeah, you got me. Um, Like, I'm just I'm just I'm struggling to understand the strategy here. Yeah, well, I think that's the problem as if you're referring to it as a strategy. Look, I think the president is um uh you know, speaks his mind. Um, you know,

is not afraid to make off the cuff comments. I think this was in the same category as um. You know, I'd like the dollar to be a little weaker. I'd like I like low interest rates, I like meat loaf. I mean, I just think this was a dialogue and and these things were on his mind. Obviously the whole issue of of China. You know, China does not qualify UM as a currency manipulator under the Treasury's guideline, so it's gonna be extremely difficult to name them a currency manipulator.

So now I think, you know, the tradeoff is, well, we weren't going to name them a manipulator. In this way, maybe they'll help us with North Korea. It's a it's a good versl it sells reasonably well. But I think these topics, you know, talking to the to the Wall Street Journal, these topics were front and the center, and I think he made some comments that you know, he likes a weaker dollar, you know, But I don't. I

don't think there's a strategy here. I think it was just a dialogue, a conversation, and one of those things that happened to come up, well, is there anything tangible that President Trump or his administration would do or could do to lower the value of the dollar that seems feasible in the near term. Well, you know, I think that one of the factors that's been driving the dollar has been an expectation of a change in the policy mix.

And what I mean by that is less reliance on monetary policy, more reliance on fiscal policy in terms of stimulus for the economy. And certainly history and and and theory would suggest that the combination of a stimulative fiscal policy and a tighter monetary policy UH is one that's very supportive of a currency. So I think to the extent that we don't see the follow through on tax reform and things like that, a result of that could be a weaker dollar, but I don't think there's a

real objective in terms of occurrency. You know, you know, administrations policymakers talk a lot about currencies, but you don't really see a lot of action on a consistent basis where the currency is really the objective of policy. I mean you you you may see that in in Hong Kong and Saudi Arabia where they're linked to the dollar, but most most countries are trying to generate domestic growth, domestic jobs, tame inflation, keep inflation from being too low.

The dollar or or their currency is a way of getting to those objectives, but not the objectives themselves. Thanks very much, Bob stinch is global strategist Amherst Pure Punt Curities. Thanks for listening to the Bloomberg pien L podcast. You can subscribe and listen to interviews at iTunes, SoundCloud, or whatever podcast platform you prefer. I'm pim Fox. I'm out there on Twitter at pim Fox. I'm out there on

Twitter at Lisa Abramo. It's one before the podcast. You can always catch us worldwide on Bloomberg Radio.