Elaine Buckberg, Chief Economist of General Motors, joins Mark, Ryan, and Cris to discuss the vehicle industry. They breakdown what is going on with vehicle prices, supply chains, and the outlook for electric vehicles.
Elaine Buckberg, Chief Economist of General Motors, joins Mark, Ryan, and Cris to discuss the vehicle industry. They breakdown what is going on with vehicle prices, supply chains, and the outlook for electric vehicles.
Full episode transcript
Mark Zandi : Welcome to inside economics. I'm Mark Zandi the chief economist of Moody's Analytics and I'm joined as per usual with my two co-host. We've got Chris deRitis. Chris is the deputy chief economist and Mr. Sweet, Ryan Sweet the director of Realtime Economics, good to have you both. So how are you guys navigating omicron? Is your family okay, everyone in school, childcare, any disruptions to the omicron?
Cris deRitis : No direct impact. Everyone is...
Mark Zandi : Safe okay.
Cris deRitis : No one's sick, but my wife's family doctor, so she's pretty busy these days.
Mark Zandi : So I can imagine lots of cases.
Cris deRitis : Yeah.
Mark Zandi : And you Ryan, everyone in school?
Ryan Sweet : Everyone's good. Everyone's healthy. The only issue we're running into is getting tests because any running knows any cough, you have to have a negative COVID test to send them back. So finding those things are tricky but other than that, we're all good.
Mark Zandi : So that means you can ring the cowbell with abandoned today.
Ryan Sweet : I can, everyone's out of the house or either at school or [inaudible 00:01:18]
Mark Zandi : And we have a guest, Elaine Buckberg. Elaine is the chief economist of General Motors, GM. Elaine good to have you.
Elaine Buckberg: Perfect to be here. Thanks for inviting me.
Mark Zandi : I think...
Cris deRitis : You just scared her. You scared her over the cowbell.
Mark Zandi : I'm sure she's wondering what the heck is the cowbell all about?
Cris deRitis : You want to explain Ryan?
Ryan Sweet : So in a little bit, we'll play this game where we try to guess the start of the week and when Mark get it right, which is not very often, we bring a cowbell to celebrate.
Mark Zandi : I had a good week of like 10 weeks ago. I thought...
Ryan Sweet : Yeah. When Chris was out, you were on a tear.
Mark Zandi : I was on a tear. Yeah. So Elaine, this is a game we played just to make this, we're a little bit geek, obviously pretty geeky and all over the economic statistics, particularly Ryan is really down and dirty with the statistics, but to make it a little more digestible for folks, we play this a bit of a game and if you get, each of us give a statistic, the rest of the group tries to determine what that statistic is and if we get it right, then we have in the past rung the cowbell.
So this was, and people, listeners are really into the cowbell. They want to hear the cowbell. So we'll see how that goes. But Elaine, thank you so much for joining and obviously, we're going to dive deep into what's going on in the vehicle industry, no better person speak about that than you. How did you, how long have you been at GM? And can you give us just a general sense of how you got there? I'm really curious your path to becoming chief economist of GM.
Elaine Buckberg: I've been there for almost four years, it's been a great experience. The auto is really complex and therefore fascinating for an economist, and we're in all these both product markets and we're also in factor markets. And globally, so it's really great as an economist, I've done a lot of different things, all in economics in my career. After my PhD, I started at the IMF. I was in the markets at Morgan Stanley as a currency strategist. I spent a bunch of microeconomic years in consulting near in Brad, but I also spent several years at the US treasury department from 2013 to 2016 as deputy assistant secretary in Treasury's office of economic policy. And I think that more than anything else really prepared me for the breadth of working at GM, although frankly, everything I've ever done comes to pair.
Mark Zandi : Who was the treasury secretary when you were there, who was...
Elaine Buckberg: Under secretary Lou.
Mark Zandi : Who was treasury secretary?
Elaine Buckberg: Secretary Lou.
Mark Zandi : Oh, Lou, sorry. I missed that. Sorry. Actually I saw him the other night. I'm on a...
Elaine Buckberg: You did?
Mark Zandi : Yeah. He, I'm in a group that he belongs to that interfaces with Chinese economists and colleagues. It's a dial, it's the same group that sponsored the ping-pong tournaments back in the seventies between the US and China, that opened up conversations. And he's a member of that group. I just saw him the other, was it last night or the night before last. Yeah. So great guy.
Elaine Buckberg: He's a great person.
Mark Zandi : Yeah. Great. Very nice fellow. And so you have such a varied interesting background. And since you were a currency analyst, I got a question for you on that. That's been bothering me or maybe it's just, I've got this wrong, but my cursory view of the currency landscape is that currency, except for crypto, if you consider crypto currency, other than crypto, currency markets have been very stable.
Shockingly stable, right? Given all the things that are going on in the world, the pandemic and everything else the US and maybe I'm looking at this obviously as the prism of the US dollar, but US dollar Euro, US dollar yen, US dollar Juan, all seem pretty stable. Does that come to mind? Has that struck you that same? Have you come to that same observation? Have you, is that something like that?
Elaine Buckberg: If you think about it more in terms of emerging market currencies versus the dollar emerging market currencies versus advanced economy currencies, so rather than comparing the US dollar to the Euro and the Yen, compare the dollar in the Euro and the Yen to a basket including the Brazilian Riyal and the Mexican Peso and so on. I think there have been really huge movements over the course of this. And if you looked at if you go in your Bloomberg and do DXY currency GP, and look at the trade weighted dollar, the fluctuations over the course of the pandemic have actually been pretty big and there have been pretty massive swings in emerging market currencies as their safe Haven flows to the dollar and to other currencies.
Mark Zandi : So in my mind's eye, I don't have it quite right but against DM currencies developed market currencies.
Elaine Buckberg: Yeah.
Mark Zandi : Do I have more...
Elaine Buckberg: More stable.
Mark Zandi : More stable.
Elaine Buckberg: More stable.
Mark Zandi : In not surprisingly to you in the context of everything that's going on. Central bank policies have been pretty well coordinated. Everyone's done the same thing so maybe that's the reason why...
Elaine Buckberg: Right. US prospect among advanced economies, the US was relatively early in getting to a large amount of vaccination, our equity markets as a result of done disproportionately well, so that helps attract some capital flows, but otherwise it's not that surprising because they're certainly right now advanced economies are way more similar to each other than they are to all of the economies that have less vaccine access.
