Steven Rattner on the UAW Strike and the Challenges of Bidenomics

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Looking at the latest trends in green financing and ambitious ESG goals, speakers include executives from KKR, Macy's, Green Giants, C-16 Sciences, Environmental Defense Fund, and more. Some advisor, principal financial group. Visit BloombergLive.com slash SBSNY slash radio to learn more. Hello and welcome to another episode of The Odd Lots Podcast. I'm Tracy Alloway. And I'm Joe Wyzenthal. Joe, it is the first week of the United Auto Workers Strike. I feel confident predicting that by the time this episode comes out, it'll probably still be ongoing. Right, so we are recording this September 20th. I think you're listening to this Friday, September 22nd. Even in the off-chance that they get a deal between now and then, there's a lot going on with autos right now. There's a lot going out with labor that even if they're, by some miracle, there's a deal in the next 48 hours, it's worth having a deeper understanding of what's going on right now. Absolutely. And we've obviously recorded an episode on this previously. We spoke to one of the UAW leaders, Dan Vicente, talked about some of the concerns. But I think this whole saga is interesting from a sort of thematic perspective. Because it gets at all these big picture conversations that we've been having. You know, questions over the division of labor in the US economy, over productivity, over the future of the US car industry and how it's responding to environmental pressures and concerns, industrial policy, even. It sort of wraps all of these things up in one complicated package. Let's put it that way. Yeah, you nailed it. I mean, there's the question of labor costs and the tight labor markets. And whether this is an opportunity for labor to get a greater share of the pie, so to speak, there is the transition, which was already happening is already underway. And that poses very unique opportunities and threats to the legacy industry. And then this idea of like, well, we're in an era of sort of industrial policy. And part of this is by design, the by dynamics and so forth. And so, you know, how all of these things play together, it really, as you said, it comes together in this one story in a unique way in the strike. Right. So we obviously need to talk more about it. I am very happy to say that we do indeed have the perfect guest. We're going to be speaking with Stephen Ratner, very prominent American financier as they say. And someone who was very much involved, in fact, spearheaded the big auto bailout, the auto task corps. The cars are. The cars are. That's exactly under the Obama administration in circa 2008, 2009. Someone who can talk very authoritatively over some of the concerns from the car makers and the broader sort of financial state of those companies. So Stephen is currently the chairman and chief executive officer of Willett advisors. That's the investment arm for the personal and philanthropic assets of Michael Bloomberg, who is, of course, the majority owner of Bloomberg LP. Steve, welcome to the show. Thanks so much for having me. We're excited to have you here. I wanted to start out with something that the UAW representative that I mentioned in the intro told us. And it's the idea that the unions accepted a lot of concessions in the aftermath of 2009 in order to get their respective employers, the car companies back up and running. Is that right? And was there an expectation that at some point those concessions would reverse? No question that the unions made concessions as part of what we like to call not the bailout but the rescue of the auto companies. It was important as an important part of committing what ultimately became $82 billion of taxpayer money to this industry that they'd be shared sacrifice. That all the different constituents around the industry whether it be labor, whether it be shareholders, whether it be suppliers, whether it be management, all participated in making shared sacrifice. So yes, that definitely was the case. But as I'm sure we'll get into as you ask me some more questions, the concessions that the auto maker, the auto workers made in back in 2009 were relatively small compared to what they're asking for today. And what they're asking for today would not just restore whatever it is, whatever they gave up back in 2009, but add a bunch of other stuff on top of that. What did they give up in 2009? The main thing that came up in our previous conversation on the strike was just this idea of tiered labor. A tiering system, certain employers sort of grandfathered into one pay scale and then an acceptance that new employees would not be on that scale. But what do you give your comparison of your characterization of what the UAW gave up or was willing to concede to in 2009 versus what we know about what the UAW is asking for now? Some of the things that were given up in 2009 were actually given up just before the auto rescue because of the problems that the industry had. So I'm going to lump all that together into what really happened around those couple of years both right before and right after as part of the auto rescue. It's important to say that no full time tier one, as we called them, member of the UAW took any reduction in their cash compensation. That was a part of the understanding. There were concessions around things like the tier two workers who are workers who get newly hired workers who started out at roughly half of the cash compensation of the established workers. I don't want to get into a huge fight with the UAW, but it's important to note that the way the types of concessions that the UAW was willing to make mostly affected these newer workers rather than the established workers. It was a case of the UAW in effect. Think of it as there was a big pot of money and how does it get allocated? And the UAW's attitude was that the existing workers should be protected and the new workers should in effect take a lot of the pain. But there were other changes made around healthcare especially for retirees around the so-called jobs bank in which workers were getting paid even if they were laid off during downturn. They could get 90 percent of their wages for actually working. And so it was a very complicated package of a lot of stuff. But we did think that in total it reduced the automaker's labor costs by a meaningful amount. What was it like negotiating with the unions back then? It was very different than today and I think it was different for a couple of reasons. First, there was a crisis and as