Auto Sector Earnings in Focus & Ford CFO Sherry House

0:02 Bloomberg Audio Studios. Podcasts. Radio.

0:06 News.

0:17 I'm Matt Miller, and this is Hot Pursuit.

0:19 Today, we have a special guest joining me to talk about the business of cars. Appropriately, Craig Trudell is a managing editor of business coverage for the Americas at Bloomberg News, and he has covered the automakers specifically on three continents. He started out in Detroit, then he went to Tokyo to run our Asia coverage, then he moved to London to run our European coverage of autos.

0:43 So he knows a of which he is speaking today.

0:47 We've had a ton of earnings out from General Motors to Ford and Stellantis, as well as a bunch of European automakers who are seeing margins shrink as the Chinese eat their lunch down there, as well as move into Europe. And it looks like a lot of people are now piling into the US as the last remaining market where they can make money without that kind of cheap competition.

1:13 So we'll hear from Craig Trudell and from the CFO, the chief financial officer of the Ford Motor Company, Sherry House, joins me along with Romain Bostic, anchor of Bloomberg's The Close on Bloomberg Television, an interview that we did this week.

1:28 So we'll bring that to you to give you some color.

1:30 My takeaway from the Ford interview is that 25%, fully one quarter of Ford's revenue comes from off-road capable vehicles, which means everything from the Bronco to the Raptor to the Tremors, all the different Raptors to all the different Tremors. So even if you're not taking them off-road, if you're buying a Raptor R and just driving it to Starbucks, like most of your fellow Raptor riders, you're still part of that segment. And I think it's a pretty massive number, 25% of all revenue going to off-road style vehicles. And that's what Jim Farley has been pushing us toward. I will say for my part, I'm all alone this week here driving a BMW, the new BMW M3, which fortunately still has a stick shift, but... doesn't seem to have the

2:27 M magic for me that these cars used to have. Not quite as raw, as visceral, but I am thankful that they're still making a car with a manual transmission, a real manual transmission, and not just some sort of electronic overlay of a DCT. I also spent some time last week in a... General Motors vehicle in GMC Yukon.

2:53 It was the Denali ultimate. So the highest trim level of the big heavy vehicle, which was fantastic for camping. I took the girls and some friends, two families in that vehicle.

3:06 Camping.

3:06 And now I'm starting to pour through the auto trader and car guru ads to find my own as well.

3:13 That's just because I have a growing family. Let's focus back.

3:17 In on the business of cars, the automaker earnings and Craig Trudell.

3:27 All right.

3:27 So you have had, I think, tremendous experience.

3:30 I've always marveled at your time of here and abroad, as you know, uh, we've talked about it many times, but you ran the autos coverage in the U S you ran the autos coverage in Europe and you ran the autos coverage in Asia.

3:42 So you've been all around the world covering cars.

3:46 Um, what do you think in terms of the, the, the point where we are right now about car manufacturing globally, like what, what, what are the, what, what are the biggest trends or the biggest, um, uh, strategy.

4:01 Issues that, that car makers face right now?

4:04 I think it's gone from, uh, nobody having an answer for Tesla to, uh, nobody, including Tesla, having an answer for the Chinese. If I could sort of succinctly sum up kind of the overarching thing that, that, uh, is determining how everyone is, is acting the way they're acting or, or, you know, what they need to be doing to sort of ensure their future, uh, I think Tesla has pivoted from the car business in this emphatic way, in this way that Musk is portrayed as very intentional. I think what he isn't necessarily being as upfront about it is, It's not a very good business to be in when we have so many Chinese players that have emerged and continue to sort of go from kind of strength to strength in terms of scale, cost, and competitiveness. And even

5:03 Tesla is now, in my view, kind of falling behind from a perspective of where their tech is, how competitive their batteries are. And, you know, everybody's going to be, you know, trying to do the driver assistance sort of technology that Elon has oversold as driverless. So, you know, I sort of, you know, give Elon a hard time, but he also, you know, has managed to really shake up this industry where, you know, I think everybody who's tried to, you know, accomplish what he did, which is, you with the exception of the Chinese manufacturers, have largely failed.

5:44 And it's just been really challenging to kind of, you know, move away from some of these long time ways of doing things, you know, and, you know, you can simplify it down from just to just combustion to electric. But there are all sorts of other things, too, that are sort of wonkier and less well understood from supply chain perspectives and kind of how these companies are set up from a kind of vertical integration perspective.