Mark Zandi : Okay.
Elaine Buckberg: Although the likes of Mexico and Brazil and so on, a lot of your middle income economies have caught up a lot, not in the vaccine access.
Mark Zandi : Great. Okay. So I just in my mind's eye, I need to go back and look a little closer just to yeah. I'm sure I got it wrong.
Elaine Buckberg: I'm being very broad brush here.
Mark Zandi : Yeah.
Elaine Buckberg: So...
Mark Zandi : Yeah exactly.
Elaine Buckberg: I'm no longer catching the hour to hour movements in currency.
Mark Zandi : Which I'm sure was a lot of fun when you were doing it.
Elaine Buckberg: It was fun while you are doing it.
Mark Zandi : So Hey, do you have any great stories from treasury? Like any things that are particularly memorable that you can share with us in terms of your...
Elaine Buckberg: My favorite memory is that I worked on the Build America Infrastructure Initiative and on, I believe it was July, no, it was June 14th. I think of 2015 president Obama made a big announcement around the initiative and some of the executive measures that were being to try to advance more use of private investment and infrastructure in a period where it'd been really hard to get Congress to improve infrastructure funding.
And he made this announcement in Delaware and I and my team and others on the treasury team had worked intensely on this especially with the white house and it's US DOT. I, and two colleagues went with secretary Lou to Delaware in for this announcement and seeing the president announce what you've been working on for really a year is pretty impactful. That was a very special moment.
Mark Zandi : Yeah. That's very cool. Well, great thanks again for joining. Let's dive right into the statistics or in the game. And it was a little light on statistics this week. I thought very nice, very light. So that makes the game a little trickier I think, but let's give it a shot. And who wants to go first? You Ryan or Chris, who wants to...
Ryan Sweet : We're going to let Chris go first because it was a housing week. So we know where he's going.
Mark Zandi : Oh we know what he's going to do. He's probably going to take my statistic. Go ahead Chris.
Cris deRitis : All right. Ready? 43.2 weeks.
Ryan Sweet : Ah, that's right. I got that one.
Cris deRitis : Ryan.
Ryan Sweet : I knew you were going there.
Cris deRitis : But that was a light week.
Ryan Sweet : No, but it's also good. It's a good number.
Cris deRitis : One, right?
Mark Zandi : So see Elaine, how deep these guys are into the [inaudible 00:10:24] of the data it's got to do just a hint. If it's Chris, it's probably housing.
Cris deRitis : We...
Ryan Sweet : At this time.
Elaine Buckberg: It's definitely not average week a listing is on, so...
Mark Zandi : Oh, okay. That can't...
Ryan Sweet : Think orders.
Elaine Buckberg: Consecutive weeks housing prices are up.
Mark Zandi : He went autos.
Cris deRitis : I'm sticking to the rules of the game here.
Ryan Sweet : Yeah. Hey, this is a good number is a good one to talk about.
Cris deRitis : Is this about affordability? It is. Oh, and is this the number of weeks of income people need to afford a new vehicle?
Ryan Sweet : It is average price [inaudible 00:10:55]
Mark Zandi : Where's the cowbell's [inaudible 00:10:57].
Ryan Sweet : Here.
Cris deRitis : Yeah, where's the cowbell.
Ryan Sweet : Mark.
Cris deRitis : Yeah.
Mark Zandi : Elaine does that, you probably knew that statistic. You probably know that by heart.
Ryan Sweet : That the 43 weeks.
Cris deRitis : No.
Elaine Buckberg: It's around that.
Ryan Sweet : Close to heart.
Mark Zandi : Exactly. Well, we're definitely coming back to that, right? Because we have to talk about these vehicle prices. They're just...
Elaine Buckberg: Yeah. So if we're not restricted to this week's data, 37.3%.
Mark Zandi : Oh that's your statistic. You're playing.
Ryan Sweet : Oh.
Mark Zandi : Oh.
Ryan Sweet : Here you.
Mark Zandi : Oh wait a second. 37...
Cris deRitis : You got price.
Ryan Sweet : Increasing used car prices. Is that what it is Elaine? Is it, is the increase...
Elaine Buckberg: Year over year, December over December.
Mark Zandi : Oh my gosh. We're really rocking and rolling.
Cris deRitis : We're on fire.
Mark Zandi : Is that the Manheim used car index or?
Elaine Buckberg: No that's CPI. Manheim's about 49.
Ryan Sweet : Yeah.
Mark Zandi : Oh the CPI.
Elaine Buckberg: No, Manheim a 45, 9 year over year on the most recent reading. So the auction prices are up somewhat more than the retail market at this moment.
Mark Zandi : Right. So the Manheim index is an index based on auctions of used vehicles. And you're saying that's up 45, 50%.
Elaine Buckberg: The whole auction. Yeah.
Mark Zandi : Something like that. Yeah.
Elaine Buckberg: Between 47 and 49 on the most recent reading.
Mark Zandi : Yeah. And the used vehicle price that goes into the consumer price index, the CPI, which is what most of us focus on.
Elaine Buckberg: Is up 37.3% over December.
Mark Zandi : Right.
Elaine Buckberg: Yeah. The relative cost of a used vehicle to a new vehicle controlling for content and quality historically is around one to one as you'd expect because there're some buyers who are going to substitute. Do you want to guess what the answer is about the relative price now? I'm changing the game a little.
Mark Zandi : This is the relative price to used cars to new cars.
Elaine Buckberg: To new cars.
Mark Zandi : Quality controlled.
Elaine Buckberg: Quality and content controlled.
Mark Zandi : And that's usually...
Elaine Buckberg: Out the CPI data.
Mark Zandi : And this is usually for one as you would expect.
Elaine Buckberg: Historically, it's about one [inaudible 00:13:18].
Mark Zandi : The market works. It prices
Elaine Buckberg: Yeah. There about 10% of buyers go into a purchase undecided between new and used and they're effectively, normally arbitrage away the difference.
Mark Zandi : Got it. So, and right now I'd say used is 50% higher, 1.5 relative to new. I'm just guessing that anyone else you guys want to guess? You guys guess.
Ryan Sweet : I was close?
Cris deRitis : I'll go two.
Mark Zandi : Two?
Cris deRitis : Yeah.
Mark Zandi : Two times wow.
Elaine Buckberg: Oh wow. I can't believe how higher you're guessing. It's 21% higher.
Mark Zandi : 21% higher.
Elaine Buckberg: That's a pretty...
