GM Slides as CEO Barra Warns of ‘Intensifying’ Challenges

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0:24 Well, General Motors narrowed its full year profit forecast and said it will buy back another $ 20 billion in stock. This reflects strong cash flows, even as the carmaker's sales are softening. Earlier, General Motors CFO Paul Jacobson gave his thoughts about quarterly earnings on Bloomberg Television.

0:42 Take a listen.

0:43 When we look at the fourth quarter, you know, I think sell side, you know, I think missed a couple of things that we've talked about. When you look at the year in review, we've taken guidance up twice on the underlying business and IEPA tariff refunds. So all in all, I think the business continues to perform very, very well.

1:00 And we're looking forward to an exciting 2027.

1:02 All right.

1:02 That was General Motors CFO Paul Jacobson speaking to Bloomberg Television. Let's bring in Craig Trudell, Global Autos Editor for Bloomberg News. He's live here in our Bloomberg Interactive Broker Studio. Craig, talk to us about GM. What did they kind of get across on the earnings call? What may be your Maybe some investors concerned about here. I see the stock trading down about 5%, 6% today.

1:21 Yeah, the stock isn't liking it, and that may have something to do with the fact that the sort of top end of their forecast range was taken down a little bit. They did bring up the bottom end, so it was a case of narrowing. But I think the commentary from Mary Barr, the CEO, also may not have helped, where it did seem like she went into this call with an intent to kind of signal that there are, in her words, external headwinds that are intensifying. She also talked about the path forward being challenging. This is a company that has been able to kind of beat and raise pretty routinely and has been executing quite well. And so for them to kind of have a bit of a change in tone is likely sort of where you

2:05 get this stock reaction this morning.

2:07 So let's talk about those external headwinds because it has to do with the fact that the average price of a new car is now more than $ 50, 000. And that means a lot of consumers can't afford to buy a new car. They're just kind of locked out of the market. This is a strategy that the automakers pursued diligently during the pandemic and after the pandemic.

2:26 And now is it starting to bite?

2:28 I think for the Detroit manufacturers in particular, the fact that they're so overweight, big pickups and SUVs, that makes them vulnerable in this environment of higher rates when you do have not only 50,000 plus average cost of a new vehicle, but financing those purchases is tricky and increasingly so.

2:50 Your dealers also have to finance that. The cost of all that is going up. That could mean some pressure on GM to have to subsidize there in the form of incentives on either end of that spectrum. I also think that there's an interesting kind of thought experiment to do here where had GM invested a bit more in hybrids as opposed to fully electric vehicles, that might have been really helpful because they're clearly losing share to Toyota and I would say even Hyundai too.

3:22 Do they have any hybrids? It's limited.

3:25 They had much more of a view that we should go fully electric, that that is the sort of way of the future. They had the policy to sort of back that up during the Biden administration. And then there's, of course, been quite an abrupt sort of rug pull.

3:40 U-turn.

3:41 Yes.

3:42 And that's really hurt them.

3:45 I do think that they got further along in terms of making that business work than we saw Ford get, where they out and out decided, you know what, forget it. We're going to pull the F-150 Lightning off the market entirely because Ford was losing too much money on that bet. GM has done much more to insource batteries, and that's been helpful. But the fact that you don't have the $ 7, 500 tax credits for new vehicle purchases, that really stings and completely changes the dynamics of this market. We have not seen the U.S. consumer sort of recover from that support being pulled.

4:25 So what is the GM kind of strategy here in terms of allocating its investment capital between traditional. Internal combustion engines versus other.

4:37 Yeah, we've heard Mary Barra talk about that fully electric vehicles is still the way of the future. And I think she's used the phrase, that's their North Star, right? I do think that the company has pulled back that being said, and that it is the case that we just don't have the demand in this market and they are so reliant on on the U.S. They're doing some work to try and bring the consumer along. I think they also have to bring their dealers along to a degree and sort of get them to believe. And that's, of course, challenging when you don't have Uncle Sam kind of kicking in some support. But they clearly have some things working in their favor perversely in the form of fuel prices, right? Where it is the case that a So,

5:26 do we see some sort of reconsideration and at least a little bit of green shoots in terms of the consumer giving the EV another look? That sort of remains to be seen. I haven't seen huge or super optimistic indications that that's happening.

5:41 But the hope is there.

5:43 GM is also doing something else that's interesting. It's making parts for Lockheed Martin's missiles. So it's getting into the defense contracting business.

5:51 Yeah, it's very interesting to me because Detroit was sort of known as the arsenal of democracy, right? And there was a sort of taking down of assembly lines across Detroit and across the Midwest to sort of rise to the occasion, right? more than half a century ago, long time ago. To see GM get on somewhat of a war footing, I think we do have to quantify here that they're not out and out taking plants down and reconverting them. It seems to be more of a case of kind of playing an advisory role for some defense contractors because they're really having some trouble sort of meeting the demands of, you know, just how much the U.S.