6:13 By the way, just, I mean, to even broaden it out further, you are now our managing editor for business coverage, which is really broad, but I mean, it's, it's kind of cool because you covered cars for so long and cars are so important to global trade, right? And Elon, and you mentioned supply chains and all of that, obviously, you know, the global manufacturing business, American manufacturing business is So car heavy. But now Elon and other car makers, I mean, Ford, I noted in their in their earnings are moving towards sort of AI adjacent earnings revenue streams.

6:47 Right.

6:48 And as you must see this as as as managing editor of business, that the automotive world really is broadly important. It's not the old economy that everyone thought for a while. It doesn't matter anymore. It still is like the heartbeat of business in America and the world.

7:04 Absolutely. I think there's a reason why in the past, the Wall Street Journal, when they wanted to kind of give people a primer on how to report, how to be a business journalist, they sent a lot of their best and brightest young people to Detroit.

7:21 The ability for you.

7:23 To learn so much about so many things from the perspective of economic issues, finance, labor, advertising, manufacturing, And in the sort of modern times, artificial intelligence and robotics, I think you have to sort of wear many hats just to cover this one industry. And so much as these companies, many of them are really struggling to execute in this sort of new paradigm, I think it also has to be acknowledged that they're doing so because this is really hard.

7:57 And This is a risk averse industry because we've seen so many car makers try to do something new and different and fall flat on their face.

8:07 What if they had just stuck with. the tried and true internal combustion engine, you know, steel bodies. I mean, I look at Ford earnings, and we're going to hear from the CFO Sherry House a little bit later on. And I note that Ford Pro is where they make all their money, right? Which is like giving workers trucks, you know, and even on the retail side, it's the F-150 that makes all the money, you know, the simple truck that they claim is America's number one selling nameplate for uh, I think what, 50 quarters in a row or something crazy. Like, no, it's 50 years in a row, isn't it?

8:42 Yep.

8:43 By the way, I take, just as an aside, I take issue with that.

8:47 Because GM, right.

8:48 If you put together Chevy Silverado and Sierra, which are essentially the same truck, you do outsell the F-150.

8:57 Indeed.

8:57 Yeah.

8:58 And, and I, I do think, uh, it is true that these, these, uh, companies, uh, if they continue to do what they've long done, which is, you know, sell, I think GM and Ford in particular, right. If he's kind of boiled things down to selling big pickups and SUVs, uh, absolutely they can, they can make a ton of money. They, they have, uh, they have, you know, built these businesses over, over time, managed to, to sustain them, uh, continue to kind of defend their turf in those segments. Uh, even after, you know, the decades of, of kind of long decline in, in passenger car that, uh, You know, first the Japanese and then the Koreans really sort.

9:33 Of took over.

9:34 But I do think the big question for me sort of going forward is, you know, how much longer can, you know, can we sort of, I guess, take for granted that the Chinese, you know, manufacturers will never be here. If we continue to be in this world where the the rest of, of, uh, the globe is, is taking advantage of these really cheap, uh, really attractive, very competitive products. And, you know, people, uh, sort of get exposed to that, uh, particularly people very online. If you're on TikTok, uh, you know, you, you sort of see the Xiaomi's and, and BYDs and, uh, they do turn your head, uh, How much, you know, can we sort of afford to, you know, sort of operate under this assumption that we'll always be able to

10:23 keep this wall up versus the Chinese? And if the answer is only, you know, only a matter of years, what we've seen in every part of the world where Chinese manufacturers have been let in is that they get big and they get big quickly in terms of, you know, becoming major players in wherever they're operating.

10:45 And by the way, it's not just the cheap stuff, right?

10:47 Because I was looking into the Chinese automotive offerings when I was going to interview the CEO of Porsche, and I saw the Cayenne retails for over a million yen, which is like 150 grand in dollars. the Xiaomi, I think, or no, the Huawei M9. Apparently, people think it's really a competitor to the Cayenne, like honestly, as good technically and in terms of performance, if not brand, is going for 650,000 yen, which is.

11:21 Not super cheap. It's just far less expensive than the Cayenne, right?

11:25 Right.

11:26 Yeah.

11:26 And absolutely is the case that a lot of these manufacturers are not just competing on price. I do think it is easy to sort of, you know, just sort of simplify things and oversimplify to refer to some of these lower price models. But that is where they do quite a bit of their volume. The fact that this is also a case, too, where you have to kind of, you know, wonder how long this paradigm kind of continues for the Chinese manufacturers, right? Where, you know, while they are succeeding on the global stage more and more every day, I think it's gone underappreciated this year just how much their domestic market has really come under pressure. And it's been, you know, sort of widely felt, right, where we've gotten

12:11 used to, you know, reading and hearing a lot about some of these Western manufacturers really struggling and getting squeezed out of that market. But just kind of across the board, you're seeing, you know, industry wide sales down, you know, in the double digit percentages month after month. If that continues and we continue to have this sort of situation where there are just so many mouths to feed in terms of players, we have long sort of assumed that there's eventually going to be some consolidation in that market.