Ryan Sweet : I went for the short gun.
Elaine Buckberg: Is a huge gap. You guys, [inaudible 00:13:55] shocking more shock less.
Mark Zandi : Yeah. I think we all have maybe personal anecdotes here, but like my dad, he sold his three year old Toyota Camry with, I think close to 30, $35,000 mileage on it for more than he bought it three years ago. That's just, Waco.
Ryan Sweet : Crazy.
Mark Zandi : Marcus Waco but we're going to come back to that because we've gt to...
Elaine Buckberg: We can talk more about the healing of the markets, the stuff.
Mark Zandi : Yeah. We'll come back to that in just a minute after we finish the game that, but you played the... Elaine you played the game admirably I'd have to say...
Ryan Sweet : That was good.
Mark Zandi : Well done. I don't know if it goes to cow bell status, but that was really good. Ryan, do you want to give me your statistic? Give us your statistic.
Ryan Sweet : All right. I went with 9%.
Mark Zandi : 9%.
Ryan Sweet : I'm going to warn you. This one's really hard.
But it's really important.
Cris deRitis : Okay. Automotive related or?
Ryan Sweet : Now it's not.
Mark Zandi : Okay.
Ryan Sweet : It's labor market related.
Cris deRitis : Labor market...
Mark Zandi : It came out this week.
Ryan Sweet : You're saying?
Mark Zandi : It did.
Cris deRitis : UI claims related?
Ryan Sweet : By the way, UI claims were up a lot, right?
Mark Zandi : Yeah.
Ryan Sweet : Well this explains why.
Mark Zandi : Oh, say it again. 9.2%.
Cris deRitis : Oh no, just 9%.
Ryan Sweet : 9%.
Cris deRitis : January 2021.
Mark Zandi : Okay. So this has got to be number of sick people, something related with sick omicron people, folks that are...
Ryan Sweet : Related to omicron.
Mark Zandi : It's related to omicron.
Elaine Buckberg: I'm [inaudible 00:15:29]
Cris deRitis : Nope. Household pulse.
Ryan Sweet : It is Chris. You're getting closer.
Cris deRitis : Okay. Getting there.
Ryan Sweet : That survey is of just a treasure [inaudible 00:15:38].
Cris deRitis : It is.
Ryan Sweet : Interesting data.
Mark Zandi : I hope is that the... It's not the percent of the labor force. Oh yes it is. It's the percent of the labor force. That's not working because they're sick taking care of a sick person or fearful of getting sick.
Ryan Sweet : That's an excellent guess, but that's not it.
Cris deRitis : No.
Ryan Sweet : That was a good one now. But well we're on that number.
Mark Zandi : Yeah.
Ryan Sweet : I think it was over eight million people in the latest survey and it's weekly that were not at work because of either they were sick or caring for someone that is sick. So we're setting up for a doozy of a January employment number.
Cris deRitis : Yeah.
Mark Zandi : Hey, wait a second. This is the time for me to say at Mark saying...
Ryan Sweet : There we go.
Cris deRitis : There we go. Never fails.
Mark Zandi : Oh yeah. Elaine. So I got my Twitter handled 10 years ago, never used it. Two months ago I said, okay, I'm going to start using this thing because everyone's telling me I should use this thing and it's @markzandi so every chance I get, I plug it. Not that it helps any but I plug it. Are you on Twitter?
Elaine Buckberg: I am but I'm a reader, not a tweeter.
Mark Zandi : You're not a tweeter. Okay. All right. So I did tweet out this morning, I looked at that data, the pulse survey data, and you're right, it's a treasure trove that census has been doing the survey intermittently. Early on, they were doing it very, almost weekly, but now it's intermittent every few weeks. The last survey goes through January 10th and here's 12 million people that are not work.
So that one of the side of the questions they ask is if you're working, why aren't you working? Because this goes to the labor shortages and 12 almost on the nose, 12 million people said they're not working because they're sick. They're taking care of a sick person or fearful of getting sick and at the peak of Delta, just to give you context, it was eight million. So you're absolutely right and that's, you're saying this was the survey week for the Bureau of Labor Statistics.
Cris deRitis : It was yep.
Mark Zandi : Last employment report, right?
Cris deRitis : Yeah.
Mark Zandi : So you're saying, because there's so many people not working because they're sick or fearful getting sick, that's going to mean. So you expect January employment to...
Ryan Sweet : To decline.
Cris deRitis : Could decline.
Ryan Sweet : Yeah. Right.
Cris deRitis : And this number, the 9% also gets to why jobless claims are up to 286,000.
Mark Zandi : Oh yeah. We got to go back to 9%. So the 9%, I don't know what that is.
Ryan Sweet : I won't make you guys suffer. It is...
Cris deRitis : Okay.
Ryan Sweet : 9% of small businesses in restaurants closed temporarily last week or in the survey week for the [inaudible 00:18:18].
Cris deRitis : Of course.
Mark Zandi : Of course. Yeah. That, how did I not get that?
Cris deRitis : It was a lightly week for numbers.
Mark Zandi : Oh, come on, that's crazy.
Cris deRitis : That's an important number.
Mark Zandi : Hold on. Wait, what's the number again?
Ryan Sweet : 9%.
Mark Zandi : 9% of what?
Ryan Sweet : Small businesses in restaurants and accommodations closed temporarily.
Mark Zandi : Hold on. I didn't even know that data's in the poll survey.
Ryan Sweet : So it's the highest sense January of last year.
Mark Zandi : Hold it. So you can look at data across company size? I did not know that.
Cris deRitis : I'm here to educate.
Mark Zandi : That is really good to know.
Cris deRitis : Yeah. It's fascinating in deed, right?
Mark Zandi : Yeah. Anything else that stand out from that company size? What about pricing? Do they have any data on...
Cris deRitis : Oh, well I can't imagine they'd ask that.
Ryan Sweet : No, I don't think they have.
Cris deRitis : Yeah, right. Oh, that's pretty cool. I have to...
Ryan Sweet : I always go to that and the labor market questions.
Mark Zandi : Yeah. Right. I use it there, as you say, it's an incredible data set. And I was just telling the commerce department that they got to keep doing this even after the pandemic is over, they don't need to do it every two weeks, but maybe once a quarter would be nice. It really gives you a nice window into what's going on in the world, but that's pretty cool. Okay. Anything else on that, Ryan you want to bring up?
Elaine Buckberg: Once a month please?
