Motley Fool Hidden Gems Investing - Deadline In Detroit

Episode Date: September 14, 2023

It’s the week of the big auto show in Detroit but industry watchers are more focused on a potential strike than the vehicles. (00:26) Bill Barker and Deidre Woollard discuss: - The demands of the United Auto Workers. - The fading allure of auto shows. - If vehicles will just keep getting bigger. (17:02) Ricky Mulvey and Deidre Woollard ponder the return to office and if things in our working lives will ever be the same again. Companies discussed: F, GM, TSLA, STLA, WE, META, AMZN Host: Deidre Woollard Guests: Bill Barker, Ricky Mulvey Producer: Ricky Mulvey Engineers: Rick Engdahl, Tim Sparks Learn more about your ad choices. Visit megaphone.fm/adchoices

You've got to try breakfast at A&W. You've got to try breakfast at A&W. And what better way than with the delicious Pret Organic Coffee? Starting with just one dollar, all day, every day, now until December 31st. You've got to try breakfast at A&W. At participating A&W locations in Ontario. it's detroit auto show week but no one is focusing on the cars motley fool money starts now welcome to motley fool money i'm deidre willard here with bill barker we're going to do a little

motley fool money car talk how you doing today bill good thanks for asking of course well this week is the Detroit Auto Show. This used to be the big can't miss event. Everyone would come into town. Big reveals. It just doesn't feel the same way anymore. Is this because everything gets leaked online? What's happening here? That's part of it. The foreign automakers don't show up at the show anymore. So, it's a U.S. regional kind of event rather than an international or even national event. There are competing auto shows outside the country and inside the country. Still Detroit, still the biggest show in this country. But on top of that, as you mentioned, you find out the news in other venues. There is no need to necessarily

they wait around for the auto show. The automakers can get a bigger bang for their buck online at times. But there's still something to the show. There are still things there. It's still an event. Oh, yeah, it's definitely still an event. I used to go to the Los Angeles Auto Show, and definitely fun to see those concept cars and see the new vehicles in person. So I think there's still something there. But for this week, it's even different than just that because we've got this United Auto Workers strike kind of looming over our heads. This is against the big three, Ford, GM, and Stellantis, which is the parent company for Jeep and Chrysler. Deadline tonight, 11.59 p.m.

And one of the things that we've been hearing about is the possibility of a targeted strike. So this is a little different kind of thing. Instead of all 150,000 workers walking out as a united front, they're going to try to do smaller strikes at key assembly plants. And part of the reason they're doing that is because if they had everybody walk out, it would deplete the strike fund, which is what allows the workers to strike. And that would be depleted in about 11 weeks. So that sounds to me like maybe they're expecting that this is going to drag out a bit. Yeah, it's an interesting game of 3D chess here, given that you can cripple virtually all production by just targeting the transmission or engine part of the assembly,

which is done in different places than some of the other assemblies. So, you don't need to strike everywhere to more or less bring everything to a halt. So if that is done and you just use a very small percentage of your workers to go out on strike and take that hit, then the other assembly plants are going to have to likely shut down, lay off workers. And then the workers, depending on how certain things play out and how things are adjudged, can go and collect unemployment against the state rather than dip into their own pockets or into the pocket of the strike fund. And then the state gets involved and they put that much more pressure on the parties to get together. And they're not going to want to be footing the bill for this if they don't have to. So you get all the politicians involved and, you know, things get interesting. Yeah, yeah.

I mean, and that's the difference, too, between it used to be that a car would be, I mean, way back in the Henry Ford days, the car would get built on one line. And, you know, in today's world, a car can get built in many pieces across multiple countries. So it's striking as a different thing than it used to be. Yeah. Yeah, and of course, for a while there, the problem on production was getting access to chips. And that crippled the industry for some time during the earlier days of COVID. So, and then those aren't even produced for the most part in the country at all. Yeah, there are a lot of different ways to bring production to a halt.