Rama Manuel, President Obama's chief of staff like to say, never let a good crisis go to waste. And so the UAW got it. They understood that without the shared sacrifice these companies could go bankrupt and perhaps even disappear and lose all of those jobs. And so they got the message in that sense. Secondly, they had a president Ron Gettlefinger who I dealt with extensively who was a very reasonable guy. He had an agenda. He had members he wanted to take care of. We respected that. He respected us. The discussions were always very cordial. Nobody, at least in the meetings I was in, ever started yelling and screaming or pounding the table or any of that kind of stuff. And in contrast today for a variety of reasons, the UAW has a leader Sean Fein who is much more of a firebrand who's put these rather large demands on the table who's actually conducted a lot of these negotiations publicly which is not the way it worked certainly when I was involved with it or the way I think it's worked most times in the past. And that reflects a couple of things I think. I don't know Sean Fein but I think it reflects a couple of things. One that in fact, as I'm sure we'll get into, the auto workers haven't really done that well in the last 15 years. And so they do have legitimate concerns grievances whatever you want to call it around that. Secondly, the UAW, as I'm sure you know, has been through a variety of corruption scandals in the last few years had a whole succession of presidents. These were not Ron Gettelfinger kinds of guys. And I think the membership is just angry and frustrated and disappointed in their union. And I think Sean Fein has been able to capitalize that. He's really he's really more of a firebrand than he is a dispassionate negotiator. You mentioned the tiering system. One argument that the union makes is that tiering is bad for the is it's just bad for the union. It creates divisions. The union is supposed to be sort of one family or one team. And then if you say as you put tier one, tier two workers that inherently weakens the union. In your view, is it sort of plausible or reasonable that it goes back to a single tier people doing this getting the same pay scale for the same job. And then what else you said in the beginning that the demands are above and beyond what that sacrifice was like roughly 14 years ago. So talk to us about what you perceive as being further beyond that. Well, let's take that in pieces and you can remind me of a couple of the questions that I'm not going to remember. But because I'm focused on your first question. Yeah. Okay. There's no there's no doubt that it is odd. I think unfair in many respects, a bad dynamic to have two people working on the same assembly line performing essentially similar functions. Maybe one is putting on windshield wipers and one is putting on door handles. And one is getting paid literally at least back then was getting paid literally half as much in cash and much reduced benefits package relative to the guy or woman who is standing next to him doing essentially the same job. That was that's a bad dynamic. But it occurred in part for the reason I said that the union was unwilling to have the existing members make a significant more significant sacrifice, sacrifice, I actually reduced their cash compensation. And so again, if you think of it as a pot of money and has to get allocated and a disproportionate amount of it got allocated the existing workers at the expense of these new what we used to call tier two. Now they call them temp workers who had just started at the company were getting paid a lot less. All right. I'm going to take up the second portion of Joe's question then and you've pointed out in an op ed that you think there's no way the automakers will be able to meet some of the asks or all of the asks rather that the UIW is making. Can you explain that a little bit more? What's the thinking behind that statement? The auto companies are making very very good profits at the moment. There's no nobody can argue about that. But this is a tough business. The profit margins are relatively thin. The capital expenditures required are large. The transition to EVs is going to be very expensive and painful for these companies. And so when you boil it all together, if you look at General Motors, for example, it's stock price when it went it went in public. I think about 12 years ago, it was 2011, has not budged. The overall stock market is up 275%. And so Wall Street investors are basically saying we don't think these companies are actually doing that great. And therefore they have limits as to what they can do and still have the resources and the profits they need to keep investors happy and do this transition. And so when you talk about things like getting paid for 40 hours but working 32 hours, when you talk about things like restoring the jobs bank where you get paid even if you're laid off, when you talk about going back to a defined benefit pension plan from defined contribution, which would be wonderful. But very few companies even have those anymore for new workers. Those are demands that the companies simply can't meet. I think what this will hopefully come down to is a bid ask on cash compensation. The union wants 35, 36%. The companies have offered 20%. This would be over four years. And some other one-time payments, something like somewhere in there, there's a deal to be done. But all the rest of this stuff is mostly going to have to go away to have an outcome that I think is appropriate for these car companies. On public.com, you may earn a 5.5% yield with US Treasury bills, the highest rate since the year 2000. It's one of the safest ways to put your cash to work and it's one of the easiest too. There are no minimum hold periods, no settlement delays, just a low risk place to park your cash and earn the highest yields the US Treasury has offered in over 20 years. Plus you can access your cash at any time. In other words, you get the backing of the US government and the flexibility of a traditional bank account. As of 9-1-20-23, you may earn 5.5% annualized yield with 6-month T-bills of held to maturity. Go to public.com slash T-bill podcast to get started. This is a paid endorsement by public.com, fees and conditions apply. Treasury accounts at public.com are through Gico Securities Inc. Member Finra and SIPC, not FDIC insured, no bank guarantee, may lose value. Full Disclosures can be found at www.public.com slash T-bill podcast. Apple Spotify Bloomberg.com or wherever you get your podcast. Chinese EV makers. You name it. Give us your review