Mark Zandi : Well, you go for once a month. Okay.
Elaine Buckberg: Yeah.
Mark Zandi : Would you pay for it Elaine? Would GM any...
Elaine Buckberg: I don't know if we've ever paid for any special questions.
Mark Zandi : That's what I said to the commerce guys. I said...
Elaine Buckberg: I have no idea how much it costs so I'm going to hold on that one.
Mark Zandi : Yeah. I said to them, look because I have no budget constraint. Could you please do this for me? So, but yeah, that would be really valuable. Okay you want my statistic?
Ryan Sweet : Yeah.
Mark Zandi : Yeah.
Ryan Sweet : Back to normal index. Here we come.
Mark Zandi : No, I'm not going to do that one.
Cris deRitis : 91?
Mark Zandi : Which we could talk about by the way we probably should talk about, and here's the number 1.5, two million. It is a statistic that came out this week.
Ryan Sweet : So it's housing starts related.
Mark Zandi : Yes it is.
Ryan Sweet : All right.
Mark Zandi : Yeah. Now how did you jump right from 1.5, two million dollars housing search related. That's how your mind works. It's just like...
Ryan Sweet : Yeah. I don't know how it works, but yeah, when I hear 1.5. Yeah, no...
Cris deRitis : That single family?
Ryan Sweet : No that's...
Mark Zandi : No single family was one point almost two million.
Ryan Sweet : Yeah.
Mark Zandi : That was starts in the month. We're talking single family housing starts in the month of December was I think it was 1.17 I think. Or something like that [inaudible 00:21:06].
Ryan Sweet : Yeah.
Mark Zandi : But no.
Cris deRitis : One came out...
Mark Zandi : 1.5, two million. This housing starts related. This is for the month of December, there was a pretty solid report. We got 1.7 million starts in the month and that feels like where we are now. 1.7 million. Didn't we have some bet around housing starts or something...
Cris deRitis : Me too, it's still...
Mark Zandi : Wasn't I right? Didn't I say one...
Cris deRitis : You were still wrong?
Mark Zandi : I am still wrong?
Cris deRitis : Couldn't more wrong.
Ryan Sweet : 1.7 million average over 2021 and 2022. So we got to get a boatload of starts here.
Mark Zandi : Oh no, I'm going to be right. We're at 1.7 million halfway through, so you just do the rhythm? No.
Ryan Sweet : So we're going to...
Mark Zandi : Okay.
Cris deRitis : We're going 189, right?
Mark Zandi : No, I'll stick with the one seven but we will be much higher than this by the end of the year. But you need average.
Ryan Sweet : Yeah.
Mark Zandi : I think this is [crosstalk 00:22:02] I'm going to claim a victory here. No.
Ryan Sweet : I think is a little pretty sure.
Mark Zandi : Okay. Right.
Ryan Sweet : So what was it?
Mark Zandi : 1.5, two million. This goes to my point, huh?
Ryan Sweet : Oh. To support your forecast. So it's got to be starts under construction?
Mark Zandi : Yes.
Ryan Sweet : All right.
Mark Zandi : Beautiful. It's housing starts that are in the pipeline headed towards completion. It is the highest it's ever been since the early seventies and it's still rising, very quickly. And obviously this goes to the supply global supply chain issues building materials, it goes to labor, supply issues, construction trades, that thing. Builders can get things that they've started across the finish line into completion. So it's building up in the pipeline, but there is a lot of property in the pipeline. Just think about that for a second, 1.5, two million starts or homes that are in the pipeline. That's about a year supply, the current rate, right?
But we're at 1.7, but pretty close. And that 1.5 million by the way, is our estimate. At least my estimate of the under supply in the market today in terms of affordable housing. So it just feels like we're going to get a lot of supply here. And by the way, a lot of that's on the multifamily side. I don't know if you've noticed this, but multifamily is gangbusters. 500, 550,000 that's really high by an historical standard. So we're all hand ringing about rents and rent's going to go into CPI, rent and add to inflation. And I think that's all true, but I think that's a 22 event as we get into 23 and 24, we're going to start seeing vacancy rates start to rise.
And I think rank growth is going to come off pretty quickly at that point. It's going to, there's a long lag, but it's going to come off at that point anyway. That's a...
Ryan Sweet : Great number.
Mark Zandi : That's a good right? [crosstalk 00:23:56]
Ryan Sweet : Yeah.
Mark Zandi : Good number. Elaine, they never give me a compliment so that's well...
Ryan Sweet : You would get one if you had good numbers.
Mark Zandi : See now we're back to what the way is typically what happens and Elaine, I'm the chief economist too. Look at how I'm treated.
Ryan Sweet : You've obviously created an environment where your staff can express their views, feel free to disagree that their leaders open to new ideas. You're an excellent leader.
Mark Zandi : That's one way of looking at it.
Cris deRitis : And also you and I have been working together for 17 years so at some point.
Mark Zandi : Yeah. It's got to be a...
Cris deRitis : Yeah.
Mark Zandi : Yeah.
Cris deRitis : Got to be...
Mark Zandi : Well, I think you should talk about back to normal index now.
Really? Okay.
Cris deRitis : Yes 91.2
Ryan Sweet : Yeah.
Mark Zandi : Okay. So Elaine, we put together this back to normal, the so-called back to normal index. We've been doing it since the pandemic. It's a compilation of government statistics, third party data everything from TSA, number of people going through TSA checkpoints to open table to a lot of different statistics. Its daily data. We index it to equal 100 as of February 29th, 2020 right before the pandemic.
Elaine Buckberg: Right.
Mark Zandi : A hundred would be, we're back to normal.
Elaine Buckberg: Totally back to normal.
Mark Zandi : And interestingly, if you go back before thanksgiving, we were 96%, seven, 98%. We're now back down to 91% and that's omicron and...
Elaine Buckberg: Yeah.
Mark Zandi : Shows us how painful this is, it's really crimping our economy's growth.
Cris deRitis : How about Florida? Is Florida...
Mark Zandi : Everywhere's down. I think Florida less down. It's really mostly down in the air like New York and PA and Chicago, Illinois, those areas that have been hit hard by omicron.
Ryan Sweet : Florida is at 97.4.
Mark Zandi : Yeah. So it was over a hundred. I think it...
Ryan Sweet : It was.
Mark Zandi : Yeah, it was over a hundred, but it's back down again.
