Motley Fool Money - Volkswagen's Rough Road Ahead

Episode Date: September 25, 2015

Volkswagen hits the skids. Nike hits its stride. And Groupon takes 10% off its workforce. Our analysts discuss those stories and share three stocks on their radar. Plus, ThomsonReuters Transportation Editor Joe White talks about the implications of the Volkswagen scandal.   Learn more about your ad choices. Visit megaphone.fm/adchoices

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I'm Chris Hill, joining me in studio this week from Million Dollar Portfolio, Jason Moser and Matt Argusinger, and from Motley Fool Deep Value, Ron Gross. Good to see you, as always, gentlemen. Hey, oh, we've got the latest earnings from Wall Street. We will get to all the headlines in the auto industry with Joe White from Reuters, And as always, we'll give you an inside look at the stocks on our radar. But we will begin with the biggest news in the auto industry this week. And that's Volkswagen. Shares down more than 25 percent and hitting a three-year low

after the company admitted it violated U.S. emission standards by installing software on a half-million diesel cars that enabled it to cheat on the emissions test. And in the process, potentially exposing people to harmful pollutants at levels up to 40 times. Yes, Maddie, 40 times the acceptable standard. This is an evolving story. The fallout has continued throughout the week. The CEO stepped down. Two board members have stepped down. As an investor, and we'll go around the table on this, but as an investor, when you look at a situation like this, it's the biggest automaker in the world. Stock down more than 25%. Is it a buying opportunity or are you waiting and see?

You've got to wait and see on this. Volkswagen is the biggest automaker in the world. They've got wonderful brands Volkswagen, of course, Audi, Porsche, Lamborghini, which I didn't even know they owned. Porsche. Portia. Sorry, Ron. You know, but this makes me think about, I mean, I'm stunned by this. I mean, it is, it's fraud on a pretty massive scale. It made me think of Enron, WorldCom, Tyco, some of the other ones, but it always comes down to this. There's a Charlie Munger quote, which I love. It is, I think I've been, he said this several years ago. He said, I think I've been in the top five percent of my age cohort all my life in understanding the power of incentives. And all my life, I've underestimated it. And every year passes, but I get some

surprise that pushes my limit a little farther. Volkswagen pushes my limit a little farther. I think something, it always comes down to incentives when you think of something like this. I don't know if it was maybe Volkswagen's 2% market share in the U.S. And they felt that they need to push that. Who would benefit from something like that? Obviously, it started there, and it's just growing into this massive, massive fraud. And Ron, this is, I mean, when I say half a million cars, that's just in the U.S. worldwide, you're looking at 11 million vehicles where this is going. I put this in the too hard to analyze pile, and I think it's important. Sometimes you just have to do that.

I don't know what the outcome of this is going to be from a financial perspective. I don't know how big the recall will be. The litigation to come is going to be enormous. New CEO, I'm sure there'll be further management shakeups. The board members, you say they step down. I think it's more like they leapt off than step down. There's no proper way to analyze this one correctly, so I think you got to back off. Yeah, Jason, among the things to watch is how many more are you? executives or board members are going to leave. Oh, yeah, I'm sure we'll see one or two take off before this is all said and done.

I mean, I had someone asked me on Twitter right, right when this happened, is this an opportunity? And I guess, you know, the investor in me always wants to look at something like this and say, wow. I mean, okay, we remember back when Manicondo oil spill occurred and we were very quick to sort of start assessing that situation. My biggest problem with Volkswagen is I don't like the cars, like literally at all, like my entire life. I've just never been very impressed with their German engineering, Farvog-Nuggen, whatever you want to call it.