of just how challenging, setting aside the labor component, how challenging for the business models of the big three, which make most of their profits from selling cars with internal combustion engines. How challenging is this EV transition? It's going to be significantly challenging and we should talk about the labor piece of it because that's very relevant. But as you ask, let me talk about some of the other elements of it. Look, you have a whole bunch of new entrants coming into this industry starting from scratch. I'm reading at the moment Walter Isaacson's new biography of Elon Musk and Tesla, he started with a blank piece of paper when he did Tesla and he was able to design a manufacturing system, a set of supply arrangements, not without a lot of commotion and difficulty and so forth and with no unions, by the way, and Bill Tesla in effect from the ground up. The legacy companies have a way of doing things that's existed for now, 120 years plus or minus and so they have to completely rethink a lot of how they operate a lot of their processes and they have to compete against not just Tesla but Rivian and Lucid and the Chinese companies you mentioned, not yet here because of the high tariffs that we have on auto imports, but sooner or later they probably will be here and so what has been a tough business is getting even tougher and it's important for these companies to have a cost structure that they can live with. You touched on it in that answer just then but Tesla of course is famously non-unionized and then of course there is the threat of the Chinese EV manufacturers and cheap labor over there. Could it not go the other way though? Could you not have a situation where instead of competing with non-unionized EV companies that maybe some of those start to get unionized, like maybe these actions start to filter through two companies like Tesla? I think it's pretty unlikely. I think that it's not just Tesla but when you look at the auto companies that have been operating in the south for a long time which were Toyota, Honda, the German companies and so forth, they are also not unionized and I believe I'm right, oh my memory is a little hazy in saying that I think that I think there have been efforts to try to unionize them that have failed because the workers understood, look I think we should step back and talk about the general issue of manufacturing in the United States, not just autos but this was a real wake up call for me. I had spent my whole career working in essentially with service industry companies, most immediate and telecoms and then suddenly I'm plunged into manufacturing and what I saw was really scary to me which was that we basically have a high cost structure in this country appropriately. We want our manufacturing workers to earn a good living but in an increasingly globalizing world and we can talk about whether the world is now going to de-globalize but at least has been globalizing, it was getting harder and harder for us to compete and that's why in large part we lost so many manufacturing jobs over these last 15 or 20 years and so you had from the union's point of view you had jobs moving from the Midwest to the south from union jobs to non-union jobs but you also had a lot of jobs moving to Mexico from these same companies including the Detroit companies. The Detroit 3 have 20 facilities in Mexico of one sort or another and when you look at the wage structure in Mexico you're literally talking about GM actually has a unionized plant there which has low wages but if you talk about the non-unionized plants there you're talking about wages of 9 to 13 or 14 dollars a day, not an hour and if you talk to auto executives who operate there they will tell you that they get very good productivity out of their Mexican workers some will say they get better productivity and the consequence of that is that the number of auto workers in Mexico has crossed the line and it's now higher the number of auto workers in the U.S. our number of auto workers did recover after the 2009 exercise but Mexico simply grew faster and has outgrown us and is now a larger source of employment at these very very low wages and so this isn't changing and again you have the Chinese as we talked about coming and potentially other low wage countries and so it really worries me about the future of manufacturing. The in and the yang of this whole situation with the UAW in a sense is that it's attention between jobs and pay the more you pay the fewer jobs you ultimately have because inevitably these jobs will migrate out of the union facilities and into non-union facilities. I don't know if it's pushing back but intuitively or a sort of big picture I get that okay if you can get high productivity or commensurate productivity out of a plant in Mexico and labor costs are a lot cheaper than over time we're going to have this migration but labor costs still like my understanding I've seen the stat a few times like they're not a huge part they're like I see a stat here it says 5% of auto industry costs so it's like it's significant but it's not the majority of the cost or even anywhere close to the major cost of a car so intuitively someone I look at 5% is like okay well like what would be the big problem if it moved to 7% or 6% I guess I'm skeptical or I have this intuitive skepticism that the labor component if it's a bit more radically changes the economics for these companies well let's think about it this way okay I think I don't have this figure in my head but let's just say and I think it's probably directionally about right that the profit margins all going well and there are plenty of times when they're not going well the profit margins for these kinds for these big companies is maybe 10% or something like that okay and so if your labor costs go from 5 to 7 as you said that means your profit margins go from 10 to 8 and you've wiped out 20% of your profits and that's a lot to a company I mean companies like these that are high cost companies with lots of moving parts no pun intended they watch or they're supposed to watch every penny every cost item and work unbelievably hard to keep costs down to make some reasonable profit these are not companies with 40% profit margins whereas where maybe it doesn't matter and so it is important to these companies to have labor costs be competitive with other companies that are basically doing the same thing with labor costs that can be half of what they are for the Detroit 3 well on a similar note the UAW strikes are happening against this backdrop of historically low unemployment post