Ryan Sweet : It was up [inaudible 00:25:59]
Elaine Buckberg: Interesting to know whether the correlation is greater with the number of infections or how tighter loose restrictions ever were in that place where I think voluntary behavior has followed the path set by the initial restrictions in terms of just peer pressure in standard setting.
Mark Zandi : Well, there is a very clear inverse relationship between the BNI index back normal index and infections so by state. So if you just do a scatter plot of states, more infections per whatever, a hundred per thousand people, you can see the BNI is the lower in those areas. So it's pretty clear that the omicron is now doing a fair amount of damage.
Hey Ryan, since I have you, and your favorite statistic is the 10-yr treasury yield and of course that has moved in a pretty big way, I noticed back down today we're down to 1.75%. We had been close to 1.9, but we're up a lot from where we were just few weeks ago. What, and you do this decomposition of the tenured treasury yield into different parts components of the yield what's driving this increase that we're observing now what's going on?
Ryan Sweet : So the two main things are higher inflation expectations, which are just following oil prices higher, and then an increase in the term premium. So the term premium the extra compensation investors need to hold long term treasuries versus short term, and that's gone up and that's gets back to the fed signaling that they're going to wind down and the tapering process in March. And then shortly after the first Ray hike start shrinking the balance sheet so the term premium is starting to go back up closer to zero.
Mark Zandi : Oh, is it really? So it is that far back up close to zero. I didn't realize...
Ryan Sweet : Oh, we're moving in that direction.
Mark Zandi : Moving in that direction. Well, you decompose 10 year yields into inflation expectations.
Ryan Sweet : Correct.
Mark Zandi : And they've moved up, but they're still consistent with fed target, right? They're just still 2%. Yeah. And then you said term premium and then the third is real short term interest rates. So short term interest rates after inflation, have they moved [inaudible 00:28:19].
Ryan Sweet : They're really negative. No, not too much.
Mark Zandi : Explain this to me, I don't get it. The feds say saying, I'm going to step, I'm going to start normalizing. I'm going to step on the brakes. They're saying, the market is saying I don't believe you fed, you're never going to be able to raise rates like you say, you're going to rate raise rates. Is that what's going on? I don't get it.
Ryan Sweet : No, the market's bought in. If you look at fed funds features, they fully priced in a full percentage points of rate hikes this year.
Mark Zandi : Okay. Yeah. But the terminal rate is lower, right?
Ryan Sweet : Yeah. The market's view or the terminal rate is lower than ours.
Mark Zandi : So we and the fed say, when I say the fed, the members of the FMC produce a forecast every quarter say, in the long run, as we get back to full employment inflation back to target, the federal funds rate target should be 2.5%. And that's consistent with...
Ryan Sweet : That's what our for, right.
Mark Zandi : And the market is saying, investors are saying, no, it's like a point below that or something.
Ryan Sweet : Correct.
Mark Zandi : And I think that's the difference, isn't it? That's why we're not, but I just don't understand. So investors just don't believe if they can get us back to anything normal...
Ryan Sweet : Closer to yeah.
Mark Zandi : That...
Ryan Sweet : Yeah. I think the market is saying, we believe you, that you're going to raise rates this year, but we don't think you're going to be able to get as high as you think you will in the long run.
Cris deRitis : Yeah. Interesting.
Elaine Buckberg: But I also suggest though that seems to be a signal of long term inflation expectations coming down really low otherwise that's a negative, real rate.
Mark Zandi : Yeah.
Ryan Sweet : That's a great point.
Mark Zandi : Yeah, that's right.
Ryan Sweet : If you look at inflation swap curves, the market's buying into the idea that inflation's going to come back down to where it was.
Cris deRitis : Yeah.
Ryan Sweet : Pre-pandemic. So we're not in this new inflation regime.
Cris deRitis : No. Okay.
Mark Zandi : Okay. Well that was great. I think we should move on and dig into the big topic, which is obviously the vehicle industry and a lot of things we want to cover here, electric vehicles and maybe little run autonomous cars we'll get to that. But top of mind has got to be those vehicle prices we were talking about earlier because they are a big contributor to the acceleration in overall inflation. And just to frame this consumer price inflation CPI inflation is 7% that's year over year through the month of December. And correct me if I'm wrong, but I believe about 2020, 5% of the acceleration inflation, is directly related to the exponential increase in vehicle prices, over the past year. Is that roughly right? Do Elaine or?
Elaine Buckberg: I have to calculate it is that way, but that's generally right. It's been a really big contributor and frankly, in third quarter, GDP, the slowdowns in production at that time, which we can talk about and how things have improved were also the single largest drag on GDP. So the chip crisis and its repercussion for production inventory sales and the feedback effects of the used car market have been very important, both for inflation and GDP.
Mark Zandi : So that's fundamentally what's going on here. The prices are going up because the vehicle manufacturers like GM can't produce enough cars and that goes directly back to of the chip industry... In the shortages in the chip industry?
Elaine Buckberg: In general that's right but I would say that there have been real improvements in chip supply and production now compared to really the worst of it was the third quarter. So I can start digging in here if you'd like.
Mark Zandi : Yeah. No, I'm really [inaudible 00:32:06]
Elaine Buckberg: Story.
Mark Zandi : Yeah. What's going on, yeah.
Elaine Buckberg: So a little over a year ago was when issues really first started arising about tip supply into the auto market. And that could be a production constraint in 2021. Frankly, it was a more complicated problem because the pandemic exacerbated. So fundamentally you have a structural problem where both consumer electronics and vehicles are increasingly chip intensive and for vehicles, one way you think about it is there's all this desired technology that people want in their vehicles. They want to buy a vehicle that has side blind spot alert and front end collision prevention. And they want to buy a truck with 306 degree cameras so they can park and trailer it well, and they want a computer screen like dashboard. And so all of this increases chip [inaudible 00:33:12]
Mark Zandi : Only Chris deRitis wants that.
Elaine Buckberg: In fact, we actually think that over the next few years, the chip content in our vehicles will literally be doubling.
Mark Zandi : Wow.
Elaine Buckberg: At the same time, similar things are happening in consumer electronics and a newer top end self smartphone has about twice as much chip content as one a couple years ago or a generation before. Take all of that and then you have some production disruptions due to lockdowns in 2020 and a huge increase in consumer electronics demand. And that's really the start of the problems that chip makers had difficulty serving all of their demand with these sudden changes during the pandemic, and then over the course of the year, there were additional disruptions to a stress system. So there was the Texas deep freeze that caused some. So Texas based chip suppliers have to take their plants down and not really get back to full production for a month, because it's very delicate stuff.
