The 2016 Car Swoon Is Turning Into a Skid in 2017, Tynan Says

You have uh the U S subprime auto lenders losing the most money on car loans at the highest rate since the aftermath of the two thousand and eight financial crisis. And Kevin Tynan, Bloomberg Intelligence automobile analyst for North America, put out a report today saying as bad as two thousand and sixteen looked for car sales, two thousand and

seventeen starting off worse. Let's bring him in, Kevin. We appreciate you joining us, and you have this fantastic statistic that cars accounted for just thirty nine percent of total US sales, the lowest percentage in history. But that might not not be as bad as it gets, right, Oh No, it's it's definitely going to get worse. Um And I

think what is different now. Historically what you would see is demand cycle in and out of cars to trucks and back and forth, and um in some inventory adjustment with incentive spending, and then everything sort of levels out. And what different this time is that the and and this was the sort of crux of the piece, was that the revenue generating segments are all trucks, the top three or trucks and really pushing cars further and further

down the list. And why it's different this time is because the automakers see where that revenue is being generated and are actively unwinding their car positions, understanding that these segments they're going to continue to shrink and shrink and shrink, and they will align supply with demand which will be much lower. So rather than waiting for it to come back, they're actively getting out of those those segments, and it will make it impossible for cars to ever recover, regardless

of gas lean prices. Kevin has the automobile industry ever embarked on a similar strategy and found it to be wanting um no uh in the sense that we've I think what's happening Wednesday with cafe rules and and that I tell people about this because this is very important to the overall disposition of an automaker's fleet, and it's related to how many miles per gallon the fleet has to get right and arguably, and if you look at some of the some of the graphs in the US

in North America, we've always wanted to buy trucks. There's a period between the two recessions that truck sales spiked as well, and that's the two times that that car car sales recovered were cash for clunkers. Uh and then when guest Lee went above four dollars a gallon in two thousand and eight. Uh. So we've always wanted to buy trucks, but this, this corporate average fuel economy standard has had sort of affecting the supply side of the equation.

Telent automakers, you have to build these things to be compliant with these rules, whether or not the consumer wants them or not. And I think that's where we're in new territory that says those rules didn't really take into account the consumer. All all the onus was on the manufacturers. Now with production and the administration saying we want you to produce in the US. I think the automakers are going back to President Trump and saying, we will produce

in the US, but it has to be trucks. If it's going to be trucks, you have to help us on the cafe side. Well, so just to give us a little bit of perspective here, how much more expensive on average our trucks and cars? Well, if you look at it segment by segment, and I'll just take for example, the largest truck segment by volume, not by not by revenue, but by volume, is compact crossover SUVs. The largest car

segment is compact car. So those two line up pretty nicely. Um, the difference in retail revenue is about six thousand dollars between the two. So you'd be in the low twenties for your average compact car. You'd be in the mid to upper twenties for your average compact crossover. And I wanted to get back to the whole idea of subprime auto loans. Is there an equal proportion of subprime auto loans for people to buy trucks as well as cars.

Is it more directed toward cars. I'm just basically trying to figure out, you know, because potentially that could mean that the losses are that much greater on the trucks if somebody is not able to pay. Correct. Yeah, it would be because those transaction prices are higher. And really, I think what you're seeing when you look at the average retail transaction price in the US, it's continually going

up because of this mixed shift. But at the same time, it's also why we're seeing a lot of lease penet ration because it creates affordability. So what you have is this subprime is pulling new buyers into the market, whether that's lower credit ratings, whether that's longer terms, uh, you know, bigger down payments, or however you have to get that consumer to that monthly payment that they can afford, because

that's really how we buy vehicles in the US. So if leasing makes more sense, we'll just we'll basically rent you the car for part of the term and get you to that number that makes sense to you. So so there's a lot of different ways that that the lenders and the automakers are getting people off the sidelines and into vehicles, and it's resulting in higher prices. A shift from into luxury entry luxury more so than we had seen historically. But there's a lot of risk associated

with that as well. Well. As much as I will miss my you know, the nine nine Chevrolet Camaro with the zero one engine, I'm sorry, Kenneth, I'm not going to Kevin, I'm not gonna be able to, uh, you know, sort of look at it anymore with those feelings because everything will have disappeared, at least in that segment category. So who's so who and where are the people who are going to make up the difference who are going