6:34 is going through stockpiles of some key weapons. And so for them to play a part still is quite interesting and something for us to watch in the months to come.

6:43 Stay with us.

6:44 More from Bloomberg Intelligence coming up after this.

6:50 You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at 10 a.m. Eastern on Apple CarPlay and Android Auto with the Bloomberg Business App. Listen on demand wherever you get your podcasts or watch us live on YouTube.

7:05 M & A.

7:05 Trade in the tech space today I thought was pretty interesting. Salesforce has agreed to buy artificial intelligence powered platform for marketers. The company is called Braze for almost $ 5. 7 billion in enterprise value. Anurag Rana joins us here. He is a senior technology analyst for Bloomberg Intelligence.

7:23 Anurag, talk to us.

7:24 What is Braze and why is Salesforce buying it?

7:29 Yeah, so Braze is one of the software provider that does marketing related emails or marketing software that helps people with real-time emails and try to get you to buy some stuff. If you go into a shopping cart and you drop it there and not come back, they will send you an email saying, hey, you forgot something in that shopping cart. Now, the reason why they're buying is, frankly, I would say a lot of these smaller cap names, or I wouldn't say smaller cap, but smaller names compared to the software space. have been absolutely crushed in the last 12 months. So when you look at the valuations, I mean, stocks jumped quite a bit, but they're buying at about 5.7 times forward price to sales. I mean,

8:06 that is nothing compared to what we used to pay for assets just a few years ago that we used to be in double digits. So I think they're buying it at the cheap. I think a lot of people were surprised, including us, that they are actually buying something that's not AI-related or not agentic-related, but a very traditional software bucket. And that was used to be the case for Salesforce a while ago. And it looks like given the valuations, they are back in the market.

8:30 Yeah.

8:31 I'm glad you mentioned that because Salesforce once upon a time was a serial acquirer in the same way that Oracle was a serial acquirer. It used to make lots and lots of acquisitions and integrate them. And of course it stopped for a while and activist investors came in and were pressuring Salesforce to get its numbers back up, its growth back up.

8:48 Does this market return.

8:49 To, you know, its profile as a serial acquirer?

8:52 Do you think? No, I think it does, because you're absolutely right. I mean, there was a time when Mark Benioff was doing so many deals that he really got, you know, you could say, pressured by the activists to stop doing that. And that was after the Slack deal a few years ago, which was very expensive. But in the last, you could say, 12 to 18 months, we have started to see them slowly get into it. They bought Informatica, then they bought a company called Finns, which was more AI-related. But today is a bit of a surprise because this is a very traditional software vendor. So I think you're absolutely right. You know, the software consolidation or the M & A theme is back on.

9:28 That's kind of where I wanted to go because, you know, back in my M & A days, if I saw an unusual deal or unexpected deal, I'd get my guys on the horn talking to every software client they had saying, hey, you want to buy, you want to sell? Are we going to see more of this?

9:42 I think it's very likely because, as I said, the math right now is if you look at the small and medium-sized software companies, their valuation has just been crushed at this point. And I think we just discussed this on radio a few months ago. There was a big rumor that Workday may be going private. And, you know, so I think they're all part of the same deal.

10:01 People are trying to figure out which software companies will exist a few years from now. And you see a lot more interest by both private equity as well as, you know, you have business cases also or strategic buyers.

10:16 What do you anticipate... Salesforce's rivals to do to kind of match this? I mean, are they going to come in and do something similar, do you think? Or is this kind of a Salesforce specific kind of trend?

10:28 Now, the funny thing is that there are a handful of larger competitors. Now, let's examine them. For example, Oracle. I don't think they can do a deal right now because they are struggling a lot with, you know, raising capital for their data center needs. So that's one issue. You look at Adobe, they just had a management change.

10:44 They also, their stock's just been crushed. So I think that's going to be very unusual. SAP could be the one where we could see some deal activity because their, I think, financial strength is a little bit better than the others. And they are also not facing the same kind of multiple compression.

11:01 Stay with us.

11:01 More from Bloomberg Intelligence coming up after this.

11:08 You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at 10 a.m. Eastern on Apple CarPlay and Android Auto with the Bloomberg Business App. Listen on demand wherever you get your podcasts or watch us live on YouTube.

11:22 Another deal potentially in the AI space and scale, Anthropic in talks for a $ 45 billion AI computing deal. Is this circular, non-circular? I don't know what's going on here. Billy Lipschultz, Bloomberg News, senior equities reporter. Billy, can you explain what's going on here?