12:41 We haven't really seen it yet in any meaningful way.

12:45 I was looking at.

12:48 Porsche sales in China, and you and I were talking about this, they've fallen for 11 quarters on average 28%.

12:54 And I.

12:57 Was wondering, like, how does that play through for the big American automakers that we care so much about? For GM, which I know had a big presence in China for a long time, apparently Buick is a huge nameplate in China. For Ford, for Stellantis, I mean, are they all suffering the same kind of pain?

13:16 Yeah, I think GM far and away was the most successful of those three names in terms of setting up in China and getting to a point where they were awfully big. And to your point, the only reason why I think Buick is still in existence today is because at the time, the Obama administration was deciding which brands are going to stay and which are going to go.

13:41 there was a view that it didn't make sense to do away with Buick, because if you did, it would sort of compromise their business in China. I think it's fascinating now that even Buick is a Western brand that is really among those that have fallen on hard times. And everyone's trying to sort of find a way forward and muddle through to some degree. There's some attempting to leverage the local operations there for some export business. And we've seen GM do that to some degree where, you know, if you go down to Mexico, you can buy a Chinese made Chevy down in Mexico. But, you know, Ford and Stellantis, I think, you know, never got nearly as big as GM did in China. So they've had, you know, less far to fall. Um, but they, they all, all

14:34 three of them are, are, you know, very much struggling to kind of keep up with the local competition. And that applies to, to the German manufacturers and the Japanese as well.

14:44 In terms of the big three, which I don't know if they're still considered, I guess they are still right. GM Ford and Solantis, because the truck makers are the most important part. And I guess you have to add Toyota in there because the Tundra is such a contender, but how are they, how are they doing in the U S?

14:59 Yeah, I think it's going to be very interesting this year to see just how close Toyota gets to catching up with GM in overall sales in the U.S. and just how close Hyundai comes to catching up with Ford. So I think one of the things that sort of ties those two trends together is the fact that both Toyota and Hyundai have an awful lot of hybrids on offer.

15:24 And while the American consumer has not taken to battery electric vehicles the way that GM was hoping with its EV push and that Ford was hoping with, say, the F-150 Lightning, there has been sort of renewed interest or even more intense interest in hybrids, especially with gas prices trending the way they have. And I think we saw GM and Ford– really sort of make a good faith effort to try and be more competitive on BEVs. And we're not particularly successful in sort of building those businesses into, you know, sort of franchises at the scale of, say, a Prius. And so, you know, the consumer in the U.S.

16:12 is increasingly interested in what Toyota and Hyundai have to offer. I think Stellantis is even further behind GM and Ford by quite a bit in terms of electrification. And so they're in a pretty difficult spot in terms of not only lacking in battery electric vehicles, but also much in the way of hybrids to offer as well.

16:35 By the way, GM has such an incredibly broad EV portfolio. I mean, from the top, they have the Escalade IQ and they have the GMC Hummer, but they also have an electric Sierra, GMC Sierra. They have an electric Cadillac, electric Cadillacs below the Escalade.

16:56 They have then the Bolt as well. I mean, they have so many- The Blazer, the Equinox. Yeah. Yes, exactly.

17:03 And- And Ford has, as far as I can tell right now, Ford's only electric vehicle is the, whatever they call their electric Mustang, the Mach-E, right?

17:11 Right, right. Yeah.

17:13 That's crazy.

17:13 Yeah, I do think it's absolutely been the case that GM, you know, while they've pulled back in terms of their electric vehicle business, they've not done so in nearly as dramatic a way as some of their sort of crosstown rivals. I do think that they're also, it's a matter of kind of scrapping investments that were going to be made or were in the works. This is still a company that when you hear Mary Barr kind of talk about, as she puts it, their North Star, she still believes that electric vehicles is kind of the way of the future, and it's just going to be a messier path to getting there. I do think it's incredible that we in the U.S. have facilitated so dramatically from when Obama was in office passing the most ambitious fuel economy standards to

18:06 you know, gutting those pretty significantly under Trump one, to, you know, Biden one upping Obama to Trump, absolutely eviscerating standards in his second term. And that is just not helpful for these, these companies in this industry where, you know, you're planning out for a product planning perspective, you know, eight years, at least for the most part in terms of, you know, where you're going to aim your capital, because when you lay bets in this industry, these are these are massive numbers.