So it's not like sets shutting a down your computer and turning it back on 15 seconds later. And then there was a fire at a major chip maker for auto in Japan and then perhaps most severely of all, in the late summer the Delta wave that hit Malaysia and some other Southeast Asian countries and resulted in complete shutdowns of plants for some period and then operating at limited capacity really put stress on virtually every automaker in terms of their ability to supply the set of chips that would go into the vehicles for vehicle production and caused a lot of plant downtime across the globe and across automakers, which is really what hurt that third quarter production in the US, and around the globe and put me in the market especially tight in the fourth quarter.
And it's important to keep in mind that in order to make a vehicle, you need a set of chips, a set of distinct chips. And that's one of the challenges. So when you've got a stress system and you've got stress all over the place it becomes harder to handle the next impact. However, I will say the things have improved considerably in the...
Mark Zandi : Before you go on in this improvement because that yeah we need to, I'd love to hear about that, but it, so it feels like there's a lot of obviously moving parts here and lots of reasons for the shortage of chips and the impact on production and on prices, but it feels like you landed at the most important reason and that's the Delta wave and the damage it did to Asia and you mentioned Southeast Asia, is that a fair characterization?
Elaine Buckberg: Yeah. And in particular the worst of the problems really happened in the late summer and in Malaysia in particular where...
Mark Zandi : Malaysia.
Elaine Buckberg: Many chips pass through the government completely shut production at chip plants for couple weeks roughly, and then held it at 60% capacity. But Malaysia, can I give credit to Malaysia? They did an astounding job on vaccinations. So they went from 5% vaccinated in about July one to when they fully reopened the economy some point in October, they were at 90% vaccination. So they just did an incredible job and frankly, though, I don't know whether it's Gavi or what organization, but vaccines got to that country and got prioritized to that country.
Mark Zandi : Yeah.
Elaine Buckberg: So that they...
Mark Zandi : And may I tell this story and I think they had this anecdote and it's enough other automaker, but the F-150, which is obviously a very important, I think it's maybe the best seller, I don't know in the US, it's a Ford, obviously that relies on chips coming from Tula Malaysian chip plants and largely, and those chip plants were just shut down that Malaysians because they were vaccinated and they were scared by the Delta wave and what it was doing, shut things down and that really disrupted F-150 production and obviously no inventory and higher prices is that...
Elaine Buckberg: I'm sure that the F-150 relies on chips that go from, come from many places.
Mark Zandi : Yeah.
Elaine Buckberg: But I'm sure that those were critical chips without which they could couldn't make a vehicle or they couldn't even nearly make the vehicle with the intention to retrofit. And that's when you take downtime.
Mark Zandi : Yeah.
Elaine Buckberg: But the situation...
Mark Zandi : Yeah. I want to go before you go there, one more question, just to press you a little bit, to take it a little broader to the impact on inflation that we're observing now, there's this raging debate in the economics community as to what's behind the higher inflation, is it demand or supply and obviously that simplifies things enormously. It's both demand and supply and here's so how I characterize and I just want to get your reaction to it. Although I'm scared after you told me that I'm wrong about currency movements. But so tell me about, I'm a little nervous, but here's how I characterize it. About a year ago, inflation started to really pick up and that was a primarily demand side phenomena, vaccine rollout, re-opening businesses that slash prices during the pandemic think hotels, think rental cars, they just normalized prices.
And that is a one-time bump to inflation. Then you had the American rescue plan that was the stimulus support, two trillion and back in March of last year that really juiced up demand significantly. And so that added to inflation. But at that point, the run up inflation, wasn't really top of mind, it wasn't in the normal discourse. It was almost a feature, not a bug because the fed had been working hard to get inflation up and here we finally got inflation up to a place we might feel more comfortable with. And we felt like it was going to come back in as the demand support faded and it's already fading. But then the thing that really was a surprise was Delta. We thought the pandemic was well. I was hoping it was over and the administration was saying go enjoy July 4th.
But the Delta wave was already in train and that really did a lot of damage to labor markets, people got sick and most importantly to supply chains, going back to what we just talked about in Malaysia and the chip and the chips and the vehicle industry. So the inflation problem that we're observing now that has made a top of mind, it's the supply side effects of the pandemic. And it's evident in labor markets and global supply chains. Okay. I'll stop. What do you think of that narrative?
Elaine Buckberg: So first of all, in terms of bringing inflation down, not just in auto, but across the economy, I think it's all about resolving supply chain issues and that you can bring down in large parts of the economy that have particularly contributed to inflation, especially goods. You can bring down inflation or in some cases even see prices reverse. Even if you're still going to have some upward pressure associated with higher wages, especially at the lower end of the spectrum in hitting services with respect specifically to auto, of course it's a supply demand mismatch, but I think especially later in the year, the hits are really coming from supply so you had fundamentally strong demand conditions and frankly you went into 2021 with low inventories.
Mark Zandi : Yep.
Elaine Buckberg: So just look back at 2020 for a second, you lose 24% of US auto production days due to lockdowns. Demand is down 15% for the year. So already your inventory shrunk by the time you finished 2020, and there was a real premium placed on private transportation because versus public transportation and people moving out of cities to places where they might need to rely on vehicles more so that's what you go into the year with. And then you have strong, fundamental demand conditions especially as you have stimulus checks, you have lots of savings, and when we think about just that 2021 stimulus payments that went to 85 to 90% of households, family of four, $8,000. If you're a household that hasn't been hit financially by the pandemic, that's a big windfall that could be spent on something, not so easy necessarily to spend it on some of the services you used to spend, but you can spend it on a vehicle. So in addition, ample jobs, the optimism of vaccination. So lots of reasons for really fundamentally strong demand conditions. So I would've been forecasting record sales, but for supply constraints.
Mark Zandi : Yep.
Elaine Buckberg: So then you have these supply constraints and it's a crisis with multiple waves and you've had these, there are always shocks to the auto supply chain, which is very complex, but this was a lot of shocks to one particular part of the supply chain, which each one as a system becomes more stressed as harder to take. So yeah, I think that's a supply constraint as a bigger consideration and certainly that's the consideration later in the year is you have more, you had more plant downtime in the third quarter and early in the fourth quarter associated with the Delta wave and supply chain issues than you had earlier.