pandemic and I imagine that has empowered a lot of the workers to feel like this is the moment when they can ask for all these different things but the other broad trend that's happening is the sort of post pandemic tendency towards reshoring or building more resilient supply chains or call it whatever you want and of course the backdrop of binomics as well where Biden has basically said he wants to build more industrial and manufacturing capacity within the US does that not potentially put a lid on the threat of moving a lot of car production two places like China or Mexico well let me try to unpack that you're going to again have to remind me of a couple of good good questions that you asked that I won't remember look the first point that you alluded to I just would like to mention for the benefit of the listeners which is and maybe it's obvious but as you said what's happening right now is we have a historically low unemployment rate 3.8 percent and and and about one and a half jobs for everybody who's actually looking for a job and so that has led workers in many many industries to feel empowered to ask for more and so obviously you have the screenwriters and the actors on strike you have hotel workers in LA on strike at the moment you've had very large contracts to the UPS drivers to the American Airlines pilots and so forth but those are all service industries and if you pay those people more sure it cuts into profits a little bit it may add to inflation a little bit because the company has raised their prices but fundamentally those jobs don't leave they can't leave you have to have if you're an LA hotel worker that's the only place you're going to work and again manufacturing manufacturing is different so let's talk about de-globalization and industrial policy and binomics because there are somewhat different obviously related I think the wake up call during the pandemic and the context of what's going on with China to many American companies and government officials is that we globalized to a great extent to cut costs for Americans and it's important to recognize that part of why we had so little inflation until the pandemic was because we were importing manufactured goods from China from other places not cars that were much cheaper than anything we could make here and so prices for things like clothes were very barely moved I think during this period because they were able to source it more cheaply now companies and again the government are saying well the supply lines are too stretched and this is how you get in trouble and so there will be and it's not an organized effort it's not a government policy that's not a government edict but companies are reassessing their supply lines and saying okay you know maybe we shouldn't rely on China but then they have to get it from somewhere else and by definition if they were getting it from China because it was the cheapest they could get it's going to cost more to get it from somewhere else and that does add at some point into inflation and cost for everyday Americans and so this is not going to be a top-down decision from Washington this is going to be a decision made company by company to try to balance secure supply lines with being a key price as to consumers at reasonable levels and I think when the dust settles it will not be as big of a it will not be as big as people think it might be for them because of the cost problem that companies are going to find the costs are higher and are going to maybe pull back from some of the state globalization that you see talking about so now if you're ready we can talk about biomics and industrial policy yeah wait can I can I ask one more question just on the car industry I mean you were the cars are and before you were the cars are you were in private equity and an investment banker so you dealt with all these different types of businesses over the years what did you learn about the car industry specifically is there something that makes that business model special in your mind it's an iconic American industry it's an industry that every country takes some national pride in having their own company in effect if you look at Europe there's been some mergers recently to try to rationalize it but you had all every country in Europe felt like it had to have its own car company even though it really didn't make sense for every country in Europe to have its own car company and so if I were to stand up and say you know we don't really need a car industry in this country I'd be probably drawn in quarter or burned at the stake or something like that there's a lot of emotion and feeling around at the car industry is 3% of our GDP then it may not sound like a lot but that is a lot and I think there's a strong feeling that we need to have a robust car industry here and I get that as I said when I when I got into the auto rescue job I did see a couple of things one was the unbelievable pressure I'm manufacturing that I just described and how tough this was and secondly I saw these iconic companies that were really so much a fabric of America that we really felt like we had to save that it was the right thing to do with taxpayer money which by the way we got virtually all of it back out of curiosity are there other factors that pressure domestic auto manufacturing or maybe manufacturing in general in the US versus other countries not related to labor costs I don't know whether there are environmental regulations etc are there other reasons why manufacturing in the US is tough that's a great question and the answer is yes we obviously do focus on this labor problem but for example permitting in the US and the environmental regulations and all that that surrounds it is really really tough let me give you an example that has nothing to do with the car industry but we recently looked at a copper investment in a copper mine in Arizona fine it's in what I learned though is that much and I don't know the percentage of the copper ore that we mine here gets sent to China to be smelted and then it comes back here all adding to cost and of course the Chinese don't exactly observe a lot of environmental protections when they do that kind of stuff over there and meanwhile there's a smelter in Idaho I'm told that is built sitting there not operating because it can't get permitted because of environmental concerns and so and of course copper is a key ingredient in EVs and all the energy transition things we're talking about and so there is the attention in this country between various goals and we have a goal of obviously making this energy transition