18:39 Yeah, I think it's so interesting that GM has just come out with these bigger displacement V8s, which, you know, for me as a I'm a lover of those kind of engines. So I'm so happy that we're going to get 5.7 liter instead of a 5.3, a 6.6 instead of a 6.2.

18:52 And I think there's an eight liter diesel as well, which is awesome.

18:59 But how can they I mean, I understand how they can do that now because President Trump is, you know, cafe standards aren't his main concern. But what if the pendulum swings the other way? How can they make that kind of move?

19:13 I do think it does beg the question of, you know, just how much sort of ability is a next president? You know, if we keep going back and forth in terms of, you know, Republican and Democrat in the White House, it is going to to.

19:30 Yeah.

19:40 The proverbial cuffs have been taken off in such a major way. It's not just fuel economy standards. It's also emission standards, and those are separate and distinct. And this is a case where I think, too, when you think about the global automotive supply chain and battery manufacturers and not just the end manufacturer, but the supply chain behind that in terms of tier one and tier two suppliers and beyond. that feed into those batteries. If you are sort of being tapped for a battery project in an electric vehicle program from one of these, you know, Detroit manufacturers, how much can you sort of, you know, make that investment with any confidence that these companies are actually going to be committed to this and really sort of stick

20:30 to it and be committed to, you know, standing up an electric vehicle business when they made so much noise about it, they made so much effort and then just absolutely uh you know whiffed by a long shot and this is you know something that i think especially applies to like you know big electric pickups right where you know a few years ago we were all talking about you know is the cyber truck or the silverado or the f-150 lightning or the the ram did they were they going to call it the recharge or something like that like you know, there's going to be this electric truck war. That has absolutely not panned out whatsoever for any one of them. It was a complete misread of what the American truck buyer wants or is interested in.

21:12 I mean, it depends which truck buyer you're talking about because the rich, you know, investment bankers and doctors that live around here do buy the GMC Sierra EV and the Escalade IQ, um, Those are incredibly expensive vehicles. You know, if you go if you hang out with some tech CEOs in Napa Valley, they're going to have these big electric trucks. But the farmers and the workers and the blue collar, you know, or whatever we call the left what's left of the middle class in America, they just want a.

21:48 A good naturally aspirated gas engine, I think.

21:51 Although the Ford truck sales looked really good and they've put all their eggs in the EcoBoost basket, they still have the twin turbocharged V6s.

22:02 Yeah, yeah.

22:02 And absolutely, I think we take for granted too how much pickups have become kind of family vehicles, right? Like the minivan segment kind of shrank for quite a long time. And a lot of that had to do with the fact that you could buy a pickup with these great big cabs and fit the whole family in there. So, you know, we talk about these being popular, you know, with sort of, you know, folks who actually, you know, put them to work. But I think it's incredible to me as someone who has, you know, spent some time, you know, living elsewhere in the world, and I know you have as well. We are very different, you know, from anywhere else in the world in terms of how big our vehicles are. and they just keep getting bigger

22:46 in terms of these like cartoonish pickups.

22:49 Well, we have a lot more space, right? I mean, you live in Tokyo, so you can appreciate those London roads too. Exactly.

22:57 Like we have so much more room in just in terms of, you know, road width in terms of parking lot, uh, or parking space with, um, and we have bigger people as well.

23:08 Um, I'm not, we don't have bigger families.

23:10 Uh, I know the average American still has like slightly less than two children. But, um, the minivan segment to me is interesting because there's only basically one new one left, right? The Sienna is the only one that they've actually done work on. The Honda Odyssey is like 16 years old at this point. And does Chrysler still make Chrysler must still make, but, but, um, I don't think a lot of American families really want to choose.

23:39 You don't have a minivan, do you?

23:40 I don't.

23:41 And I do love them for their utility. And yet the fact that I am one of, I guess, part of a dual income, no kid household, there's not a whole lot of need for me to entertain the minivan segment.

24:09 You started the hyperdrive newsletter, right? That was or is Bloomberg's sort of, I guess, future looking. I want to say green also, but it's really about EV, the push for EVs, right?

24:23 Yeah.

24:24 May it rest. It is now the the auto monitor thing. It ain't what it used to be.

24:32 But you're still an EV fan, I imagine, right?

24:35 I always listen to Bloomberg Radio, and there's a promo that has a snippet of you saying, once a consumer goes EV, they often don't go back.

