Marketplace - Why GM had a great quarter

Episode Date: October 22, 2024

It’s been nearly a year since the United Auto Workers ended its strike against General Motors, and the automaker has defied expectations with strong third-quarter earnings. Why is GM doing so well when other carmakers are struggling? Plus: Quebec is using a pension fund to build a light-rail system, and “Marketplace” host Kai Ryssdal plays U.S. president in a climate war game with two Department of Defense retirees.

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Good as always. Steady along, everybody. We begin today, ladies and gentlemen, in the crystal ball section of the economic headlines, sometimes known as the bond market. Ladies and gentlemen, in the crystal ball section of the economic headlines, sometimes known as the bond market, our old standby, the benchmark 10-year treasury note, the yield on which has been going up and up some more for a good long bit now. It is the highest it's been since late July.

And I see you there. Yeah, you scratching your head because you remember the Fed has actually cut its rate. Marketplace's Abrey Menishaw explains what's going on. The yield on the 10-year treasury today is based on the economy of tomorrow, or at least on what markets think the economy of tomorrow will be like. That is because a 10-year treasury lasts for, you know, 10 years. And for most of this past summer, markets were bracing for a future, much slower economy. A weakening labor market, having unemployment rate rise and job growth really slow down.

Kathy Jones is chief fixed income strategist for Charles Schwab & Company. So markets thought, OK, well, the economy of the future isn't going to be that great. So I guess the bond yields of today don't need to be that great either. And all summer long, this mild gloom pulled 10-year yields down further and further. But then, in September, the future changed. The jobs report, the unemployment report, that not only showed a pretty good gain. Not only did the future look a little brighter, so did the past. The Bureau of Labor Statistics revised up its previous estimates of job growth from months gone by.

When we got the revision said, oh, well, maybe, you know, things are not that bad. Plus, strong retail sales showed the consumer was just fine. And so the 10-year yield started moving back up because markets are now betting on a brighter future economy, specifically one that causes the Federal Reserve to be slower to cut interest rates. Steve Lightley is global co-head of fixed income ETFs at BlackRock. If you look at what's priced into the futures markets, we've taken out about two cuts. Meaning investors are now betting the Federal Reserve won't be cutting future interest rates quite as much as they once predicted. And so if the interest rates of the future will be a little higher, the bond yields of today should also be a little higher.

But rising yields have another message also baked into them. About half of that is inflation expectations. Markets believe inflation will be ever so slightly higher than the 2% the Fed considers ideal. James Camp is managing director of strategic income at Eagle Asset Management. That 2% long-term inflation target and this type of economic reality may not be attainable. At least some of the bond market believes the future has changed in this way, until of course the future changes all over again. In New York, I'm Sabri Benishor for Marketplace.

On Wall Street today, the yield on the 10-year topped 4.2%. Stocks didn't do much at all. We'll have the details when we do the numbers. Expectations had been the General Motors was going to have a good third quarter. Wall Street, though, got that one wrong. The carmaker reported this morning it had a great quarter. GM says it expects to generate $14 to $15 billion in pre-tax profit this year, more than it had been guessing earlier. And the company's shares, ticker symbol, GM, of course, that was easy. Those shares are

creeping back up toward the highs they hit during the pandemic. Meanwhile, shares in GM's rivals, in what used to be Detroit's big three, that would be Ford and Stellantis, have seen their stock prices go the other way. Marketplace's Kelly Wells went looking for the key to GM's recent success. I actually found a set of keys. The first, GM is coming back from a terrible third quarter last year, says Sam Fiorani. He is VP of global vehicle forecasting at Auto Forecast Solutions. GM, as well as Ford and Stellantis, had a terrible quarter last year because of the strike. So they were already at a lower point to start with.