And that's when your inventories really got about 1.1, 1.2 million, many dealer lots are empty and prices started ramping up more on the consumer side. And that's a combination of you've got this constraint supply, you have lower incentives, you have dealers taking more price incentives come from the automaker, dealers also taking more price and basically vehicles being pre-sold before they hit the dealer log.
Mark Zandi : Yeah.
Elaine Buckberg: And not a lot of ability to substitute into the used vehicle market, especially because if fewer vehicles are being sold, fewer vehicles are being traded in and moving those near new vehicles moving into that used vehicle market. But I do want to talk about, I want you to luckily get to talking about the future.
Mark Zandi : Yeah. So, and it feels like you're going to give us an [inaudible 00:44:13] of a more upbeat picture here. So yeah, far away please do. Go ahead.
Elaine Buckberg: So chip supply has improved all the automakers have been working on this and we haven't had a new wave of problems and the fact that there's more widespread vaccination around the globe and also more people have been exposed to the virus, reduce the odds of future lockdowns or their severity. So chip supply improved in the fourth quarter, it has improved more in the first quarter. The outlook for this year is better still some fluidity, but definitely the Outlook's better at GM. We have all of our North American plants, but for one operating a normal schedules, we're doing weekend overtime at many of them, including our full size truck and SUV plants, we're adding shifts back in two plants. So, and then when I look across automakers, there's only one that I'm aware of that has plant downtime announced in North America for something related to supply chain versus normal vehicle transitions or something at the moment. So it's a much...
Mark Zandi : So can I ask...
Elaine Buckberg: Outlook?
Mark Zandi : So typically pre-pandemic, we were selling and presumably globally producing 17 million units, new. This is new light vehicles. We were there up through April, May 2021 and then it collapsed because of the supply shortages we have and all the things you described. In December, we were down to 12.4 million I believe. I think that was the last I looked. Are you saying now that we are producing pretty close to a level that we can now start selling again, 17 million units at least because we're back to typical except for a few cases we're back to typical production levels? Does that sound right?
Elaine Buckberg: I think we're close.
Mark Zandi : We're close? Okay.
Elaine Buckberg: I think we're close.
Mark Zandi : Of course we more build inventory...
Elaine Buckberg: Much closer.
Mark Zandi : Yeah.
Elaine Buckberg: Much closer to that typical level of recent years of 17 million.
Mark Zandi : Okay. So we're going to see we are, I feel like globally, I can see auto production picking up in many parts of the world and so you're saying in the next few months we should start to see vehicle sale units normalized, starting to get back to that 17 million unit pace.
Elaine Buckberg: Right. I think again, inventories super low mini dealers have bare lots. So it's really the throughput from plants or coming off to the extent of vehicles are being sold in New York imported. It's that throughput that is determining sales and in they're pretty much selling immediately, never been faster turn rates so productions higher sales will be higher.
Mark Zandi : Cool.
Elaine Buckberg: And that also should mean that even if toys were to flat line and every new vehicle made were to be sold on net.
Mark Zandi : Yeah.
Elaine Buckberg: That should take pressure off new vehicle prices.
Mark Zandi : Right. So do you think this is enough to bring prices down? Yeah. Do you think it brings prices down or do you think it just stabilize prices? Do we need inventory to increase before prices come in?
Elaine Buckberg: Ultimately a lot of that is about the competitive dynamics.
Mark Zandi : Okay.
Elaine Buckberg: Right? So not only are automakers like GM deciding the incentives that we offer into the market, which are effectively discounts off a vehicle sold by one of our dealers. Those are calibrated on very high frequency, right? So competitive dynamics can affect that and even more so competitive dynamics will affect where dealers want to sell vehicles. So JD power does put out statistics on dealer markup over dealer cost.
And the historical norm is about 1% and the latest readings are 9% right? So they have the capacity to negotiate that based on immediate competitive conditions. So when I talk to dealers, they say when you ask there's like, well, it depends on the inventory, the guy across the street who's selling one, right? They'll be very subtly and continuously reactive to changing competitive conditions. It's also worth looking at the ratio of ETP or average transaction price to MSRP manufactured suggested retail price and historical norm going back if you went back the five years before the pandemic is 85%, so effectively a 15% discount off MSRP at the moment 100.1.
Mark Zandi : Yeah. Right.
Elaine Buckberg: Right.
Mark Zandi : Yeah.
Elaine Buckberg: So that's a big move up. That's compression of incentives, but also dealers pricing differently in relation to their cost.
Mark Zandi : Got it. Does the industry have the capability to reasonably increase production over that 17 million unit pace? Can the industry do that or is that pretty much.
Elaine Buckberg: In general yes.
Mark Zandi : Yes. Okay.
Elaine Buckberg: Does the chip supply currently allow that?
Mark Zandi : Okay.
Elaine Buckberg: You think not.
Mark Zandi : But all the dynamic hole...
Elaine Buckberg: I don't think that in 2022.
Mark Zandi : Not in 2022. Okay.
Elaine Buckberg: But there are things that we're doing so at GM we've been really changing the nature of how we are acquiring the chips for our vehicles and for example, we already had a big announcement back in late November, early December about microprocessor units, which are one chip and we have gone directly into the design and are working with chip makers to manufacture those chips.
And we are reducing by 95%, the number of unique different micro controllers that go into our vehicles so much more standardization across vehicles, working directly with seven chip makers on that design in manufacturer and actually much more substitute ability, more stability over time and a lot less engineering. So a lot of efficiencies and we're carrying this approach across other kinds of chips and other automakers have made similar announcements to really de-risk our own supply chain...
Mark Zandi : Makes sense.
Elaine Buckberg: And again I talked about that needing the right set of chips to go into your vehicles. This helps with that.
Mark Zandi : Got it.
Elaine Buckberg: Risk.
Mark Zandi : So you're saying going forward, we're going to be in a much better spot if we ever get into another scrape, whatever going to cause that yeah. One other question and I do want to get to Evs in just a minute, but this is very helpful pen up demand. So there's demand, it can be satisfied because there was no supply so if we're at 17 million, let's just say that's revealed demand. That's what we should be guiding, getting. We've gotten, we're down to 12 four in December you do a little bit of arithmetic that's about a million and a half units that cars that have not been sold that could sell so that presumably that's what I would call pent-up demand. Those consumers will buy it when they can get it at a reasonable price. So is 1.5 million, that's a lot of cars.