So I'm a little bit biased from that perspective. I think that everybody here is right, though. This is something you have to, I think, caution, really. You have to err on the side of caution here. They more than likely will be able to overcome this at some point. They have the financial resources, I think, to deal with this. One thing to me, that will be interesting, would be to pay attention to their dividend. Because I think that, I think that, given the German sort of propensity to

to appreciate more conservative style of investing. I think that if for some reason they have to put this dividend on hold or cut the dividend, I think that could certainly affect the stock price. And speaking of quotes, I think that, you know, we heard one from Kevin Plank, the founder and CEO of Under Armour this week, that I think really resonates here. And he said, brands are all about trust. That trust is built and drops and lost in buckets. And I think that's certainly the case here is that Volkswagen, for a long time to come, is going to have a big brand problem that they're going to have to figure out a way to overcome. And it'll last a long time. Jason mentioned the BP oil spill from several years ago.

Well, just this year, five years after the oil spill, BP finally settled with the federal government and several states for 18.7 billion. But that was in addition to the $40 billion they're already going to pay in separate litigation, in compensation of businesses and residents. So you're talking about a, and BP at the time in the immediate aftermath of the oil spill set aside a fraction of that to cover it. So this could blossom into something really big for It looks back in over time. Yeah, the litigation that's going to come of this is just going to be astounding. This is just the tip of the iceberg.

Right. As he's often the case, the lawyers usually win. Yes, they will. Caterpillar is a global leader in construction and mining equipment. They were. They were. Hey! The company is certainly struggling.

Third quarter results were overshadowed by the announcement that Caterpillar is considering another round of job cuts. They're really getting hit on several fronts here, Ron. They're getting hit on several fronts, and they have no choice but they're a structure. when you're faced with things that are out of your control, you've just got to deal with it. The weakness in both the mining and the energy sectors are just whacking them over the head. And business continues to deteriorate. They had to lower guidance for both the rest of 2015 and 2016.

Restructure, 10,000 employees will be laid off by 2018. And it's something that you have to do until this turns. What's interesting about cyclical companies and investing in cyclical businesses is you really, You need to buy them at the bottom and then probably sell them at the top. But it's impossible to call either one correctly. So you have to think, okay, it's somewhat depressed now or pretty depressed. Stock's down almost 30% this year alone. You get in and you wait for however long it takes for the cycle to turn.

I can't guarantee you what your annualized rate of return will be because we don't know how long this will take, but you probably will make money. But isn't it a little surprise? I mean, this is one of those big, boring Dow stocks. And this week it's down almost 10. I mean, I never think of Dow stocks as even having the ability to drop that much in a single week. Well, it is a very large company, and it's got so many things that are going against it, whether it's China or the energy sector in oil prices, and they just can't get out of the way of these things.

It's really beyond their control. So they get lean. They wait it out. They'll eventually rebound, but it's going to take a while. Facebook announced this week that Instagram has crossed the 400 million user mark. which is pretty incredible when you think, Maddie, that it was, what, nine months ago, that it had crossed the 300 million user market. I mean, the growth that Facebook has been able to acquire for this company is incredible.

Amazing. They paid around a billion dollars for Instagram a couple of years back. And yeah, 400 million users. That's, by the way, more than Twitter, which has about 316 million as of last quarter. It was a steal. I mean, I give Marcus Zuckerberg a lot of credit here. He's been able to use Facebook's market value and its balance sheet strength to make some really good acquisitions. I mean, there was some positive news this week also about the Oculus and how they're coming out with a new consumer headset later this year, and they've signed deals with Netflix and Hulu and some of the major networks to bring content into that headset. So, again, always forward-looking, and I think this is just another

example. Instagram is an example of another huge success for Facebook. I mean, it's replacing, I mean, we're going to see Facebook's core platform. I think, slow down. Certainly it already is. But the fact that they have Instagram and WhatsApp and Oculus and other things in their pipeline is it's incredible. It's impressive. Well, and if you think back to when they acquired Instagram, a lot of people were taken with the billion-dollar price tag. But I think part of that had to do with, at the time, Instagram only had about 15 employees. So it struck me as one of those situations where, yes, the check that was written was a large check, but it was relative to the number of people