11:41 Okay, so Nscale is a neocloud, similar to Coreweave. So we've all been talking about Coreweave ad nauseum. Nscale is a private company. They're working on building out this project called Monarch. It's in West Virginia. Monarch is going to have three buildings.

11:57 Monarch is a data center. Monarch is a data center. It's going to have three buildings.

12:01 The first building, they struck a pact with N scale for computing for up to about $ 45 billion.

12:08 That happened in August.

12:09 What we broke yesterday is that they're in talks for the second building. which would be worth another $ 45 billion. And that Anthropic also has right of first refusal for the third building. So really just kind of leaning into A, accessing computing power, computing capabilities, and B, a further tie up with N scale. Again, you have to remember Anthropic, as far as we know, has been trying to strike really as many deals as they can over the last year.

12:34 $ 50 billion pact with FluidStack, $ 45 billion pact with SpaceX. You're really trying to diversify and acquire as much access to compute as possible, just given the broader pitch and theme that in 2030, maybe none of us actually work anymore.

12:49 Anthropic does everything for us.

12:50 Okay.

12:51 No scaremongering here allowed on Bloomberg Intelligence. Paul asked about circular financing. Nscale is backed by NVIDIA, right?

12:58 Yeah.

12:59 They all are. I say that facetiously, but they all are. That's actually really good that you put it that way.

13:05 So how much circularity is there in this particular potential deal?

13:12 Well, so the way to think about it is Nscale is leaning on Vera Rubin, one of the more advanced NVIDIA chips. So they're obviously an acquirer. You kind of have to think about it in the easiest way to think about it. Again, you can't help but get into the circularity of it. NVIDIA backs N-scale. NVIDIA sells chips to N-scale. Anthropic buys computing power from N-scale. The circularity is there, but it's not necessarily that NVIDIA is.

13:47 It's not quite a bridge that far, if that makes sense.

13:49 This is more conventional, actually. It's relatively conventional. Again, I mean, if you look at the pie chart, it's still not great optically. NVIDIA is an investor in Anthropic. We expect, for all intents and purposes, NVIDIA to participate in Anthropic's IPO.

14:04 But if you step a little bit to the side and say.

14:09 NVIDIA makes the chips that in this circumstance best fit a project and scale needs to buy them from NVIDIA. Like that's more of where your circularity risk, I would argue, my understanding is versus... the ultimate anthropic end game.

14:23 All right. Well, while we have you here in studio, where is this IPO?

14:27 N scale or anthropic? We're in on both. Is N scale looking to go public? N scale is filed publicly to go. But it's a neocloud. And neoclouds are kind of for.

14:35 Out of favor at the moment.

14:36 Stranger danger.

14:37 So we broke over the weekend that a cohort of investors are encouraging N scale to consider a $ 16 to $ 19 billion valuation.

14:47 What does the company expect?

14:49 Our understanding is they've been targeting 30 billion.

14:51 Oh, big difference.

14:53 So small potatoes, as it were. Again, that was before this potential second pact with Anthropic. But as you mentioned, our reporting again over the weekend, you step back and say over the two weeks ending on Friday. Nebius is down 32% or something like that. CoreWeave is down 30%. It's really hard to encourage investors to want to step into a new public.

15:16 And you had this IPO in Asia that didn't do well.

15:20 I may be the only person who's downplaying it.

15:22 They raised 150 million bucks. I also point out that I, I believe it was a local IPO, local underwriters. There were no us underwriters here. It was not a global offering.

15:33 So again, it's not great.

15:35 It's not great.

15:36 It's not great, but like, it's not what you want, but exactly.

15:38 But to say that like this morning, the Neo clouds were selling off because a small deal, in my opinion, no one really had heard of before in South Korea was the driver of All right, so your story today, N-scale, anthropic, and talks for $ 45 billion AI computing deal.

15:53 It has a green B next to it. Can you explain to our listeners and viewers what a green B means?

15:57 Oh, man.

15:58 Well.

15:58 To your own horn, Bailey.

16:00 I mean, it's higher profile breaking news that other people follow. Breaking news. So Financial Times followed us.

16:06 I believe CNBC followed the reporting. Bailey broke news. Getting it to you first on the Bloomberg terminal. Nowhere else. Stay with us.

16:14 More from Bloomberg Intelligence coming up after this.

16:20 You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at 10 a.m. Eastern on Apple CarPlay and Android Auto with the Bloomberg Business App. Listen on demand wherever you get your podcasts or watch us live on YouTube.

16:35 Scarlett, most of all my kids, all my kids are grown. They're out the door. I can't remember the last time I was in a toy store. I don't know what's hot, what's not, what's going on out there.