24:42 And I think that's so true.

24:44 Yeah, I think people are afraid of change, and it is a substantial adjustment to make. I do think that people also, if given the opportunity to drive a the equivalent vehicle, uh, and, you know, a combustion vehicle and, and battery electric back to back. I, I really do think that people prefer, uh, just would, would prefer how much quieter, quieter it is. Uh, the instant torque is great. Uh, you know, it's, it's also nice to not have to go to the pump. Of course you, you do need to have, uh, you know, the, the technology to, to make it plausible, uh, from, from, uh, uh, uh, charging infrastructure, uh, perspective, uh, battery longevity, battery range. And figuring out that whole equation in a way where everyone actually makes money in the

25:39 end is still something that most of this industry is trying to find out. We just have not gotten batteries down in price enough, with the exception of in China, to where it makes a whole lot of sense for people who really need convincing in this industry that is just, uh, let's face it, you know, just kind of one of the biggest, uh, you know, enemies is inertia. Like we're, we're just going to kind of continue to do things the way, uh, you know, we have been doing them because after all, this is, you know, the second most expensive purchase someone makes after a house.

26:15 I mean, to me, one of the greatest comparisons for that is still on the very high and expensive end, the G wagon. Um, when I lived in Berlin, I, Also was a dual income, no kids, family. So I finally had enough to buy a G-Wagon. They're very expensive. But another thing that's very expensive is putting fuel in them.

26:35 They are serious gas guzzlers.

26:38 And because it's obviously a brick, I have had the opportunity to test drive the electric G-Wagon a couple times now here in Scarsdale. And it is a fantastic vehicle. And my thought is that these big brick shaped vehicles, these big heavy trucks are great platforms for electrification because of that torque. I mean, it just moves you along so effortlessly. And I think that's a prime example of if you give somebody the option of both and let them test each one for say a month, I think most people would probably lean towards the electric version.

27:16 I mean, even a few years ago, Toyota put on an event timed with the Paris Olympics. And Toyota very famously is in these sort of electric vehicle skeptic camp. And yet they put on this event where you were able to test, take for a spin various vehicles that they have, including some prototypes. I had the opportunity to drive back-to-back a diesel, a petrol, and a battery electric Hilux pickup. And, of course, these are sort of smaller than, say, a Tundra or Toyota's equivalent of F-150 or Silverado. And they are legendary for their longevity and Um, you know, famously, uh, was it top gear that drove one into the ocean and, you know, pulled it out and was able to start it back up. But, uh, you know, absolutely people legitimately

28:15 use these for, for work purposes. Uh, it may not be the case that, that it's, you know, the, the best, uh, you know, place for Toyota to sort of place its bets in terms of the, the type of buyer that's going to be ready to go electric first. All those sort of caveats aside, if I just am going off of pure fun and experience of kind of tooling around in one of those three, the battery electric Hilux was super fun.

28:42 Yeah. No, agreed.

28:43 They're so fast, and oftentimes you forget how important quiet is.

28:49 Yeah.

28:50 So longer term, I guess you think we're headed– and I think automakers also agree that we're headed towards– if not full electrification, at least some version, right? The Scout is so interesting. I actually put a deposit. I think it was only $ 100 on a Scout because I want to get the full BEV version. But it looks like they're going to make many more, if not only the hybrid version, or I should say the E-Rev version, right?

29:18 Because they're going to have a range extender in the back. But that seems to be maybe.

29:24 The future, right?

29:26 Yeah, I do think that extended range electric vehicles will be very interesting once we start to see those hit the market. We haven't seen a ton in the way of action, more so a lot of noise in terms of that being a technology that was really catching on even in China, where I think people rightfully are marveling at the adoption of battery electric vehicles there. And yet, it is still the case that there's a long ways to go before that market is fully electric. I do think just the sort of realities of the American buyer, you know, you talked earlier about space and how much room we have to roam. That means we also, you know, drive for longer distances and people are just, you know, sort of more inclined to, you know, to sort of

30:11 stick with their, you know, gas powered vehicles. I also think for as much as we've seen gasoline prices go up in the US, it's still a hell of a lot cheaper to fill up here than it is, say, in the UK, where I just moved back from. And so people will grumble, but they will keep going to the pump and filling up what they have. I do think in the rest of the world, we continue to have pretty strict regulations in terms of changes in emissions rules.

30:45 Yes.