on the receiving end of it. I think if Instagram had a few hundred employees at the time, it would have gone down a little easier. But I think that's what sort of blew people's minds. Do you think that this sort of moves Instagram off of Zuckerberg's plate in terms of questions that he's going to get about it? And now they move more towards WhatsApp. Because WhatsApp, a great market opportunity, but a lot bigger check. That was a $19 billion check that they're worth for that. I think that's a great point. I think there's still a a step here with Instagram, and that is kind of the monetization of Instagram still. So, I think he has a lot to prove there, but you're right. WhatsApp's kind of that glaring next step

for them. Shares of Darden restaurants up this week after first quarter of revenue and profit came in better than expected. Jason, six straight quarters of rising sales. They're really getting it done. Did we ever establish whether Steve Broido or a man behind the glass did, in fact, get that pasta pass after? No, I don't think you didn't get one of them. Did you just get one of them? Did you just Steve? I did not. I mean, there's so much going on in this world that a pasta pass is just not the top of my list. But, I mean, we were lobbying on Twitter and really, I think, trying to get the word out. I guess I'm just a little disappointed. But, you know, that's neither here nor there. It was a wonderful quarter. It was a wonderful quarter. Again, again, we, I think, have given Darden really a hard time here in the past. In more of that was probably in really most part due to Red Lobster. And thankfully, they've rid themselves of Red Lobster. Starboard Value jumped in there about a year. ago, we were talking about this earlier, and sort of gave them maybe some pointers and really

how to kind of cook some Italian food, I guess, so to speak. And maybe that's working out okay because Olive Garden is certainly performing very well. The fourth consecutive quarter of same-store sales growth for Olive Garden. Their To-Go initiative is working very well, up 18 percent for the quarter, and they've seen a two-year growth rate of 30 percent or even better. I think really the interesting part here with what Darden is going to do. They're going to be spinning off a reed to take advantage of some of the properties that they own. The Olive Garden makes up about half of their total restaurant footprint. They're going to take a lot of this property that they own, spin it off into a reed by the calendar years in.

It's going to be called Four Corners Property Trust, and it's going to be away from them to take advantage of that real estate that they own and figure out new ways to return value to shareholders because restaurants inherently are lumpy. Now, they do have a portfolio with more than just Olive Garden, but Olive Garden, again, makes up the most of it. So I think it's an interesting way for them to sort of try to unlock a little additional value. And in the face of, I think, really, this sort of growing popularity of fast casual, you know, Olive Garden and Darden have sort of, you know, dealt with those headwinds nicely. They really have, particularly if you compare them to peers like Brinker International, which owns Chili's, you look at Dine Equity, which owns Applebee's and IHOP, just from the standpoint

of the stock. I mean, Darden is not just soundly beating the market over the last year or so. It's crushing those other two. And I think that's part, due in part, to the fact that, you know, I'm not a lot of the fact that, Olive Garden has an identity, right? You mention Applebee's and Chili's and TGI Fridays, those are all just the same, right? Chachiskees. They're all just one and the same, more or less.

Olive Garden, there is an identity there. You understand that you're going for Italian food. And so that certainly benefits this concept. And the fact that they're tied so heavily to it, I think, is really what is benefiting the company today. Coming up, a reminder that a hot IPO is no indication of long-term success. Stay right here. You're listening to Motley Full Money. I've got the time.

Welcome back to Motley Full Money, Chris Hill here in studio with Jason Moser, Matt Argusinger, and Ron Gross. Groupon down around 15 percent this week after the company announced it is laying off 10 percent of its workforce and exiting seven countries to better focus its business. How much trouble is, Maddie? This looks pretty grim. It doesn't look good. I mean, this is, we were talking about Instagram earlier in the show and about how Facebook got a little bit of criticism for bringing one person. billion for Instagram at the time. Well, Google around the same time was about to pay $6 billion