if we want to make an energy transition we're going to have to radically change the permitting process it would be great if you want at some point we can talk about semi-conductors which is another manufacturing business where there are a lot of issues to be thought about well all right I'll take the bait let's talk about semi-conductors and I mean this leads nicely into binomics as well so look so what happened with semi-conductors and I've actually spent a fair amount of time on the semi-conductors recently because I think it's a fascinating subject is that we of course invented semi-conductors basically after Sputnik we basically had our Sputnik moment we said we got to become a technology leader the defense department got heavily involved DARPA and the internet was one outcome of that our leadership and semi-conductors with intel in particular being our national champion but many many other companies Qualcomm AMD whatever also being products of that but what then happened was that we also encouraged and we were not the main reason this happened but you then had a semi-conductor industry grow up in South Korea Japan Taiwan and Singapore we encouraged it because we felt that if those countries were strong economically it would help resist China better in its own economic expansion those countries pursued a very vigorous industrial policy which relates to your question to develop those industries there and so where do we sit now we sit now we're 92% of the world's high-end semi-conductors the most important ones that power your phones and lots of other things that you use are made in Taiwan which obviously has a series of issues surrounding it and now suddenly we want to bring that back here but what we're finding is and what we're going to find is that that is not easy we don't have the ecosystem of engineers suppliers and so on that has grown up around the semiconductor industries elsewhere we have this permitting problem we have a high cost structure TSMC Taiwan semiconductor which is the leading company in making this stuff has a facility up on the Oregon Washington border they've had for a number of years they say their costs are 50% higher than they are back in Taiwan and so yeah they're building a fab as these factories are called in Phoenix but it's going to cost a lot and it's going to make barely a dent in our semiconductor situation so we can talk about our industrial policy towards semiconductors we have the congress has approved $52 billion for mostly for tax and grants to build these things another I think 12 billion of it for research and development but then they've gone out with an RFP for companies to apply with all kinds of other conditions and things around it like the companies have to provide childcare for their employees one thing one of the most important things that I learned in the auto rescue and that we were lucky to have was we were told by the White House you focus on fixing the companies we'll worry about all the other issues that are out there whether it's environment labor whatever you can't have multiple objectives in an policy that's that important and be successful in my opinion you have to have one objective and be willing to make certain sacrifices around it to be successful setting aside whether whether these sort of other aspects like childcare are going to hobble our efforts to build domestic semiconductor manufacturing I mean you could make the argument right that the US semiconductor industry is doing really well Nvidia is a $1 trillion company that's twice TSMC is only a $458 billion company so Nvidia is bigger than TSMC do you agree with the even premise that we need to have more domestic semiconductor manufacturing Nvidia doesn't make anything no I know they make nothing but they make a ton of money yeah but that's not the point but no I know but like but do we need I mean yes so the whole the whole thing sort of arose this got this semiconductor supply chains got on everyone's radar in 2020 when the low end lagging edge nodes that went into cars there was a shortage of them but then you know that eased and we don't expect pandemics to happen except maybe once every hundred years like what how much manufacturing do we need to do here a lot or some or look I don't know it's I don't I'm rather skeptical as possible but in a perfect world you'd want a lot more Nvidia does not make anything it doesn't matter what their profits are they could design ships every day for from now till the end of civilization but if they don't have somebody to make them right it doesn't matter so in the chip world you can separate it at least in my own mind separated into kind of three groups of chips you have memory chips which are basically a commodity we make a lot of them that's not going to be an issue you have as you said low end processing chips we make some of those there are made in plenty of places in the world we can be competitive there but none of that matters if you don't have high end chips because you need those again it's not just your phones it's the fence departments and missiles it's all kinds of stuff that cannot function without them and we don't make any of them here we literally don't make any of them here okay if we agree that we do need to make semi-conductors in the US and that maybe there is a role for industrial policy or government money to play in that process I know you've been somewhat critical of the federal deficit in recent years how do you square those two objectives you know not wanting to explode the public debt but also wanting to foster certain domestic industry look first let me say a couple things first of all I am on the more skeptical end of the value of industrial policy I think when the government gets into the business of picking winners there are many many ways in which it can mess up I will freely concede that what the Asian countries the four Asian countries I mentioned did in semiconductor which is heavily through industrial policy work and so there are plenty of examples it works lots of people like me would say okay if you give me full control of this and I don't have to deal all those other stuff and politics and whatever I can make this work there's a certain amount of hubris in saying that but that's what a lot of us would say but that's not how it's going to work it's going to work as a whole different kind of process and that I think brings a lot of risks in terms of the cost we're not talking about that much money I mean which we have a federal budget deficit of two trillion dollars we're talking about 52 billion over a number