30:45 Are some of them being lightened up a bit? For sure. But this is still going to be a case where this is an industry that is heavily regulated and increasingly so. And so everyone does need to kind of figure out a future where they make electric work and turn it into something that is not just, you know, we have to do this. It's actually the better option for all sorts of reasons.

31:11 So what about the short-term future then, Craig? Because you know, coming back to Ford and we're about to listen to Sherry house, I was surprised that they had an increase in sales in almost every segment. Um, retail, uh, super duty trucks dropped a little bit and that's because those are mostly big diesels, right? Um, so consumers may be thinking, Oh, six 50 a gallon is tough, but even if in Germany it's 10 50 a gallon or $ 15 a gallon, but, um, Where do these car makers head in the next few quarters?

31:46 I mean, it seemed like General Motors, for example, had a good quarter in terms of earnings. The stock got crushed, even with a $ 20 billion buyback. Ford has done a little bit better after their earnings on Wednesday. I saw the stock was up a little bit yesterday, but they're still sort of treading water in terms of five-year performance.

32:05 Yeah, I think these are still companies that try, as GM might, to be perceived more as a tech company. And we've seen just in the last few days them announce that they're moving over to the New York Stock Exchange or leaving the New York Stock Exchange for the NASDAQ for that purpose. These are companies that have tried to kind of change the narrative around them being perceived as big metal benders. That's still, in the end, the way that the market is treating them. Tesla, of course, is not valued as a carmaker. They're valued for all of the, you know, autonomous driving and robotics sort of hype that Musk has built. I do think, you know, in Europe, there, of course, have been sort of unsparing

32:51 treatments of these companies as well, in terms of, you know, to the extent that any of them had, you know, a decent run a few years ago, as they were starting to stand up their electric vehicle businesses and kind of ride the Tesla wave, that has really fallen by the wayside. This is an industry where, you know, I think valuations are really under pressure because of the realities of just how competitive the Chinese players are, and just how little room there is for error in what is, you know, such a high cost, high structural cost industry.

33:26 It seems like A, it seems like they're benefiting a bit, the US automakers, the big truck makers from the AI boom, not only because if you build out a data center, you need to buy a bunch of trucks for your workers, but also because everyone's getting so rich that they can buy big, heavy trucks and SUVs. If that blows up, and this is to Gabby Coppola's point, a reporter out of Detroit, if that blows up, are they in big trouble?

33:52 I think that absolutely would be a big cause for concern. And also, you mentioned earlier Ford and kind of what you talked about with Sherry House. They're also trying to kind of make lemonade out of lemons with regard to their battery investments and the fact that they are trying to turn in– trying to leverage some of their battery capacity for energy storage. And sort of part of the reason there's a lot of optimism in that business is AI and sort of supplementing the power supply for those big energy hungry data centers. That's another reason, you know, that these companies could be caught up in any sort of, you know, deflation of this AI bubble that it feels like we're in.

34:44 What about competition?

34:45 Like as The China market gets tougher and tougher, and that's, I'm sure, in large part also because the Chinese subsidize their automakers so much. But as people, as companies realize they're not going to make as much money there, will they come and try and compete more here? I mean, does this market get more crowded? Does a company like Hyundai build a light-duty pickup truck?

35:11 I think it is. The fact that it is the most protected major market And already was a situation where, you know, even before the inflation of the last few years, that's gotten us to the point where the average cost of a new vehicle, average price paid on a new vehicle is north of $ 50, 000. This has always been, you know, one of the biggest markets and also where you can sort of have the most potential to make money because it's less crowded than in Europe. you know, China, you know, surpass us in terms of size, but with a lot of lower price vehicles, this is the place where you go to make money in the car business, it will get, I think, more competitive. And yet, this is also, you know, far from from a consolidated market. So This is a

36:04 case where even as everyone kind of looks to come here to get a little bit healthier margin out of their business, it is by no means a sure bet and takes newer entrants quite some time to figure things out.

36:20 So I want to finally ask about your personal interests. I mean, after so many years in Detroit and in Tokyo and in London, you're finally back in the U.S., Um, what, what cars do you actually like?

36:36 If, if any, like, do you care? Do you have the bug? Are you an enthusiast?

36:40 I mean, the fact that I'm living in New York city really sort of saps my, uh, driving enthusiasm. Uh, but when I, when I did, uh, last, uh, you know, last have a car, uh, to, to drive around, I was, I was driving a Mazda. Uh, I kick myself, uh, for, for not getting the Miata and being, being lame, uh, and just getting a Mazda 3. But, you know, I will say I'm kind of, you know, pretty boring in terms of my actual car tastes. Like you, I will take advantage by all means of, you know, a sort of loaner fleet or a drive program, you know, to get behind the wheel of the latest and greatest. But in terms of, you know, what I'm willing to open my wallet for, you know, I guess I'm my father's son.