for Groupon before the company went public. And I'm sure the executives of Google are breathing a sigh of relief today. I mean, this to me was a little bit of an example of a fad business. The idea of these sort of mass daily discounts, hyper-localized, it was trending. It was a really hot idea. Groupon kind of led that craze. And it's not turning out to be a really good business. For example, you know, this kind of marketing is really really a really good business. really human intensive, it turns out, that Groupon over the past year, according to the Wall Street Journal, is generating about $69,000 in revenue per employee. That's not a great number when a business like Amazon, for example, is generating almost twice that. So they're targeting flat revenue

growth year over year. It's a $2.4 billion company that probably won't generate more than $100 million in profit this year. So I would say certainly don't go bargain hunting in Groupon stock. I have no doubt that Google is not looking to write a $6 billion check to buy what is at the moment, what, a two and a quarter, two and a half billion dollar company. But I am curious, though, if this type of business works within a company like Google. Because when you look at how Groupon has struggled locally in the DC area, there's a competitor in Living Social, it's a private company. But by all accounts, it is having the same struggles that Groupon is.

I'm just wondering if this doesn't make for a great standalone business, but maybe as part of a larger entity, it would work. I think so. There's also a company called Retail Me Not, which is similar. It's kind of struggling as well. And I think if you put it inside a Google where there's sort of scale effects in terms of how they can branch out to advertising customers, then it may make sense. Yeah, I mean, you see loss leaders all the time. I mean, maybe these types of businesses are purely just that, loss leaders to generate the greater advertising good.

Nike's first quarter sales came in north of $8 billion, higher than Wall Street was expecting, the stock up big on Friday, Ron. Talk about firing on all cylinders. Nike just continues to get it done. Stocks in an all-time high. Profit up 23 percent. They beat expectations. Revenue would have been up 14 percent, hurt by the strong U.S. dollar. Who isn't? So it really was only up 5 percent. But it's important to understand that it would have been significantly higher if it wasn't for the strong dollar. China and Japan, really getting it done. China up 30 percent. I was going to say, for all the talk of an economic slowdown in China, it's interesting.

Sales up 30 percent for them. Yeah, there's a fitness craze going on in China that they're certainly benefiting from. They're benefiting from new footwear launches. Gross margins were really up nicely at 90 basis points to 47.5%. That's pretty strong. Nike just really doing a great job. I was just going to say, Jason mentioned Kevin Plank from Under Armour earlier in the show, and we're big fans of him.

I think worth pointing out that Mark Parker, for nearly 10 years, he's been the CEO of Nike. just crushing it year in and year out. Yeah, the numbers are great. And Under Armour, we talk about a lot in comparison to Nike. They're really putting up similar kind of growth numbers at this point. And Under Armour is a significantly more expensive stock when you look at it from a multiple perspective. Nike certainly isn't what I would call a cheap stock.

But if they continue to put up these numbers, it's a great stock to own. It's kind of a core holding. Yeah, I think one of the reason why Under Armour is an expensive looking stock today is because people are really looking at this and thinking, wow, there is the potential next Nike. There are the potential returns there. And I thought it was interesting with Nike to see the stock reacting so well after the earnings. Even after they talked about that glut of inventory that was going to affect their margins here in the coming couple of quarters. So even, not downward guidance, but just, you know, at least some notes there that maybe profitability

would be affected slightly. The market had no worries about whatsoever. Shrugged it right off. Second quarter profits for Bed Bath and Beyond looked okay, Jason. No, they didn't. They didn't really. They looked okay. Well, we'll get into that. But the same store sales, I mean, just 0.7%. They got to do better than that. Well, and I don't know that they will.

I mean, there's a reason why they're buying back these shares, hand over fist. And it's really because it's all they've got. And I mean, you know, we hear all of this talk about these newfangled internet businesses like Wayfair and they're not profitable and they're big shorts and ah, they can't last, blah, blah, blah, blah. Well, Bed Bath and Beyond growing their top line like 2%. Well, Wayfair just grew their top line like 66%. So there is something there, and it can be argued, Maddie, I think, that you would agree,

that they are competitors. So to me, this is like the Flintstones versus the Jetsons, okay? And I'm going to give you a guess as to which one's which. I don't like that Bath and Beyond for a lot of reasons. I just don't see a lot there for this business. I think the only thing that they really have up their sleeve in the face of a stagnating top line is to keep on buying back shares, to make that earnings per share number look like it's continuing to grow when it really isn't.