of years it is it is important if if we believe we can execute it well and as I said I have my questions about that it is just as important as many many other things the government does and we just would need to find 52 billion dollars somewhere else to pay for this because it is it should be a priority if we can execute it well let me bring it back to autos for a second you laid out the logic of why we should have some more manufacturing of semiconductors here does that logic to you also apply to the battery realm I thought you were going to ask him about autos in general I think we could go into auto but like that seemed to be a specific concern and I think that like when they passed the inflation reduction act a big part of it was probably you know one of Joe Manchin a critical vote was like he does not want to be in the same position that the US has found itself in with respect to solar with respect to potentially semiconductors and find us in that same vulnerable position with respect to battery I would like to see us make more batteries here because there are a lot of batteries made in China I don't worry quite as much about that as I do it's something about semiconductors because also batteries made in South Korea and lots of other places that were that are friendly to us and we're look we are living in a global world and we're not going to get away from that we're not going to get away from that we have spent too many years globalizing there's a company called ASML that you may have heard about which makes the equipment that makes semiconductors their high-end EUV machine has something like 650,000 parts in it it's one of the most complicated pieces of machinery if not the most complicated made those parts come from all over the world the intellectual property is owned by countries all over the world including by us some of those parts are actually made in California and so we're not going to get away from that the world's not going to get away from that we have to accept that we're always going to be at some risk of supply line problems if the world becomes a less forgiving place so I would like to see us make some batteries here I think it is a much easier challenge than making semiconductors here so I think it's possible and likely that we will make some Tesla makes its batteries here of course but again we shouldn't get overly optimistic about how many we're going to make and what the cost are going to be on public.com you may earn a 5.5% yield with US treasury bills the highest rate since the year 2000 it's one of the safest ways to put your cash to work and it's one of the easiest two there are no minimum hold periods no settlement delays just a low risk place to park your cash and earn the highest yields the US treasury has offered in over 20 years plus you can access your cash at any time in other words you get the backing of the US government and the flexibility of a traditional bank account as of 9 1 2023 you may earn 5.5% annualized yield with six month T-bills of held to maturity go to public.com slash T-bill podcast to get started this is a paid endorsement by public.com fees and conditions apply treasury accounts at public.com are through Gico Securities Inc member finra and SIPC not FDIC insured no bank guarantee may lose value full disclosures can be found at www.public.com slash T-bill podcast the world needs solutions on October 24th at the London edition of the Bloomberg Technology Summit join leaders innovators and entrepreneurs to discuss technologies that are poised to solve on most pressing global challenges from reducing CO2 emissions and making cities more livable to affordable health care and combating food insecurity. Executives from Deliveroo, Siemens, Graphcore and more will examine where tech innovation can take us. Learn more at BloombergLive.com slash tech summit 2023 I'm going to ask you to put your banker slash private equity hat on again as a director of capital how do you encourage more money to flow into some of these strategically end or environmentally important industries such as semiconductors such as potentially batteries things like that where to date maybe they there hasn't been as much money as certain people would have liked. In some industries where the prospects for return don't seem fulsome enough for us to invest there may if they're important enough then the government needs to step in so let's talk about how the government can do this in a way that is most cost effective if you think about it very broadly the government can provide subsidies they can provide tax incentives the problem with subsidies is then you have the government in effect picking winners and that scares me the advantage of tax incentives is you're basically letting the market decide which projects are going to go forward with the tax incentives providing an added boost we have seen in my investment role we have seen projects that came by a couple of years ago that we could not get pencil out to make the returns meet our thresholds and so we didn't invest we literally had one of those same projects come back after the IRA was passed and suddenly there's I think a 30% or some large tax credit associated with it and the project suddenly made economic sense and we invested in it what area are we talking about this was in the solar area okay so in the solar area yeah and so that's how the market can work better and it is working better in fact it's working so well that it seems clear that the original estimate for the cost of the IRA which I think was around 500 billion Goldman Sachs thinks it's going to be 1.3 trillion other people are somewhere in between and that may sound like a bad thing and it is obviously from the standpoint of the budget deficit but it's a good thing in the sense that these incentives have taken so many projects that were not economic and made them economic and so you've had this enormous take up and we will have a lot of progress made in this country on energy transition projects because of it let's go back to cars more broadly because something that comes up a lot in our conversations it's not just about do you have the cash it's not just about do you have the workers it's like are you good at it are the learning by doing and when you talk about you know you even mentioned the car industry in the US has been working on its sort of existing model for over a century the chip makers in places like Taiwan and Korea like they've just gotten really good at what they do and they know how to do these repeatable processes when it comes to EVs and the legacy automakers setting