Yeah, so let's dive in a little bit to some of the key demands. wage hikes of, I think it's between 30 and 40 percent over four years, an end to the tiered system of wages. One thing that's kind of perked up everybody's ears is a 32-hour work week, but a 40-hour paycheck. And another thing that is really a sticking point is the union representation at EV factories. You know, the wage hikes sound like a lot, but apparently some of the workers are making $20 to $25 an hour. Not much. I mean, in the old days, it always seemed like the car workers, the auto workers were paid a lot more than, you know, than, you know, other types of employees. So what happens here? You know, one of the things I'm thinking about is they don't want

to set precedents, right? They don't want to, any contract that they set is going to be locked in for a long time. So it sounds like they're still pretty, pretty far apart. Do you think, do you think this is going to work out anytime soon? I don't think all the headlines point to it working out pretty soon. I'm not in the negotiating room, so I'm speculating here. It's a big ask when you come in and you say what we would like and what we, by the way, demand, right? That's the word used. We demand 40% increase in pay, 20% right now, and then the other 20% to roll out over four years. And, we'd like to work 20% less of the time. That's a 75% increase per hour, from the way I see the math. They want to get 40 hours

of pay for a 32-hour workweek, and they want each of those nominal hours up 40%. So, come in, ask for a lot at the beginning, then the company says, I don't think so. I think that's too much. It's time we knew the contract was coming up. We knew we're going to be in position of having to raise wages and be prepared for that. But that's, and then there's, actually, that's only sort of the beginning. I mean, there are health benefits and there's defined benefit plans, old pension plans that were largely changed in 2007. So, that is only the beginning of the requests, demands.

And so that's – given how large the demands are, that's going to determine how long I think it takes to find the right place in the middle. Yeah, it all comes down to compromise. And at the center of this, you've got United Auto Workers President Sean Fain. He's been – his line has been record profits should equal record contracts, which the car makers have had record profits in recent quarters. New car sales were up a lot last quarter. I'm not sure how sustainable that is because a lot of that was still pent-up demand. But Fain has accused Ford CEO Jim Farley of not providing a genuine counteroffer. Farley has accused Fain of not being present during a meeting that he was expected to attend.

So you've got the big three. Is there a chance that one of them, you know, are they a united front? Or is there a chance that there's an agreement between one and not the others? Certainly a chance, I think, at least one of the articles that I read said somebody was quoted as saying a 99% chance of a strike against Stellantis. Ford has dodged strikes for almost 50 years, so they've got a better record and probably want to maintain that. But the record profits is true in a nominal sense. Of course, there's been inflation, So, record profits don't necessarily translate to record real, you know, inflation-adjusted profits.

These aren't, it's not a great business for an investor. It hasn't been as long as I can remember. This is why car manufacturers typically trade at about seven or eight times earnings. They're just not, you know, they pay out a fair dividend at times when they can. But General Motors has returned less than 2% a year over the last 10 years for the stock and Ford is basically flat over the last 10 years, including the dividend payments. Toyota, a little bit better than that. And, you know, stockholders are not getting wealthy off of owning these stocks. Now, you know, the work of the company either goes to the

benefit of the customers or the employees or the owners, it could be management rather than the shareholders, but the shareholders are not the ones getting wealthy off of the labor of everybody in the car world. Hopefully, people are getting fair prices for their cars. Hopefully, the workers are or will be earning a fair wage. Historically, the division of all that has not left a lot of money for shareholders. Well, let's talk about the elephant in the room, or really the elephant not in the room, which is Tesla. So we know a strike would be bad news for the big three, but could it be good news for Tesla? And, you know, I mean, Musk is not a union fan.