And there's a reason why the stock hasn't done anything, because I think the market knows it. If I give you a $100 gift card to Bedbass and Beyond, what are you buying? With the 20% coupon, don't forget that. With the 20% coupon. You know, we can always use more towels in my house. We've got two dogs, two kids. We can always use more towels.

Ron? A snow-coating machine, thank you. Did they sell those at Bedbast and? That probably goes under the Beyond category. Exactly. I had to go with Jason on the towels. I always need nice, fresh, clean, new towels. Steve Broido, $100 gift card.

You could spend that at Bedbath and Beyond. What would you go with? You know, I like the fact that they sell candy there. It doesn't make any sense to me. But every time I go in there, I'm like, wow, Mike and Ikes, that sounds great. $100 worth of Mike and Ix. I totally agree with the towels point. I think, though, you know, those fogless mirrors you can get for the showers,

you can shave in the shower? The kind that you stick up and then they fall? Yeah, those are good. They work perfectly. Can we get some scientists working on those to make sure that they actually stick up there? Because, you know, you get a good one of those. It's great. But then, over time, eventually you're right, they fall.

Drop us an email radio at Fool.com. Let us know what you do with a $100 gift card to bed bath and beyond. Coming up next, a conversation with Joe White about the auto industry, Volkswagen, Apple, and more. Stay right here. You're listening to Motley Fool Money. Welcome back to Motley Fool Money. I'm Chris Hill. The Volkswagen emission scandal has raised a lot of questions not just about Volkswagen, but about automakers in general.

here to provide some of the answers is Joe White, Transportation Editor for Thompson Reuters. He joins me now from Detroit. Joe, I know it's a crazy week for you, so thanks for taking the time. Sure. Earlier in the week, Kevin Plank, the CEO at Under Armour said, was asked about Volkswagen, and one of his comments was that trust is built in drops and lost in buckets. I know it is tough to put a dollar amount on how much trust Volkswagen had before. this week. But when you read the quotes from VW owners who bought these, quote-unquote, clean diesel vehicles, they are so clearly, personally affronted by what has happened. And I'm curious, how long do you think it's going to take Volkswagen to repair the damage?

It's going to take a while. And I think the quote from the CEO of Under Armour is right on. and many a CEO in the auto industry has learned that lesson the hard way. Yeah, it's going to take them a while, and they're going to have to spend a lot of money. They've taken a charge for about $7.5 billion. Obviously, it took that in euros, but equivalent of $7.5 billion. If I had to bet, I would bet that it will be more at the end of the day, because the money, there's going to be fines, there's going to be repair costs, and there's going to be work to do to rebuild customer trust.

And oftentimes, unfortunately for car companies, rebuilding customer trust means that you have to discount your wares to get people back into the showrooms. And Volkswagen has for years, certainly in Europe and to a lesser extent in the United States, have been able to trade at a premium relative to, say, Chevrolet or Ford, because people believe that these cars embodied premium German engineering. And if that is now seen to be not the case and that, you know, what we have is cars that are essentially, you know, cheats and meet emission standards, you know, through improper means, then that premium is at risk. We've seen automakers have scandals before, usually involving some type of safety problem. We've seen it with Toyota.

We've seen it recently with General Motors, and these are durable businesses over time, and they may suffer a hit of some sort, but long term, they are basically fine. But I think one of the things that is striking about all of this is that this appears to 100% premeditated. This was not, you get a recall notice that the rubber sealant on your sliding door is from a bad batch and bring it into the shop and we'll replace it. This appears to be a completely premeditated move to get around the California emissions test. Well, not just the California emissions test. So first of all, I mean, you're right. It appears that the company is admitted to what you said. exactly the full extent of it is yet to be revealed, but it isn't just California. It's the United States. And then again, it isn't just the United States. The company has admitted to installing this software that allows a vehicle to detect when it is being tested for emissions compliance and turn on certain emissions hardware that is turned off otherwise was installed in 11 million vehicles worldwide. And this is just perhaps just one reason why the CEO,