to actually continue that tradition. And then I want you to just give your thoughts about US auto companies maybe doing cars outside the United States, right, And let me just say, I think in one of the areas on the car side that I think is reasonably protect protected is is that performance segment. And you look at uh, you know, Tim kneskis at at Chrysler, who's a maniac in a good way, you know, and you have hell

cats and demons. And I'm glad because I was, you know, I was looking at a seventeen Camaro to SS you know, the fiftieth anniversary edition. Yeah, those I think you're okay there. I think that that the performance stuff and even if you look at Cadillac, the V series stuff, and even in the luxury segments, I think performances is a little bit protected. People will always want that and the physics just don't work as well in trucks. So there, I

think you're okay. I think it's it's the garden variety, the sort of commodity cars. How about the Lincoln in China. Yeah, you know, And I think that that markets outside of the US will adjust to things and taste are a little bit different. Whether it's weather, congestion, there's issues that go into it to what the consumer prefers. But we're also seeing globally, even in Europe, we're seeing a mixed shift to trucks because we can do more with fuel economy, lightweighting.

We're getting better driving dynamics out of truck bodies than we than we ever have, and it's it's helping shift away from cars to trucks. Thanks very much for illuminating all this force and talking cars. Kevin Tynan. He's our senior a senior auto's analyst for Bloomberg Intelligence, and you can follow him on Twitter at keV Tynan Ten, Lisa Abrams. We've been learning a lot about artificial intelligence robots. You know, I think that three D printing can also be included

in that particular list. Because there is a huge conference that is going to take place beginning tomorrow at the Javits Center, and it is inside three D printing. It's the conference and the expo. It's got thirty eight events. It's the largest event worldwide. And get this the presentation. One of them is by Dr Orn Temper and he uses three D printing in plastic and reconstructive surgery. Let's

learn more about all of these things. We want to bring in Tyler Benster, general partner at Asimov Ventures in Seattle, Washington. Also Samil Hargovn, co founder and CEO of We've spelled w I I VV might not be exactly intuitive in San Diego, California. So Tyler, I want to start with you, what do you think is going to be the hottest development at this three D printing conference this year? So

it's a really exciting year for three D printing. We've been saying for a long time in industry, how three D printing is going to go mainstream and key where they're going to and I think Seen is the year where we actually are seeing this happen. So we have a few new developments. UM on the medical side has highlighted earlier with dr Orn incredible new developments going on in implants, orthopedic game plants, companies like added to orthopedics.

We have a wonderful new technologies that are allowing doctors to literally save lives and separate can join twins bas surgical planning and actual surgical cutting guides. And then we have this whole new movement in medals where we're finally starting to see this transition from three D printing is a prototyping technology to want to finished good production. And I know that we're really delighted to have Shamille on here with us who has really been actually practicing finish

kid production in the flesh. I got a note that Shamil, before you answer to the details of Weave, is that you are the company. You're the CEO of the startup company we've and you're trying to make it happen, and you're wearing the suit. And Tyler, who happens to just work at Asithma benches as a partner, he's the money guy. He is wearing this Stanford hoodie. I mean, the contrast cannot be better for for the setup. So I think

you you're on the bright path. Well, it's not every day a startup CEO like me gets to get pulled up to New York to give this conversation. Well, I was going to say to you raised over five million dollars in a series A financing just recently, right, Yes, sir, all right, tell us what you're gonna do with the money. And you've brought some things along, custom fit three D printed insoles. Yes, yes, we are what I would say actually doing it today, which is manufacturing in America three

D printed final product. And specifically we're working with custom footwear which you order by measuring your feet using your smartphone, and from there we are able to say into your product in under seven days. And what I'm here to tell you is for the footwear and apparel industry, like like many other industries, made in America, is starting to make business sense again in order to offer consumers that

kinds of products that they expect and want. Can I can I just ask Shamille, what's the difference between a machine that is automated and you know, just that's maybe directed by one person somewhere at least overseen, which we've seen for years. And three D printing, Yeah, and three D printing it essentially allows you to take the complexity away from the human uh and and and it digitally is able to make the complex custom parts of products