37:28 I'm still a pretty stingy guy.

37:30 You're the smart one.

37:32 I think Mazda is always a sleeper choice.

37:35 Like to me, Mazda is the Japanese BMW.

37:39 I look at even beyond the Miata, which is obviously the cliche choice for car people. And it is awesome. I love all the vehicles they make. I think they killed on design. I love their paints. I like the interiors. They have good audio. Like they're great. Yeah.

37:56 I came back from Japan having, uh, fully drunk the Kool-Aid. And, uh, I, I, I think, uh, if I were back in the market for, for something to drive, uh, I'd be knocking right back on their door.

38:09 Well, dude, I really appreciate your time. Thank you so much for joining us long overdue. And, um, I'll continue to, to follow all, all of your coverage. Craig Trudell is head of, uh, Business in the Americas for Bloomberg News. Without any further ado, let's get to our Sherry House interview. Here is the CFO of the Ford Motor Company. Sherry, thank you so much for joining us. I want to start on the demand point that Romain was talking about.

38:40 It remains strong and seems to be increasing across almost every segment at Ford, despite the gas prices that we've seen, despite the higher diesel prices, and despite the higher prices for trucks themselves, which on average are up 4% or 5% over the last year, 40% over the last five years. How are you continuing to get customers to buy these trucks?

39:05 Well, Matt, first off, it's great to be with you. And a lot of it, it's about the power of choice. We have a terrific product lineup between hybrids and full EVs and all of the products that we offer that customers are really buying as a result.

39:22 But I really want.

39:22 To start by talking about we delivered another solid quarter. Our adjusted EBIT was up 3% to $ 2. 7 billion with $ 4. 7 billion of free cash flow that accompanied it. And that was despite a 9% volume decline year over year and $ 600 million of commodity headwinds. On the top line, we leaned in to high-margin trucks, to utilities, to vans.

39:46 For example, the F-Series is on pace again for the 50th year as America's best-selling truck. Ford was also the best-selling brand in three-row SUV segment in the third quarter with the Expedition and Explorer. And let's not forget that Ford remains the number one commercial vehicle brand in the U.S., But in the business, we're also on track. We are on track for $ 1 billion in material and warranty cost savings again this year when not considering the impacts of novellas and tariffs. But success wasn't limited to core auto this quarter. Auto adjacency is business had a strong showing.

40:26 Our parts and software services had a record quarter and they now represent 10% of our revenue. As a result, we raised the low end of our full-year adjusted EBIT guide and we are now guiding at $ 10. 5 billion to $ 11 billion.

40:40 Yeah, I think it's interesting.

40:41 And I do want to talk about the adjacent revenue streams with integrated services, with wholesale parts, with Ford Energy. But I wonder, and this is related, how much of this boost has to do with the AI boom? How much of it has to do with the strength in the stock market? Is that part of what's helping your higher income level customer? Because Ford does have a higher income level customer base. to continue buying new vehicles?

41:13 Yes, Matt, there is an element to that. Our higher income earners that are Ford customers tend to look at the stock market as an indicator of strength. And when they see the strength there, they're more comfortable buying. So given all of the AI corporate investment that's been happening, I would say that that's a contributor.

41:34 Sherry, give me a sense here, though, on the commodity front and your own costs. I haven't seen improvement overall, not necessarily for Ford, but overall. Are you now having conversations internally about ways to mitigate that? Are you anticipating a little bit more stability and maybe even relief anytime soon?

41:55 So on the commodity front, we're not expecting relief anytime soon. In fact, as we look ahead to 2027 between commodities, chip prices, and logistics, we think that we could be facing headwinds there of about $ 2 billion. But make no mistake, Ford is hard at work. The type of improvements you've been seeing with material and warranty cost reductions, we have every plan to continue that momentum into our third straight year next year, as well as also making improvements in our structural costs throughout the company.

42:31 Well, what does actually that mean? Does that mean headcount? Does that mean becoming leaner in other facets?

42:39 A lot of it has to do with the adoption of value stream mapping, of becoming leaner, of modernizing our business and using AI in unique ways. It isn't just about cost cutting through AI, but it's often about how we use AI to better sense where the demand is. And we're using new sophisticated tools both across our parts business as well as where to place product for our dealers.

43:09 And that is turning into real dollars for us.