was forced to resign yesterday. So the scale here is pretty incredible. And the company has more less acknowledged that, yes, this was done, this was something that was done improperly. Exactly what they hope to gain from this is not clear. Obviously, if you can run a car, if you can run emissions hardware on a car only when it's on a dynamometer in a test lab, perhaps you get better performance on the road or the customer feels like this, better performance on the road. perhaps better mileage. But in hindsight, I suspect that those gains are going to look really incremental next to the damage that's been done. We also saw reports this week, a German magazine, reporting that BMW has exceeded emissions

limits in Europe. BMW has strongly denied it. But if you think about it, Joe, they're all under the microscope now, right? I mean, every automaker. Yeah, that's the point I think of the VW, pardon me, the BMW issue. I mean, the company strongly has denied this. And a BMW model that was tested by the same group that tested the Volkswagen models and essentially helped expose what Volkswagen had done here in the United States, that same group tested a BMW model, and I believe found that it operated properly. It was within the limits. But you hit it. What this is going to do is it's going to subject the entire auto industry to a much higher level of scrutiny. And

and potentially higher levels of compliance costs. And that's clearly not what the auto industry is hoping for. I mean, generally speaking, automakers are looking for flexibility, leniency, if you will, on these ever-tightening emissions requirements, not just for the smog-forming pollutants that are at issue here with Volkswagen, but carbon dioxide, which is essentially what you get when you burn gasoline. And most of our listeners know that in the United States, the new standard for 2025 is 54.5 miles per gallon, which is roughly double where we're at right now.

The auto industry would probably hope that they could get some breaks on the way to that goal, maybe stretch that goal out a little bit because gas is so cheap that people aren't really buying hybrids or electric cars in great numbers right now. Well, the credibility to make those arguments just took a hit. As you mentioned, Martin Vinterkorn, the CEO at Volkswagen, resigned. Two board members have resigned. By the time we're done with this conversation, maybe a couple more. Matthias Mueller from Porsche is the new CEO.

What's the story on him and how big a task does he have ahead of him? Well, he's a long-serving executive. He's mostly recently been running Porsche. As far as I know right now, his appointment has not been confirmed, but that is what we're reporting here at Reuters. Others are reporting the same. He has long been identified as an ally of the former and ousted chairman of Volkswagen, Ferdinand Piac. But he is definitely an insider, a guy who knows how the machine works. So on the one hand, this is a person who's not going to have to be escorted to his office.

He knows exactly who does what at Volkswagen. The question, though, is whether, in light of this crisis and in light of the huge financial penalty, at $1.30 billion worth of market cap was blown off this company in just a few days. There's a huge financial penalty, both in market cap and cash. Will this be – will Mueller have to seize this opportunity or feel pressure to seize this opportunity to do restructuring that Volkswagen may well have needed anyway. And that's a big question, whether he's going to do that. It will also be interesting to see, and I think vital for a lot of people to see,

whether he overhauls the way Volkswagen does business internally to make sure that this kind of thing doesn't happen again, can't happen again, and make sure that there are checks and balances, so that this sort of thing, sort of improper behavior, it gets detected before it blows up into a monumental crisis. To what extent, if any, does this help electric vehicle production either as a division of a larger company or just a pure play company like Tesla Motors? Well, that's interesting because I understand that Elon Musk, I believe, was in Germany today or was certainly commenting about this today. essentially making a case that now is the time for electric vehicle, more support for electric vehicles from Europe.

Look, I mean, this is certainly an opening for electric vehicle technology and hybrid technology in the European market. It's early days. It's not entirely clear if European regulators and lawmakers and policymakers are going to reverse several decades of bias toward diesel technology is the answer to the problem of reducing carbon dioxide emissions. But if indeed the Volkswagen affair causes Europe to go sour on diesel until policy until subsidies more toward electric solutions, be they hybrid or, you know, cars like a Tesla with pure battery electric vehicles, well then that's plus one for Tesla.