that you need. And what we do is we marry that with with sort of traditional manufacturing to make what we called hybrid products. Okay, and then Tyler, I wanted to ask you. You you talked about how this is the year that three D printing is going to go mainstream. What gives you confidence to say that? Well, I think if we trace where the investment in R and D has been going into we've seen an explosion on the

venture capital side. In sixteen, we had more than a quarter billion dollars flow into startups UM, which was really outstripping the public markets for the first time. UM. We also have seen an incredible increase in M and a activity of d E snatching up to the largest metal companies UM. We've seen a large uptick in investments in that sector. And I think that we're starting to see

this growth really being driven by the bottom up. If we look at what's happening like with Stratesis is outlook for seen and the public markets reaction, I think that the markets are in agreement that a lot of this growth is being driven by the small disruptive players that are moving quickly. Well, you mentioned Stratusis, and I mean, boy, if you're an investor in Stratusists, you have watched it

move high and then move low. And in fact, they just released their results I guess it was on March the seventh, and while the results were great for the previous time period, their guidance and you know they were not giving the kind of guidance any of the stock ended up down about nine percent just that particular day. So it's been rough going for them. Uh, Shamille, I want you to just talk a little bit about your background because this was a kickstarter campaign, right, I mean

that's how it all started. And now what you've managed to purchase the Souls I love this e Souls is a company that has a database of foot scans. Tell us what that gives you? Yeah? Absolutely? Uh, you know, to really build out this vision. What we're seeing in the market is the big players like Apple Intel and Google are spending Microsoft included are spending hundreds of millions and dollars and three D scan and they're gonna bring

this to your phone very soon. And then you've got Carbon and Hewlett Packard and Stratusis and three D systems working on the printer engines. Now why this Soul's acquisition was important for us? Is it meant that we now have a bigger database of three D scans that we can feed to train our technology to take that scan and turn it into an STV STL file more efficiently. That's the file format most pree in three D printing today.

And so that's really more new that fifty thousand scans of three D scans of your feet would be worth that much on it Well, well, Tyler, though, I wanted to ask that that brings me to the next question, which is where does the real money lie. Is it in the programming behind the three D printers? Is it in the actual machines that can take the technology and make it into uh, make it into action? Where does it go? So today it's very much on the material side.

It's the razor razor blades model, where if you look at the margins and industry. We see margins as high as a thousand percent on the raw feedstock, which is pretty incredible considering most manufacturing margins. However, I think in the long term, as the patent landscape has started to shake out in competition has really increased, we're going to see the long term margins on three D printing drop to about two to three, which is the manufacturing standard.

I think that much of the VIA will be captured, as we've seen in electronics, by the design. So companies are really going to be able to command high premium if they have a proprietary sort vertically integrated, and end experience that is really i P driven design. If I may just echo what Tyler said, you know, one thing hasn't changed, making a product that people want and then marketing that product that that hasn't changed fundamentally. So for us as we've we've even learned that as we've gone

about what we're doing. It was one thing to figure out the technology, but it was another thing to build the market and have people realize you can actually get these end products. And so having the brand in the in the market and having a product people want is key. Thank you so much for joining us. This is really interesting. Tyler Benster, general partner at Asthma Ventures in Seattle, Washington.

Here with us in our Bloomberg eleven three studio. Also with us Shamil Hargovan, co founder and CEO of We've in San Diego, California. I am so excited about our next guest. He is a long time UH person who I have looked up to tremendously cast Sunseen Harvard Professor, Bloomberg View contributor and author of hashtag Republic, Divided Democracy in the Age of Social Media. UH. He comes to us now casts. Thank you so much for joining us UH.

This the premise of this book is fascinating that basically the new challenge to democracy is the way that increasing technology is allowing people to sort of live in their own bubbles without getting exposure to one another. Can you explain what drew you to this and and how severe

this problem was as you found? Well, I guess I've been drawn to it since the beginning of the Internet, when you could see that the UH capacity for people to sort themselves and little kind of mirrors where they're just looking at mirrors of oneself or people who have the same view as oneself at least, that capacity just skyrocketed. And in the recent past we've seen it in the elections, of course, but also in political discussion that would say

spook and Twitter. And of course, with your ability to just scoot from one congenial view to another, you can just hear topics and points of view that make you feel like you're in a cozy little cocoon. And that's uh comforting cocoons are, but it's also a form of prison for individuals and for democracy. It's it's a danger,

uh ms Sunstein. I wonder if you could just give us a little bit of your historical perspective, because I note that you know, in September two thousand nine, you were confirmed as the director of the White House omb Office of Information and Regulatory Affairs. Uh. This is an important agency, and I'm wondering if you could just describe its work and what you see happening to the current