And so I start to wonder, like, if there's a big win with the UAW against the big three, does that give Tesla workers more incentive to create unions? Is there a benefit for Tesla here? There's a benefit for Tesla if nobody else is working. No cars are moving, it's good for them. That allows them to capture a larger chunk of the market. If there's no competition, it goes on long enough, something like that. Tesla, a big win for the UAW here would give them increased leverage on trying to unionize Tesla. That hasn't been successful, but, you know, Tesla dangling out stock to its employees. Employees aren't and haven't been in desperate

need for better pay at Tesla because of, you know, the stock doing a lot of the work there rather than, you know, which it does not, you know, for GM and Ford. Yeah, really good point about that. Let's take a quick tour through the auto show. Not too much to report there, but one of the things, the big new model debut was the redesigned GMC Acadia. It's supposed to be a midsize crossover, but this thing is kind of massive. It's got a 2.5-liter turbocharged four-cylinder. At the event, GM said bigger is what customers want.

Certainly, I've seen the sort of the fall of the sedan. the sedan, you know, everyone wants an SUV or a midsize. We know that gas prices have been going up lately. Are cars just going to keep getting bigger? Or is there any chance that we go back to maybe more, you know, human-sized cars? I think there'll be something for everybody. But there are more people who, in this country at least, who are locating into places where there's more land, more room, bigger driveways, bigger parking lots, maybe, and so, as people are leaving, to a degree, urban life and able to work outside of the office and moving out, building more houses away from the concentrated urban landscape, that allows bigger cars,

Lower gas prices allow bigger cars, hybrid, once the battery purchases better as it gets better and better over time, that's going to allow, I think, you go out 20 years, assume battery technology keeps improving. People will just get bigger and bigger cars if it becomes, you know, not much of a part of the expense to actually move the car from place to place, then why not get a bigger car? Reasons my smart car never caught on in the U.S. Well, Ford also showed off its F-150 pickups. Those are, you know, everybody seems to love the F-150, but they also announced that they're going to up the production of the hybrid version to about 20 percent of the trucks produced for the 2024 year. Hybrid is interesting. I was reading

this Morgan Stanley survey of interns recently. Thirty nine percent of them said their next car would be a hybrid versus 23 percent for internal combustion and 22 percent for electric. Is this is this range anxiety that is, you know, I mean, I feel like my my my generation has the range anxiety. But I think the younger people do, too. Yeah. You want to not pay much for gas, but to have gas when you want to go 500 miles. And so, the hybrid solves some of that equation. And people are just taking a survey. I think that watch what they actually do with their money rather than what they say when they're surveyed. But the hybrid offers, theoretically, everything. You can feel good about your driving in a way that doesn't harm the environment as much when you're just driving around the city.

Hopefully you can power up at your office if you go into the office. But when you want to hit the road, you've got that option. So I'm not surprised by the numbers and that internal combustion is a lower and lower percentage of intended purchases by younger people. Sure. I mean, it's not showing up yet in the actual purchase numbers. Yeah. But that is sort of the direction that people see their lives going. Yeah, definitely.

Well, the fun part of auto shows is the crazy concept cars, the things that may or may not ever, ever make it to a highway near you. As maybe listeners to the podcast know, I really want a flying car. We had a couple at the Detroit Auto Show, a company called Aleph Aeronautics. They unveiled its concept flying car. It's got four small engines where the wheels would go. It's electric. It's got a flying range of about 200 miles. Talk about range anxiety.

There was also an Air One quadcopter at the show. There's a couple of companies working on this vertical takeoff and landing, which is something I've been following. My question for you, does vertical takeoff and landing vehicle, is that a car or is that a copter? What's your take? Depends which one it looks like, I guess. Depends. Get me inside of it and then I can tell you whether it feels like a car or a copter. I don't know.

You've been following this more than I have. You answer the question. It does. It does depend a lot on the design. The one from Aleph really looks like a flying car because it's very sort of spread out like a luxury car with the engine sort of in the wheel hubs. But others, anything that's got kind of wings and a big spoiler on the back, it kind of looks a little more like a copter. I think flying cars are always 30 years away. They've always been 30 years away.