Another key, yes, interest rates are coming down, but they're still pretty high and that's made life expensive. Mortgage rates are high, rent rates are high. When you're trying to cut costs everywhere, people are looking for the least expensive way to get into a new vehicle. And Fironi says GM is a leader in the new car under $30,000 market. General Motors Chief Financial Officer Paul Jacobson says the other big key to the company's success, EVs. Paul Jacobson, Chief Financial Officer, General Motors In the third quarter, we were able to become the number two producer of electric vehicles

in the U.S. 2. Of course, to Tesla. Jacobson says GM sold 50% more EVs this quarter than last, but electric still only make up 1 to 2% of its total production. Paul Jacobson, Chief Financial Officer, General Motors Generally, we're still very much in the internal combustion engine vehicle business, but as we've been scaling up this year, we'll produce about

200,000 electric vehicles, which will be a record for us. Record-breaking growth, but GM is still a ways away from its original goal of having produced a million EVs by 2025. I'm not fully convinced million EVs by 2025. I'm not fully convinced that this data addresses any concerns that one might have for the longer horizon. David Beery teaches public policy at Virginia Tech, and he is not celebrating because he says GM's quarterly earnings report doesn't fix what he calls the elephant in the EV market room. Can they compete against the seemingly all dominant Chinese car

manufacturers? Despite that competition Jacobson says he expects the company to see similar earnings next year thanks in part to falling interest rates. I'm Kayley Wells for Marketplace. As far apart as former President Trump and the Biden-Harris administration are on most economic policy issues, there is at least one thing they agree on. The United States creating its own sovereign wealth fund. China has one. So does Norway, also a number of countries around the Persian Gulf.

Big pools of government revenue that gets invested in a lot of things. Stock markets, real estate, soccer teams, also infrastructure projects. And you don't have to go too far to see something like that in action in Quebec. The Provincial Pension Fund up there is financing, building and operating a new light rail line around Montreal, as Marketplace's Henriette reports. Sonia Doucet used to be able to get a bus outside her apartment in the Montreal suburbs and take it all the way to a college downtown. Now that bus takes her to a train called the REM. It takes me a bit more time, but when you are in the REM it's pretty nice.

Yeah, it seems pretty clean. Yeah, it's clean, it's safe, the view is amazing. The first portion of the REM opened last year, and Doucet is right. As it glides over a bridge above the massive Saint Lawrence River, the view of downtown Montreal is pretty incredible. And the train makes a cool sound every time the doors close. While the line is brand new, like many public transit projects, it was in the works for a while.

So the idea actually emerged in 1962. Pierre Barreau is a lecturer in transportation planning at the Université de Montreal and runs a consulting firm. It took 50 years for the project to get real momentum. In 2012, he says, the Canadian federal government wanted to build a light rail line to the airport. Meanwhile, a suburban mayor was trying to get the private sector to build a separate line. The provincial Quebec government had nothing. And that was a very bad vibe for the government because it was demonstrating a failure for them of being able to get stuff done. But the premier of the province at the time saw an alternative, Barrio says. And the alternative they had was the public pension fund.

The Casse de dépôts et placement du Québec, otherwise just known as the CAS. Conrad Yakubusky is a columnist at Canada's Globe and Mail newspaper. He says the CAS was... Created in 1965 by the provincial government of Quebec to manage the assets of the Quebec pension plan, which is the provincial equivalent of social security in the states. Unlike social security, the CAS has acted more like a sovereign wealth fund, investing in stocks, private equity, real estate. But it's also a little different from big U.S. pension funds. It's supposed to maximize returns, but also contribute to Quebec's economic development.

The CAS had over 310 billion U.S. dollars in assets last year. About 20% of that is invested in Quebec. The rest is invested nationally and internationally. About 10 years ago, the CAST created a subsidiary to not only invest in, but develop and operate infrastructure projects, starting with the REM train system. Noemi Brouillère-Marquez directs public affairs for that subsidiary. The model is that we took on, basically,

essentially the most part of the risk, so the construction risk and the ridership risk of the project. In exchange, she says, the fund will get the potential benefits through fees paid by the region's transit authority for each rider on the train. Brieher-Marquez says the goal is an 8% return on investment.