And it's probably plus one for the Japanese companies, and plus one for the European operations of Ford and GM. All these companies have more invested in battery and hybrid technology or have invested more over time and been more active in promoting those technologies than Volkswagen has until now. You're listening to Motley Full Money talking with Joe White, transportation editor at Thompson Reuters in Detroit. There was actually other news in the automotive industry this week. There was? Hard to believe.

But reports that Apple has set a target date of 2019 to build and ship an electric car beyond the fact that four years seems ambitious. What was your reaction to the news? Well, it's interesting that the signals coming out of Apple are now that, yes, we're serious about this. Four years is about what it takes for a normal car maker to develop a car more or less. from scratch. So that time frame didn't surprise me. I will say this. It's a little surprising because when you talk to people in the auto industry about Apple, one of the things that you'll hear

is some head scratching as to why in the world, Apple, which has profit margins that auto companies, they don't even dream about Apple's profit margins. They're simply impossible to imagine very high profit margins compared to these single-digit profit margins. that most carmakers have to live with. They just don't understand why Apple would bother. Now, I would assume, although Apple isn't really discussing it very much, I would assume that Apple would answer that by saying, well, look, we have a very different concept of how to do this,

and we have a very different set of goals that we're after. And until Apple is more forthcoming about that, it's a little hard to evaluate what they have in mind. One possibility is that Apple has in mind, a very urban-focused product, something that might even not travel much faster than 30 or 35 miles an hour and thus not be subject to a lot of the safety regulation that ordinary cars are subject to and basically be a form of urban transport. That's one theory. But we'll just have to see, and we'll have to see, I think also we'll have to see whether Apple really has something new

to say about automotive design. That's a tough one. But then again, Apple has some of the best designers on the planet in their employ and seems to be willing to hire more. Another huge tech company that's dabbling in the automotive space is Google, obviously, one of the leaders in the driverless car movement. When you think about traditional automakers, which company are they more wary of getting into this space? Apple or Google, because they both appear to be committed and they both have deep pockets. I think the established car companies are wary of both of these companies for the exact reasons that you state. They have lots of money. They have huge market capitalizations, and they have access to a human

talent, and so they're not to be taken lightly. The people at Google have said over and over the last year or so that they are really not that interested in. becoming a car company. Now, they just hired an individual named an executive named John Krafich who is a veteran of the auto industry in a couple of different roles. He was the head of Hyundai's U.S. operations for a while. He was the president of True Car, the car buying website. He had a number of very hands-on engineering roles at Ford Motor Company. And before that, he was part of a team of experts on the Toyota production system who really cracked that open for a Western audience. So this is a guy who knows the auto industry inside out. So perhaps what Google has

in mind ultimately is partnership with automakers, basically enabling the autonomous cars of the future in partnership with companies that are more expert at, at, at, at, at, at, at, at, at, at, running factories and figuring out how to turn plastic, carbon fiber, and steel or aluminum into a safe motor vehicle. Last question, and then I'll let you go. I know it's been a tough week for automakers. All you have to do is just look at what their various stocks have done to know it's been a tough week.

But if you saw the Pope driving around Washington, D.C., first in a Fiat and then in that customized Jeep Wrangler, Popemobile, does that take a little bit of the sting out of the week for Fiat Chrysler. That's got to help sales a little bit. Yeah. Well, you know, you could do a whole show about Fiat Chrysler, but let me just say that Fiat Chrysler has many weaknesses in the global competition for survival in the auto industry, but it also has many strengths. One of the strengths is the Jeep brand, and the other strength is the really the very adroit, nimble eye for the marketing chance that I think you saw. a demonstrated there. I'm sure there's lots of companies that would have liked to see the Pope

in their brand. Fiat Chrysler got it done. And that's pretty typical of them. They are very, they're very quick, and they can surprise you. Again, Sergio Marcioni took the lead in negotiating this latest round of contracts with the United Auto Workers in the United States. he was not anybody's first choice to do that, the financially weakest company on the block, but somehow he managed to convince the UAW that he was the guy to do the deal. So I think that's a, the PoteMobile is a small symbol of a larger thing to watch in the industry. You can follow him on Twitter, you can read him online, definitely one of the best when it comes to the auto industry.