Well, we'll keep waiting. Thanks for your time today, Bill. Thank you. You just found out that your sales team is at risk of missing quota. Don't panic. Just ask Rippling AI. Since it's built on your real-time people and business data, Rippling AI can pull metrics from Rippling and Salesforce

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That's r-i-p-p-l-i-n-g dot a-i slash f-o-o-l. Sign up for exclusive access today, rippling.ai slash fool. Another September has rolled around, kids are in school, and workers are in the office. Or are they? Ricky Mulvey and I break down the complicated dynamics behind the return to office push. Deidre, I think it's always an interesting time to check in on the back to work story. Well, especially in September, according to Fortune, 1 million Americans are supposed to make their return to the office. I will highlight the words supposed to. This year's group includes Meta and Comcast. And it seems like most large companies have settled on sort of that two to three days a week hybrid schedule. But I think the big question this year is, will that kind of softer

labor market maybe make these mandates a little bit more enforceable? Set the table. What's kind of the context in what's going on in the big macro of the job market right now? Well, we saw this last year, too, with a lot of mandates that came out in August of 2022. And then it sort of worked and sort of didn't. This year, as you mentioned, yeah, a bunch of companies have said, we want you back at least three days. A lot of people are in that sweet spot of we'd like you to be in the office Tuesday, Wednesday, Thursday, because some companies are saying five days a week. Some companies are making different compensations for depending on where you live, how far out you are, if you can go to a satellite office, things like that. But yeah,

the question is, has the change in the job market put enough pressure on people that they really feel like they have to go back? Or is there going to be the same kind of pushback we saw last year? Yeah, next year is supposed to be the big year. I guess next year is always supposed to be the big year, starting in 2020. According to a report from Resume Builder, 90% of companies plan to implement return-to-office policies by the end of next year. I don't know how these plans are going to go. I'd be curious to hear how you think they are at this point. But I think we're sort of in this Lindy effect of remote work, where the longer the habit lasts, the tougher it is to quit. And as you mentioned, there's so many complexities. There's also so many workarounds

with these mandates, right? Hey, we're only going to make you go into the office if you're X miles away from the building. Maybe those statistics can be massaged a little bit. So perhaps I'm telling my employer that I'm living a bit further away than I actually am, or maybe my boss is a cool one and doesn't make me really go in as much as the other people, which creates some discontent within the office space. I'm going down a rabbit hole, Deidre. Please stop me. Well, one of the things I think is what makes it attractive to go to the office. I mean, certainly we know the mandate and keeping your job is attractive. But for example, this week, Amazon, they finally opened up the Lord & Taylor building. This was originally going to be WeWork's building in New York City. It's a beautiful old building, old department store building. They just put out the renovation. It is gorgeous. But is that enough? Is working in a beautiful place enough? Is having free food enough? Is having comfortable places to sit? What are the things that will incentivize people? I think that is a big question here. Oh, I think free food is huge. There's

lots of LinkedIn influencers where it's like culture is not built around happy hours and free pizza. And I would handedly disagree with all of that. People are not quite different from mice. They will show up for a little piece of cheese. One of the big questions I think that, or the big answers that can come from this is what plays out in the actual data. I know you study real estate data quite a bit. You do it for fun, Deidre. I do. What is the real estate data? What stands out about how that return to office is going on a broad scale? Well, I always look at the CASEL numbers, which is the people that make the key cards, because that gives us a good look of who's swiping in. So they're back-to-work barometer.

They publish it every week. It's at 47%. Now, that's just cities. And I think one of the things to keep in mind is that the coastal environment and the middle of the country are really different when it comes to thinking about this. Data from JLL, since January, 1.7 million employees have been put under the new return to office requirements. But of course, we don't really know. But one of the things I found was interesting from CBRE was, are they tracking it? Are they tracking the people who are in the office? Their data said 57% are tracking, but only 16% are actually enforcing. So that's the thing that I'm starting to think about is that there's a shadow thing here where you're not going to get in trouble maybe for not being in the office, but it is going