16:44 It's all on the Internet anyway.

16:45 I guess. I don't know. But, I mean, Hasbro just reported some pretty darn good numbers. The stock's up 5% today on the news, up 26% year-to-date, 52-week high. So whatever they're doing in the toy biz, I think they're doing it pretty well. Let's check in with our toy analyst, Lindsay Dutch, Bloomberg Intelligence Consumer Hardlines analyst, senior analyst there at Bloomberg Intelligence. Lindsay, Hasbro reported some results here. What did we learn?

17:12 Hi, Paul.

17:13 Thanks for having me. I think what we learned is Magic the Gathering, which is their strategic trading card game, you know, just continues to sort of blow it out of the water, you know, beating expectations, third quarter of a really, really strong beat. And that's really what drove the increase to guidance and.

17:36 The better outlook for the year. But I would say, you specifically to that brand.

17:46 When it comes to Magic the Gathering, my kid used to play this, and then I interviewed someone who had a whole bunch of Magic the Gathering cards behind him as a backdrop, and he was an adult. So I don't know whether this is a kid's game or an adult game.

17:58 Either way, it's kind of its own thing.

18:00 It's become this franchise. What is Hasbro doing to kind of capitalize on its popularity, not just with kids, but with adults as well?

18:09 Yeah, you're right, Scarlett.

18:10 So it is the average player, according to Hasbro, is in their 30s. So it is really more of an adult collector set. And what they've really done, you know, this year they had, you know, a bunch of tentpole releases. I think about six of them. I think they have another six to seven coming next year. And they roll out these new sets every with lots of related product, theme.

18:34 And each of.

18:36 These sets has done better than they expected or better than the last.

18:41 So the strength has really come.

18:42 Through with these adult collectors looking to grab as many of these sets as they can. And Hasbro is sort of trying to time the releases, keep them selective, keep them topical and appealing to the market.

18:57 So As I mentioned, Hasbro stock's up 26% a year today. It's 52-week high. Mattel is actually down 14%. What's going on with Mattel?

19:08 Yeah, so I think Hasbro, right now when we look at their portfolio and we just look at toy growth overall, the first half, toys in the U.S. is up 17% on a dollar value. It's the best first half we've had in six years. That's really being driven by just a couple of categories, one of them being the trading cards and other building sets and also games. If you look at Hasbro's portfolio, they own Monopoly. Monopoly Go is doing really well. So you have the games angle with Hasbro.

19:40 You have the trading cards with Hasbro. They've also done really well in some action figures as well. On Mattel's portfolio, their portfolio doesn't does bias a lot more towards kids' toys.

19:54 They're dominant in dolls.

19:56 They also do a really great job with their Hot Wheels brand, which can be a collectible, but also generally sold to children.

20:04 So Mattel's portfolio, you know, skews a little.

20:08 Bit more to some of the categories that have not been outperforming this year.

20:14 And Mattel has.

20:15 Been, you know, under pressure for some time now to figure out growth, expedite growth in Fisher Price, in Barbie, and some of their key brands, which have been lagging.

20:26 Yeah, that Barbie tailwind has faded.

20:28 Oh, from the movie. Yeah, from the movie a few years ago.

20:31 So, Lindsay, as we, I mean, you know, for the toy makers, they were getting ready for the holiday season months ago. But for consumers, we're just starting to think about preparing for the holiday season now. How are these companies telegraphing what things look like in the year end?

20:47 Right.

20:47 So this year is going to be an interesting year just because last year, tariffs significantly changed the picture. So, you know, historically, retailers like a Walmart or a Target, they would start to take holiday orders, you know, in July, in the summertime.

21:06 Last year, all of that got delayed.

21:08 You know, everyone's figuring out who's paying for tariffs, when do we import these goods, and all of that kind of thing. So the Last year, the orders were very biased towards the back half of the year, especially.

21:21 The fourth quarter.

21:22 You know, this year, I think there's some creep where like third quarter, you know, has a little bit more maybe than last year. And then maybe fourth quarter will be a little bit lighter. So that second half will even out a bit. And so that's how we're thinking about, you know, the toy business Hasbro's consumer products market. segment was up four percent in the third quarter you know there might be a modest deceleration in the fourth quarter on those tough comparisons but kind of thinking across the toy landscape is like that second half is pretty kind of steady eddie with with what we've seen so.

21:56 Far This is the Bloomberg Intelligence Podcast, available on Apple, Spotify, and anywhere else you get your podcasts. Listen live each weekday, 10 a.m. to noon Eastern on Bloomberg.com, the iHeartRadio app, TuneIn, and the Bloomberg Business app. You can also watch us live every weekday on YouTube and always on the Bloomberg Terminal.