Office of Information and Regulatory Affairs. And as much as President Donald Trump has asked for agency wide reviews to reduce regulations, sure so the goal of the office, which goes back to President Reagan, is to oversee environmental regulation, safety regulation, labor health, lots of stuff, including some national security stuff, and to make sure basically it's consistent with the law that the costs are under control and the

benefits justify the costs. So it's not the most visible office, but it is an office that has a pretty central role in affecting things that affect people every day. UM. Under President Trump, it could go in two different directions where still at early days, UH, there's some signs of kind of making sure that if we're going to be issuing new regulations in an economically challenging time, they really

survive some sort of hurdle of justification. And that's accompanied by an idea if you're going to issue one, you have to get rid of too. Now, in principle that's not the best idea in the world, because you may have one good one and not too bad ones to get rid of. But in practice, UH, the people in the Office of Information Regulatory Affairs, I think they can make it work, certainly for a year or two. So one direction is just have a lot of discipline about

new regulations going out. UH. And I would favor that that's continuous with a lot of things I've worked on when I was there, and Another direction, which isn't so good is what has been referred to as the deconstruction of the administrative state. Probably some people nod their heads when they hear that word, even though it comes from a French literary theorist who, Uh, the critics of the

administrative state don't like so much the French literary people. Um, but I think nodding the head isn't a very good idea because there's UH safety regulation that prevent deaths on the highways, their safety regulation that make sure our food is safe, and there's UH safety regulation that makes sure that our error is clean to breathe, and deconstruction of

the administrative state wouldn't be the best idea. So there's a long way of saying, Uh, Trump administration could go in one of two directions, and the first direction isn't so bad. You know. I want to go back to the point that you're making about people sort of seeing themselves in mirrors or seeing their ideas just in mirrors, and how that, I mean arguably has dictated what we

are seeing right now in the current political cycle. Uh that's my extrapolation, not necessarily yours, but uh, but I'm wondering how much are you seeing that in academia, because you know what people think of uh institutions, academic institutions being a bastion of of thought and in conversation. But often there isn't a lot of diversity of views even among the professors. Well, I don't see a whole lot in academia, I confess, but that this may be my

limited travels. So I spent a long time at the University of Chicago, and if you go through a day without hearing twenty different views, you're probably just staying in your office. UH. And the universities, even though they're often reputed to be echo chamber areas, UM my own experience,

as I say, is as they just aren't. So some of the places that are supposed to be left the center and kind of Obama territory, there are people who think that Obama was awful and you know, and that the Trump direction is much better, and then we need some conservatives in charge. And there are places that are supposed to be conservative bastions where there are people who say, you know what, the Democrats have some really good ideas.

So I think it's a problem in the political domain where people self stored into little cocoons, and they regard their fellow citizens as traders or enemies or you know, deeply confused or in the crip of lies. That seems to me a much more serious problem than what the professors are doing. Do you have any hope that the situation will improve where people will seek out views the disagree with their own. Well, one of the great things about our country is that we're not hopeless, and that's

meant has a pun. It's first, we're not pessimistic, and second, we have capacity to put the future in our own hands. That's what we the people did a long time ago,

and we've that repeatedly since. So the fact is that what our communications world is is if it's a world of self sorting where we uh, you know, just learned a single thing about civil rights, let's say that maybe not be true or at least is in the full picture, or we learned a bunch of different things, depends on our own choices, both as individuals and people are providing the stuff. So I think that there are some good

signs that Facebook is reassessing it's a news feed. It's news feed is really an echo chamber generator in my view, and it's reassessing that, so we're going to see some changes on the individual side and on the provider side in the next few years. Thank you very much for spending time with us. Professor Cass Sunstein is a Bloomberg