to be noticed. And so that's the sort of thing that you don't hear about a lot in the beginning, but plays out over a longer period of time. Yeah. Alphabet, Google's parent company, is saying that office attendance is going to be tracked through performance reviews. I know Andy Jassy, the CEO of Amazon, has sort of said that, what is it? Basically, don't expect to have a job if you're not showing up to the office. But outside of those anecdotal examples, and I'm going to be curious to see how this plays out, a lot of employers aren't necessarily cracking down when it comes down to it. We'll see if that changes. A 2022 report from the Stanford Economic Policy found that 40% of managers are just ignoring employees who don't comply with return to office

mandates. 6% are actually firing people for not complying with it. And I understand the personal dynamics of it, right? If someone's not showing up to the office, in most cases, it's easier to just not deal with the issue, especially if they're getting their work done. I think if you're an awesome employee and you've been at the company a long time and you have a solid relationship with your boss and with your coworkers, you probably get a little more wiggle room. If you're not that person, then you probably get a little less wiggle room. Or you got to find your own wiggle room. I overheard someone on the Denver public transit explaining that his employer was essentially requiring employees to come into the office

if they lived within X miles of the office. So he had a friend who had a cabin that was further away in the mountains in Colorado. So he just simply changed his address to the cabin, explained that he was renting out his house in the city, so therefore he couldn't go to the office. Unfortunately, Deidre, I cannot follow up with him, but I think that might be a little emblematic of some of the situations that are playing out. One company that's very emblematic of the flexible office policy is WeWork. They're in a very interesting position as they are renegotiating their leases with their landlords. And for a troubled company, it seems like the market likes the steps that WeWork's taking right now. Well, I mean, the question I've asked myself is,

was WeWork a great idea that just got too big? And is there a chance that this is the opportunity to right size? So they've said they're going to, over the next 45 days, their CEO, interim CEO, David Talley put out a memo saying they're going to renegotiate and perhaps exit some markets. So they're trying to right-size it. And it may work. It's certainly going to put a lot more pressure on commercial real estate. And that's the thing I think a lot of people are watching. Yeah. And the WeWork buildings tend to be concentrated in those central downtown business districts. I wonder if that's something they got wrong early on and maybe should have aim towards the neighborhoods, vibey-er kinds of places that are closer to where people are,

especially if they're not commuting necessarily to go be with their team members, but rather just be around other people. I think there's some interesting sides of the labor market playing out though right now, Deidre. One is in retail, one is at the top level, and then one is labor rates. So you have Walmart reducing starting pay for new hires by about $1 an hour. Congratulations, Walmart. I'm glad you're saving money. You have a story from the Wall Street Journal where Boeing CEO and CFO are working from home, even as managers are trying to get employees back to the office with happy hours, guest speakers, even visiting alpacas, the story in the Wall Street Journal says. And then you also have the summer of strikes that is still ongoing.

The UAW, the United Auto Workers, might be going on strike soon. And that could be a huge story that continues to play out. And of course, the Hollywood strikes. Yes. And then you also have UPS, which resolved their strike. And then that made the news because the package for delivery drivers was $170,000. And of course, that really sort of captured the news and captured the imagination of people. But yeah, it is an interesting time because at one point you have this pressure on the... We know the job market's cooling. There's absolutely pressure happening there. But at the same time, I think employees also still have a lot of leverage depending on what part of the

industry they're in. Interesting to see how it continues to play out. And I will also be interested to see how the commercial real estate lenders, how long they're able to live in a different reality. A gentleman named John Gates, the CEO of JLL's America's Markets, told Yahoo Finance, quote, pre-pandemic occupancy levels will arrive about a year from now. I would like to see when that year arrives. People have been saying that for about two or three years, which makes me a little nervous. But I still have a little bit of hope here that we do end up going back to the office more. I think the hybrid thing is going to play out. I think that there is a chance that we... Things have changed, but I'm not sure that things have changed as much

as we think. But maybe that's just me still owning OfficeReit stocking. as always people on the program may have interest in the stocks they talk about and the motley fool may have formal recommendations for or against so don't buy or sell stocks based solely on what you hear i'm deidre willard thanks for listening we'll see you tomorrow