43:12 Sherry, what does competition look like here in the U.S.? I spoke with the CEO of Porsche a couple weeks ago on this program, and their problems, the Volkswagen Group's problems in China are well known. As a result, they're looking for more sales in the U.S., and automakers around the world are really piling in to this market. Is competition here growing?

43:34 So we've continued to see steady competition, but in the United States, we're continuing to be able to see strong mix in pricing. We are leaning in, as I said earlier, to off-road products and to other higher margin products. So for instance, off-road now represented 25% of our revenues. And so those types of products are really helping us to be able to compete very effectively against others.

44:01 That's pretty amazing.

44:02 25% of your revenues are off-road. Unfortunately, I missed the Raptor rally in Utah a couple weeks ago. I desperately wanted to go, but I know you engage a lot of customers in that way.

44:12 How hard are you leaning into that strategy?

44:18 We continue to use those types of franchises to our advantage. In fact, I just did two Bronco off-rodeos myself, and my next vehicle is going to be a Bronco as a result. It's a ton of fun. This really identifies with customers. We get a lot of aftermarket parts sales also as a result of those engagements.

44:37 I do have to ask you, Sherry, about just what the international strategy is, particularly when it comes to electric vehicles. Has Ford given that up?

44:49 Absolutely not. In fact, we have developed a really strong partnership strategy with Geely, with Renault, with VW in order to enable a full slate, a portfolio of products that will be coming out in 2028 and 2029 and 2030.

45:08 I wonder, in terms of electric vehicles, you're working on the Fathom and you talked a lot. I was just on a call with you and a the universal EV platform. Are you dedicated to BEVs when it looks like Americans are buying a lot more hybrids? I know you do well, for example, with hybrid sales of the Maverick and the trucks.

45:32 Well, going back to the points I made at the onset, we believe in giving the customers power of choice. And yes, you're right. We are doing fantastic in hybrids. In fact, Maverick was the number one truck for hybrids. And in the full-size pickups, the F-150 was the number one hybrid there as well. But the Universal EV platform is about full bev. And we're going all in with that. The new product, the Fathom, is going to be under $ 30, 000.

46:00 as its entry point. And it is going to be fantastic. It's going to be very feature rich, very tech leaning. It's going to be the type of product that you're going to want to own because it's going to be incredibly fun to drive. So we're very much looking forward to that first product. And we're going to continue to strengthen that base, that base structural platform for new products to come.

46:22 Sherry, I want an excursion with the 6.7 liter Powerstroke.

46:26 Any chance I get that in the next five years?

46:30 Well, you know, Matt, I cannot talk about new products, but we will be sure to make sure you're the first to know if that's going to be coming out.

46:42 So there you have it. No comment on the Excursion. That would honestly be a dream vehicle for me. I don't understand why these car makers, both GM and Ford, but also Stellantis with the Ram brand don't come out with an HD version of the three row SUVs, right? They have these big HD versions of their trucks. I love the Duramax, the 6.6 liter in the Chevys. I love, obviously, the Powerstroke, the 6.7 liter that I just referenced.

47:15 There with Sherry.

47:16 I mean, these are more than a thousand pound feet torque vehicles. And I'm hoping that a Ram Charger comes out and answers my prayers. If you have these pickup trucks, you can tow a big boat, a big trailer, anything you like. But I imagine that people with big boats and big toy haulers also have big families. So why wouldn't they need a three row SUV to with which to tow these vehicles. Why wouldn't Ford bring back the Excursion and put the Powerstroke in it so that you could bring your wife, your kids, your dog, and then tow your boat? To me, it's a no-brainer, but maybe that's why I'm not running one of those businesses. Anyway, all thanks to Sherry House there. from the Ford Motor Company.

48:06 And I'm looking forward to some interviews coming up. I've got the CEO of Ferrari in a couple weeks. He's not making a three-row SUV with an HD motor in it, but he did put a stick shift on a 12-cylinder, which is quite cool. So I'll talk to Benedetto Vigna about that on, I believe, Friday the 13th, November the 13th.

48:26 And I'm really looking forward to a conversation with Duncan Aldred, the U.S. or North America president of General Motors' To him, I can put these questions because how fantabulous would it be to have an HD Suburban? It's a product that used to exist and I think still could. That does it for this edition of Hot Pursuit. Special thanks to Craig Trudell for joining me. He covers global business for Bloomberg News.

48:52 You can email me if you like.

48:54 Shoot us a message at hotpursuitatbloomberg.com.

48:59 I'm Matt Miller. This is Hot Pursuit from Bloomberg Rates.