This quasi-public model for building infrastructure could be replicated in the US, argues Sauley Omorova, a professor of law at Cornell University. Because, she says, infrastructure projects are tricky. They take a long time to build. And during that time, a lot of things can happen that might derail the project and might render the project less profitable for example. That makes private industry less likely to take

them on and while the public sector might be more willing, politics is fickle, and elected leaders might not want to keep funding a long-term project. In Montreal those concerns have been lessened by shifting the bulk of the financial risk to the pension fund. The REM has not been immune to the problems that many transit projects face, cost overruns and delays. Again, Pierre Barrio, the transit lecturer and consultant. We're about five years late, a few billion dollars over budget, but the project is advancing. Right now, the nearly 42-mile network is on track to be completed about nine years

after construction began by Canadian and American standards. Not bad. In Montreal, Quebec, I'm Henry App for Marketplace. Coming up. What's your plan? What are you going to do? How much risk do you want to take? So many questions. First though, let's do the numbers.

Dow Industrial skimmed off six points. That's basically flat. Finished at 42,924. The Nasdaq gained 33 points, about two tenths percent. 18,573. The S&P 500 got rid of two points. Unchanged. There's another word for that.

58 and 51 there. Heard from Kelly Wells that GM had a pretty fantastic third quarter busting through predictions. GM floored at 9 and 8 tenths percent today. The other two major domestic car makers, Ford Motor Company, revved 2 and a tenth percent. Stellantis sped up 1 and 6 tenths percent. Not the greatest day for GE Aerospace. Its profit outlook went up and earnings exceeded expectations, but its commercial engine sales did not. Owner GE dimmed 9.1%. Bonds fell, yield on the 10-year, as I mentioned, up to 4.21%. You're listening

to Marketplace. This podcast is supported by Fundrise. Buy low, sell high. It's easy to say, hard to do. For example, high interest rates are crushing the real estate market right now. Demand is dropping and prices are falling, even for many of the best assets. It's no wonder the Fundrise Flagship Fund plans to go on a buying spree,

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This is Marketplace. I'm Kai Rizdal. I think I mentioned this on the show a couple of weeks back, that as part of our climate podcast, How We Survive, we played a war game where I got to be president. this on the show a couple of weeks back, that as part of our climate podcast, How We Survive, we played a war game where I got to be president. We decided to set it up because the Pentagon has put millions of dollars aside specifically for climate war gaming. So do me a favor and tell me exactly who you are and what you do for a living.

I'm Ed McGrady. I have a PhD in chemical engineering. I have worked in the defense analysis industry for about 30 years, and for a large part of that, I design professional games. Ed works with a think tank, the Center for a New American Security, and he actually teaches a whole course on how to war game climate change. So we had him design one just for us. What are the basic rules?

What's the run of play here? Basically, they're going to tell me what they want to do, and I'm going to tell them what effects that has. And I'm going to tell them what situation is. They're going to brief you, and you're going to ask them questions. We got two people to help us out. Admiral Denny McGinn, retired US Navy.

Been working in the intersection of energy, environment, and national security for 30 years. Admiral McGinn's going to be the Secretary of Defense. I'm retired General Wes Clark. I worked energy, I worked the environment, climate change, concerned about all of this, and of course national security. General Clark is going to be the commander of Southern Command, a job he had in real life in the mid 1990s

Between them they've got nearly 70 years in uniform decades at the very highest levels of policy And we should tell you here just so you know that they have both signed a letter in support of Kamala Harris I will tell you Adam again and general Clark you two have an advantage over me and that you you guys have done this In some form or another, I'm sure in the last 40 years. I have not. So we're gonna see how this goes is the short answer to this one.