aside the labor costs again for a second like how much of a challenge is it going to be for them to basically get good at producing electric cars at scale it's going to be a challenge but I think there's a year and a year to this I think on the positive side they have a hundred years of history in a very complicated industry and everything from design engineering supply lines manufacturing distribution marketing and so on and so that's an advantage that they have this advantage is their legacy companies and they really need to reinvent themselves in a way to compete I was a skeptic about the ability of companies like Tesla to come into a market that was so established and compete effectively and I was wrong about that obviously it can be done and you now also have a whole bunch of other startups coming along and at the moment the Detroit three as we call them are losing a lot of money on their EVs and just really beginning to roll them out in force and it's going to be a tough competitive experience for them and that's why things like labor costs become important. Just going back to the UAW strikes what's your base case for how this all works out and what is the trigger I suppose for the two sides to come to a resolution? Well first in relation to your opening comments to your listeners I think this podcast will be relevant for a long time from everything unfortunately yeah unfortunately certainly the attitude at the companies is that this is not going to get settled quickly because the gap between the two sides is so vast and I think the companies as I said and you may or may not agree there's no possibility that the companies can possibly accept paying people 40 hours and working 32 or anything like that it's just it's not in the realm of reality and so I think at the end of the day what I hope will happen and what would be the right thing to happen is for the union to drop a lot of these in silvery demands and there are also by the way demands and requests around the issue of workplace flexibility one of the things that we did in 2009 was to basically strip away a lot of the work rules that we felt were impeding efficiency general motors I believe from my recollection had something like 300 job classifications for its workers if you were a plumber you couldn't touch a piece of electric piece of equipment or whatever and we reduced those to six and that is still more or less where things stand but there are other kinds of flexibility the companies need to manage especially in relation to the EV transition so what I would like to see happen is a robust pay increase and I think the companies have offered a reasonable one but there's more to go I'm sure and the gap there as I said I think is bridgeable and for the union to give up most of these I'm going to call them crazy demands and hopefully also address any kinds of workplace flexibility issues that the companies feel they need to be competitive does it have to get worse though before it gets better well it will get worse because what's happened is as you know first of all this is the way they structured the strike as unprecedented they closed three plants one for each of the companies and they did that in part because they didn't want their strike fund to get depleted too quickly they couldn't afford to strike all three companies they didn't want to do what historically has been done with strike one company but what's going to happen now is that gradually other facilities are going to close because there is no place to send the parts because there's nobody to assemble the cars and trucks at these three facilities that have been shut down and then those facilities will shut down and those workers will be laid off under the rules the companies can't simply shut those facilities and lay off the workers unless they have a legitimate business reason to do that i.e. they're oversupplied with whatever that particular facility what facility does so yeah this could easily ripple through the entire set of come of facilities around the big three the Detroit three they could shut down you could have 130,000 workers on strike or not on strike but laid off and on strike there will be significant effects on parts suppliers by the way let's not forget that these companies don't make a lot of their parts most of their parts they've outsourced those years ago and so those and this was something we encountered in 2009 as well and so those companies are going to suffer financial pressures and they will be concentrated in the upper Midwest and this is none of this is a good thing you broke the the UAW demands between what you see is like sort of very reasonable and deserved pay increases and then the so-called crazy demand where does ending the tiered system fall into that you consider that crazier is that something that can be solved well again that's that's a money issue really and so it's a question of how you want to allocate the money if you give the existing permanent workers more than whatever then there's less to deal with what we're called the temp workers now and so it's really a question as much for the union as for the companies as to how they want to allocate it the temporary worker thing has been significantly improved since 2009 in terms of the amount of time a new worker as a temporary worker before they become a permanent worker and I think that will continue to shrink under this new contract I think the companies are prepared to give something on that front but again as I said it's as much for the UAW is this for the companies as to where their priorities lie let me ask you one thing about EVs is I think they're less labor intensive and they have fewer parts total so there's less assembly so even under as again saying there was no contract issues I believe the perception is that the transition would require less labor is that the case like what is the stress that's going to be come on the labor force in your view regardless of this contract this is something the UAW is worrying about and it's analogous in a way to what the screenwriters are worrying about they're worrying that AI is going to put them out of work the UAW is worrying that the EVs are going to put them out of work and this is again where there's a very interesting tension in America today between the people who care passionately about labor and the people who care passionately about the energy transition many of them are the same people and I certainly would even consider myself one of them but you have to decide what your what your priorities are and if we want to be competitive in EVs and not