Joe White, thanks so much for being here. Anytime. Go Volkswagen Go Go Go Go Go Go Coming up, we'll give you an inside look at the stocks on our radar. This is Motley Fool Money. 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 ourselves stocks based solely on what you're here.

Welcome back to Motley Fool Money. I'm Chris Hill, and joining me in studio once again, Jason Moser, Matt Argusinger, and Ron Gross. Time to get to the stocks on our radar this week. Ron Gross, you're up first. What are you looking at? I'm going to give listeners another way to play the cyclical themes we discussed with Caterpillar. The company is a microcap Titan International, TWI, $360 million company.

They make industrial tires and wheels for companies like Caterpillar and Deer. And for the same reasons we're seeing Caterpillar get crushed, Titan is down significantly as well. But when the tide does turn and when that cycle does turn, I think you'll see Titan six or $7 stock up. That's about where we are now. I think you'll see it double or potentially triple. You just got to wait it out and be patient.

Only risk here is the balance sheet isn't as strong as I would like. Let's go to our man behind the glass, Steve. Steve, any questions about Titan International? Do you worry that things are taking so long to recover that companies like Titan might just go away? I do worry about that, Steve, to be honest with you. And that's actually the balance sheet problem. When you invest in deep values like this, you like to see a really strong balance sheet because that gives it both the time and the resources it needs to wait the problem out.

If the balance sheet isn't strong enough, you could get into trouble. Jason Moser, what are you looking at this week? Sure, yeah, one that I have been digging into for potential bringing over the watch list here at MDP. It's XPO Logistics, ticker is XPO. XPO is an asset light transportation logistics provider, so it connects shippers and carriers. Think about trucking, primarily in the U.S., more or less, but it has made a couple of big acquisitions here really to expand its footprint and go a little bit beyond just the asset light model as well. The most reason acquisition in Conway, about $3 billion, brought on assets in the form of trucks.

And I think the market is questioning whether they are straying from their strategy, and management sees it more as their strategy evolving based on learning what their customers want. So scale is a very big advantage in an industry here that's really crucial our economy and getting things from point A to point B. Very experienced management here in Brad Jacobs, CEO. He has a lot of his wealth tied up in the business around 23% or so. And, yeah, a lot of pessimism out there in the market right now. The stock's about 25% down since this last deal was announced, but I think there's a lot to this

business. Steve? What's the biggest game changer in logistics? Is it fuel prices? Is it software? Is it? Absolutely. It's the technology.

And I think that's one of the things that really helps differentiate something like XPO from your fragmented sort of mom-and-pop operators out there as a consistent and up-to-speed evolving technology platform. Matt Argusinger, what are you looking at? Yeah, I'm going with the company we recently added to our MDP watch list, and that's McGrath, MGRC. It's a favorite of the Hidden Gems team here at The Fool. And this business is about as boring as it comes.

They build and rent temporary classrooms, offices, storage units, technical equipment. It's been family-owned for many years. It's a very good employee culture. They've raised the dividend 23 years in a row, and that includes the financial crisis in 2008-2009. So a very steady business, almost kind of countercyclical in a way. Steve, question about McGrath? Do folks look just to a local company to provide these sort of immediate rental needs, or do they know to look at a big, big, you know, national provider like that?

Good question. It is a very fragmented industry. McGrath is one of those that does have kind of a nationwide reach. So it's one of those ways to play that market, which is highly fragmented and local. All right. That's going to do it for this week's edition of Motley Full Money. Our engineer, Steve Broider, our producer's Matt Greer. I'm Chris Hill.

We'll see you next week.