And we're gonna have a little help. Hi, I'm Sophia. I'm a producer and I'm gonna help set up the scene. All right, Sophia, where do we start? In the future. It's 2044 and our focus is northern South America. Climate change has been hitting the countries of Venezuela and Colombia pretty hard. In the last 20 years, the world has warmed up another 2 degrees Celsius, which is way

above the 1.5 degree warming target set by the Paris Agreement. There's severe drought, then flooding. It's ruining the ability for people to grow food. Roads and cities are breaking down. Blackouts are becoming more and more frequent. It's hot, like really hot. And the government in Venezuela can't really help because it's falling apart politically. So millions of migrants are trying to leave their bottleneck on the Colombian coast without

food, shelter, water. In a nutshell, it's now become a mass migration and humanitarian crisis. The UN is already involved, so the question of this round is, will the US get involved too? Good question. Ed did let Game Player Me, the president now, do a little preparation to set up Game Player Me, president in 2044, 22nd Amendment be damned, for success. What change do you want to make, if any, in the next 20 years before we get into this crisis? Oh now, see, this is much harder than it in real life than it actually is in my pre-gaming of this game. So look, it goes like this.

It is a, huh, this is really interesting, actually. It turns out I talk a good game, but when the decision comes to me. So here's where I come down. We're going to increase substantially our investment in Southern Command so that we can ameliorate as best as possible these coming threats. To vastly oversimplify here, presidenting is hard. In the end, as I said, I leaned hard into Southern Command.

More joint exercises, surveillance drones, water and tents. Of course, there is a trade-off. Whatever I sent to Southcom meant siphoning resources from someplace else, say Pacific Command, which does have its hands full with China. What's going to happen is that your partners and allies are much more capable of assisting. So you've got partners and allies down there that you built up capacity with. You also have a lot of logistics capacity for your cells. At the same time, your relative less emphasis on the Pacific

has allowed China to get a little bit more aggressive. That's not what I expected. But it turns out China has sent hospital ships to the Caribbean and an aircraft carrier. It's an opportunity for them, right, to extend their influence. So my question for the generals, both Southcom and Defense, is what are you going to do?

So are you going to tell the president he needs to risk some of his capital, political capital, to stand up and lead on this? Or should the president try to minimize U.S. forces' involvement and rely on U.N. and partner nations predominantly? What's your plan? What are you going to do? How much risk do you want to take?

Adam McGinn, Secretary of Defense, goes first. You know, the old expression, Mr. President, lead, follow, or get out of the way applies here. That's retired Navy three-star Danny McGinn as the Secretary of Defense. We don't want to take the absolute lead of this humanitarian assistance disaster relief operation. We do, however, want to assist the United Nations and other organizations, international organizations, in getting the capability that they need to

help these people. But we do not want to go in there, Mr. President, as the United States, claiming leadership and by extension ownership of this crisis. We want to assist, but we don't want to lead it. Southern Command, what do you say about this? You got a Chinese battle group coming at you? First of all, you know, we need legal authority before we do anything. Wes Clark retired Army four star as the commander of Southern Command.

So as the secretary of defense said, we, you know, let's get this thing up to the UN and the organization of American States and CARICOM and get everybody who's got a stake in this, get them involved in it. We'll be behind it. We'll coordinate the logistics support. It's a political call on how much you want to actually do on this at this point. But one thing is for sure, the more you put in, the greater ownership you have of it.

Some of what we were starting to see happen in that game might not seem to be related to climate change, except it really is. One domino hitting another domino, and then another, all because the planet's getting hotter. Climate change is a threat multiplier. It just hits in unexpected ways and does unexpected things. Would you just to set the table a little bit, I think when the layperson hears war games,

they imagine some computerized, super sophisticated, very high tech simulation of actual war fighting. You know, we're doing this oral history project as part of our initiative at Hoover. Jacqueline Schneider is the director of the Hoover Wargaming and Crisis Simulation Initiative at Stanford. I started asking everyone that we interview, what do you think a war game is?