end up like semiconductors whether all made somewhere else then we have to accept that there are going to be some costs to that I don't mean financial costs I mean costs in terms of jobs because as you correctly said EVs require a good bit less labor and we just have to accept that and trying to protect old jobs is never a winning strategy for any country or any company I want to ask one more question this is what we call a giveaway question well you're a former journalist you know your time as cars are what was your favorite or most memorable moment from that period my most memorable moment there's all a competition for that for that award I had many many it was a fascinating experience it was the best thing I ever did with my life I felt like I actually made a contribution and we were able to achieve it I would say interestingly and this is a little different than what we my most memorable moment was when we got inside of General Motors I had been taught and brought up in my investment banking world to think that General Motors was a really iconic company well managed for the most part especially in finance they were renowned for their finance department when we got inside General Motors I could not believe how badly that company was run they didn't even really have a model a financial model that we could use to project the results for five years they had some cut and paste thing but they didn't even have really a model that could be manipulated and where you could change assumptions and things like that the culture of the company was terrible it was a get along go along kind of culture nobody would challenge anybody the CEO had an elevator that took him from his private exactly where the private executive car parking area straight to I think it was the 49th or 50th floor and the Renaissance tower to his office without stopping any of the floor so you didn't have to mingle with any of the ordinary people the executive offices were behind a locked door you had to have a certain kind of a pass to get through that door it was unbelievable unbelievable to me to see an iconic company run like that and it was clear from the from day one that a big part of what we needed to do there was to change management this was this is not labor it was not labor's fault that these companies got in trouble they have some responsibility but management had an off-water responsibility all right Stephen Ratner thank you so much for coming on all lots and reminiscing with us and sharing your thoughts on the current situation appreciate it it was fun thanks so much for having me thank you that was really great yeah that was fantastic thank you so Joe I thought that was a very nuanced discussion of a topic that clearly people have a lot of feelings about I did think one thing that jumped out to me was just how important the economic backdrop is for these types of things so Steve was talking about how in 2009 you were able to get concessions out of the union because the economy was not doing very well obviously fast forward to today and it feels like the balance of power has shifted potentially more in favor of workers and so you can see why the UAW thinks this is the moment to strike absolutely I mean absolutely the macro backdrop couldn't be more different from the time when uh Stephen was the cars are there's crazy that last point I know yeah about the elevator going straight up to the top of the Renaissance tower in Detroit I mean he was talking about how a lot of companies especially car companies don't have defined pensions anymore I wonder if they still have executive dining rooms and bathrooms and things like that they got a I would guess although I guess we can from hopefully I don't I wonder if they still have that elevator but you know like there's a lot here and so you know obviously the labor component like in my mind like when I think about will the big three companies thrive in the age of electric vehicles I guess I'm skeptical that the cost of labor whether it's 5% or 7% is going to be the defining question of it it still seems like the big question mark in my mind is can they make cars productively that people want to buy and can they maintain their businesses which are still like you know heavily driven by profits from internal combustion engine cars priced over a long time can the pencil out in the end where the profits from EVs against all kinds of competition that they didn't have in the previous era does it work can are they competitive in this space and I think it's still kind of TBD yeah and the other thing and Steve kind of touched on this is just the uniqueness of the car industry on the whole so you know we associate a lot of car makers with American industry and I think there's also a tendency for Americans to want to buy American cars often there's this sort of brand recognition and value and so I kind of wonder to your point on the labor costs if maybe people are willing to give up a little bit of price in order to you know support and buy American and all of that type of stuff by the way Tracy did you hear where that copper mine he was looking to invest in is I knew I knew you would notice that Arizona yeah another another Arizona angle for when we do our Arizona I didn't realize I was just looking at Wikipedia they all somehow comes back to Arizona all right we have to go to Arizona visit an alfalfa farm visit like a water treatment plant a car a copper mine a car factory no there's more there's a Howard Hughes master limited master plan community semiconductor fab and we have to take a self-driving car around the entire tour all right uh shall we leave it there for now let's leave it there okay this has been another episode of the ad-lots podcast I'm Tracy all the way you can follow me at Tracy all the way and I'm Joe wasnt all you can follow me at the stalwart follow our guest Stephen Ratner he's at Steve Ratner follow our producers Carmen Rodriguez at Carmen Arman Dashobend at Dashbot and thank you to our producer Moses Andam follow all of the Bloomberg podcasts under the handle at podcasts and for more ad-lots content go to bloomberg.com slash ad-lots where we post transcripts of log in a newsletter and check out the discord we have a transportation room we have a climate room going to be lots to talk about this one discord.gg slash ad-lots talk about this and all the other episodes with fellow listeners and if you enjoy ad-lots if you like it when we talk about link for movements then please leave us a positive review on your favorite podcast platform 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