View contributor. He's also a professor at Harvard University. His new book is entitled Hashtag Republic, Divided Democracy in the Age of Social Media shares a mobile I are hired by nearly thirty percent. This comes after the announcement that Intel will pay fifteen billion dollars for this technology company. It provides vision based advanced driver assistance systems. This is everything from lane and vehicle detection, adaptive cruise control, traffic

sign recognition. Here to tell us more on en trine of us in our senior Semiconductor and Hardware analyst for Bloomberg Intelligence, he never takes his hands off the wheel on on. Thank you so much for giving us your time. I know on your well learned holiday, but I want to get your thoughts on what is it about a company that has three hundred and sixty million in sales getting bought for fifteen billion dollars. Can't you do a lot with fifteen billion they certainly can. You can build

the new fab and then some UM. But look, this is the future of semi conductors, right. I mean, if you look at the handset market, it's slowing. If you look at the PC market, it's slowing. The server market is more competitive and that's slowing as well. So everybody's all um UM driving fans UM towards the auto semic conductor market. But the promise that it is large, it

is profitable, and it is fast growing. Now with autos, there's a special tweak in in that you whatever design winds that you have, if you get into a car with a new system, you don't see revenues for a couple more years because it has to be tested extensively before products are shipped out. It's very different from consumer electronics.

So the thirteen UM revenue that they're playing forty three times Stralian common sales UH, it's obviously growing very fast, but the true growth potential of that is not going to be visible for several years UM. And that's part of the issue because we're not going to be able to see it. The gross margins are better than that the Intel of Intel, and it's UM it's in a segment that you can't easily design your way into. So many is uh is the smart route and mobilize a

great company. But the question is you know you're right? Did they do they overpay? We? We won't know to be quite on it for five years. Well, so, can you give us a sense of just how competitive the landscape is for becoming sort of the data provider of the system provider for autonomous cars? I mean, it seems like Intel is trying to position itself to be the number one provider of that type of of data system

and technology technological system. But who are its competitors and uh, what's the sort of market share potentially look like down the line. Yeah, it's that's that's a great question, and it's got a cloudy two part answer, which is one is that the architecture of technology in cars, it's help

is changing. Companies like in Vidia and now inte are pitching for quote unquote um the guard box or the one system to rule at all in the auto right, So they want all auto technologies to coalesce around one intelligent system it's artificially intelligent or talks to the data center and will take you from point A to point B with as little human intervention as possible. That's the

utopian scenario five ten years after. What exists now is a bunch of disparate systems with as many as thirty two and ten UM micro controller subsystems, anything from checking your oil levels to your tryer pressure to UM to seeing what the temperature is outside. And these systems don't necessarily all talk to one another, and there's no central um intelligent control points. So that's what it is today. Companies like in Video, potentially Tesla, potentially Intel now are

all coalescing towards the future. It's a much slower market to turn UM, particularly in advanced driver system systems that that that everybody is pitching. The The number of things that we need to do between here and the truly driverless car is many, many, many, many folds. But here's

the flip site. You know, we sell roughly about eighty million cars a year, and and each of those cars contained somewhere in the the intern eighty dollars of silicon that could go substantially higher, two, three, four or five times higher based on whether it's a driverless car or it's a semi driverless car. UM and so that's the utopian scenario, and it becomes very very sticky. It's high margin business is sticky business. Um, it's not as volatile

as the conserveral times. And that's me intell pitch. Here's another utopian scenario. How about if you go public three years ago, you raise a billion dollars and you have a market cap of a little bit more than five billion. Fast forward three years you sell out for fifteen billion UM. Pretty nice chunk of change for the thunders. It's so great, why are they selling? Look, I mean there's a point

to be made with respect to scale. If you look at the semikinnecter industry in general, it is become one of scale in terms of design, one of scale in terms of factories, and one in terms of touch. Small semiconductors companies in most spaces will become UM an oxymoron. It's going to be very very tough to exist if

you don't have scale. Um, you're going to find it very hard to compete with the likes of n XP, which is now being acquired by Quantcom, which in fact box free scale, which is the number one auto supplier. So um, you're going to find it very very difficult to compete with these beheamoth from an R and D perspective, and for more, boy they're thinking, is that I get a big R and D partner with Intel right an on Street of Austin. Thank you so much for joining us.

He's senior Semiconductor and Hardware analyst for Bloomberg Intelligence. Thanks for listening to the Bloomberg P and 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 at catch us worldwide on Bloomberg Radio