And I think one of the most remarkable things we found is that no one has the same idea of what a war game really is. Stanford's got a ton of games in its archives, at least the ones that have been declassified. They often have these kind of CIA style code names like Proud Profit, High Heels, and Able Archer. Games that simulate worst-case scenarios all the way up to nuclear war. It wasn't until after the Cold War that the military's priorities started to change and that's when climate makes an appearance. First, we do start seeing organizations concerned about climate. I wouldn't say climate change in general, but this idea of humanitarian crises in the early 90s. And so the US Navy

and other organizations start running games that are looking specifically at some sort of climate crisis scenario, you know, a hurricane, an earthquake. And the idea is that they're trying to understand how you use naval resources in order, US naval resources in order to provide humanitarian operations.

The 90s were a time period where our budget was decreasing. We lost our big peer adversary in the Soviet Union, which is a good thing. We won the Cold War. But then what are we supposed to be doing with this big US Navy? And so there was a bit of an identity question about, okay, well, maybe what the US Navy is doing is it's going to places like Haiti or places that are affected by these large-scale climate crises. After September 11th, the actual wars in Iraq

and Afghanistan were of course priorities. But then most recently you have the integration of climate issues, whether it's food security or access to mineral resources or the way in which climate change might affect some of the US's more vulnerable ports or vulnerable bases. You see these being integrated in a more systematic way within, for example, the US Navy and to

some extent the US Air Force. I would say it's still not the number one priority. And I think where there still needs to be an evolution is thinking more concretely or using games to better understand how climate change might create the sort of resource scarcity or demographic changes that actually incite conflicts instead of just thinking about how we respond to specific crisis incidents. Not to get all Rumsfeldian on you here, but there's a whole lot of unknown unknowns. That's exactly what I was going to say.

There's a whole lot of unknown unknowns when you start thinking about climate and how it affects our national security posture, possible humanitarian crises, right? I mean, it's maybe the ultimate unknown. And this is where games are at their best. Because games are not about providing us like a certainty or some sort of probabilistic understanding of what the future might be, but instead giving us a way to categorize uncertainty. There is something so valuable about using war games and this immersive experience to teach and educate

and not convince people of dangers, but help them better understand the dangers of the uncertain world that exists. We've been exploring that uncertain future of climate change and national security on our podcast, How We Survive. And if you want to find out how I did as President Rizdal, the rest of our war game is in the episode cleverly titled War Games. Download it wherever you get your podcasts and listen to the whole season

about the military and climate change. It's on the platform of your choice. This final note on the way out today, whether or not artificial intelligence is going to take your job is at least going to be grounded now in economics. OpenAI announced today it has hired a chief economist, Ronnie Chatterjee by name, currently on faculty at Duke, late of both the Obama and Biden administrations. Set the company in its press release, Dr. Chatterjee will lead research to better understand AI's economic impacts and make sure its benefits are widely distributed. Oh, OK then.

Our digital and on demand team includes Carrie Barber, Jordan Mangy, Dylan Mietinen, Janet Nguyen, Olga Oxman, Ellen Rolfes, Virginia K. Smith, and Tony Wagner. Francesca Levy is the executive director of digital and on demand. And I'm Kai Rizdal. We will see you tomorrow, everybody. This is APM.

I'm Kyle Rizdal and on How We Survive we've embedded on the front lines of a fight between the U.S. military and climate change. But that fight's not happening on traditional battlefields. Instead, it's at places like the edge of the Arctic Ocean. Oh my god! It's a little windier out here. Just a little. On changing terrain. And sea level rises, storms like that will do more and more damage. And in state-of-the-art military facilities where I became a lab rat. We're going to drop it from 110 degrees Fahrenheit down to 34 degrees Fahrenheit.

I can feel my muscles tensing, right? Discover how the US military might shape our climate future. Listen to How We Survive wherever you get your podcasts.