Elaine Buckberg: And that's not enough because you got to be looking at pent-up demand from last year.
Mark Zandi : Oh, was well in... Oh yeah.
Elaine Buckberg: From 2020.
Mark Zandi : I didn't look at 2020. I was just [crosstalk 00:51:54]
Elaine Buckberg: So they accumulated pent-up demand.
Mark Zandi : Yeah, exactly.
Elaine Buckberg: Is in the low single digit millions. It's North at two.
Mark Zandi : Oh, okay. Yeah, you're right. I just did this quickly before we got on and I didn't even think about 2020, but you're right because the pandemic. Right.
Elaine Buckberg: So we're going...
Mark Zandi : So you're saying it's two, three million, something like that. Yeah, I'm not want to pin you down.
Elaine Buckberg: I imagine a little higher there.
Mark Zandi : Okay. All right. Okay.
Elaine Buckberg: So there's a lot of pent-up demand and that'll be released as vehicles come available and it's worth keeping in mind that. So our survey evidence, we've got a great market research team who runs questions for me, our survey answer tells that people buy a new vehicle for a variety of reasons. They want the latest safety technology. They like to have something new or they get to some place where they say either I've got enough miles that I'm concerned about the risk of more maintenance or the maintenance time and cost of have gotten so high.
So people do want to replace their vehicles and they're driving again. So they may have put on less mileage in some cases in 2020, but since about July, August, if you look at, for example, gas sold it's right in the heart of the normal historical range. And so people are moving around just as much as normal, maybe with some different patterns behind those, but people are using their vehicles and they're going to want to replace them. And when supply improves, pricing improves or they just decided, I don't feel like waiting any longer, I'm going to put in my custom order, they will be buying vehicles.
Mark Zandi : Yeah. We've got this.
Elaine Buckberg: That's a couple years of pent-up demand I think to satisfy.
Mark Zandi : Yeah. I need you to talk to my auto guy. We got this really good auto analyst, Mike person. I don't know if you've met Mike, but he's really very good.
Elaine Buckberg: Oh, I thought you were asking for a discounted GM vehicle Mark. I'd be happy to.
Mark Zandi : Yeah. Well I debate him all the time and he comes back and he is about pen of demand in the vehicle industry. And I'd say, look if we're below 17 million units, that's got to come back in some point down the road we can talk about when but that's got to come back and he comes back and he says to me, look, and this probably applies to the 2020 stock, the pent-up demand we measure there that people weren't driving, right? So you weren't depreciating your car. I got a... I leased my car and I leased a car right before the pandemic and I barely drive it anyway, but I didn't drive it at all and so I didn't, what do I do with that? So does that resonate with you?
Elaine Buckberg: So first of all Mark, I'll just be more forthcoming I think pent-up demand going into Sierra is on the order of four million units.
Mark Zandi : Oh, okay. Mike you hear this?
Elaine Buckberg: And I don't think this production will again, great improvements in the chip situation, although still fluid, but it's not going to meet my supply constraint forecast is not going to meet what might be my fundamental demand forecast. So you're going to exit the year with even more pent-up demand. And again, new appreciation for having a vehicle for safe transportation.
That sense is not going to completely vanish. People have changed their geography in ways that with more people living in the suburbs, they're more likely to need a bigger household fleet, whether it's going from zero to one or one to two or whatever it is. And they've developed new habits liking to camp and boat and things that may require them to have more vehicles. And maybe they've figured out that actually driving on that trip versus flying, they've decided it's a better way to go.
Mark Zandi : Yeah.
Elaine Buckberg: So fundamentally, I don't think that demand has changed and again, I think also in terms of privately owned vehicles versus shared transportation, whether it's ride hailing or taking the subway, I think that there's going to be a permanent preference shift to having a vehicle even if sometimes you're using still shared transportation.
Mark Zandi : You convinced me, we got to talk to Brisson. We've got very strong vehicle, new vehicle forecast, but I suspect it's not strong enough based on this conversation. But let's talk about electric vehicles and I'm not sure how to start this conversation. Maybe I just, Chris, Ryan, is there something some way you want to ask this question around EVs?
Cris deRitis : So actually was thinking about, if we in fact do have four million units of pent-up demand, or very strong pent-up demand, is that still in the ICE internal combustion engine or is that shifting have preferences at the same time that we've had this pandemic experience? So yeah, there's a lot of not there, but maybe it's more demandful.
Elaine Buckberg: So we have about a doubling of EV sales as a percentage of sales between 2020, where it was under 2% to not sure I have a final number for 2021 yet, but more like 3.5% is about where I'd expect it to land. And when the sales actually happen and how much they're deferred will determine to what extent their ice or EV vehicles. And the thing that's really changing is the number of vehicles that are available in the market with many new EVs coming to the market and in a more diverse set so everyone's preferences can be fit. And that the EVs that are coming to market are increasingly more complete substitutes for an ICA vehicle, especially in terms of having more, is battery costs have come down. We at GM and other auto makers can put more battery into an EV and that means it can have a longer range.
And it also means that we can bring out vehicles that serve a wider set of preference. So I proudly own a Chevrolet bolt and love to drive it, and it's great for me, my husband and my small dog right? But if I were going on a road trip, 15 hours to Florida with a family of five, wouldn't be a good fit.
Mark Zandi : Yeah.
Elaine Buckberg: Right? So there, you want an SUV, right? We've got the Hummer SUV coming. We've got the blazer coming in a few years, the E-blazer, or you want a pick up truck as a style statement or a functional statement and you'll be able to buy an EV Hummer or an electric Silverado in the coming years. So again, the more they're deferred, the more that the number of models coming to market especially mainstream models is doubling every couple years at this point.
And so again, fitting all sets of preferences at the same time that the average range is going up and in general, we find in our market research that when you give people 300 miles of range, they say, okay, I'm good that'll serve all my needs. And I'm comfortable with that. And I'm happy to talk more also about charging, but all the things are driving towards continued shift of consumer preferences towards EVs, which see dramatically happening in our market research and also continue to shift in the supply to meet those preferences.
Cris deRitis : Right? So if that's the case, the 17 million number, which is overall may not tell the real story, right? If suddenly there's more demand for those electric vehicles and supply is still constrained, because capacity is not up to the level, right? That you're still ramping up. You said you have new models coming out in the future, could we see price pressures continue? Right? Because demand is still going to outstrip the supply on.
Elaine Buckberg: Basically what you're saying is, would pricing on EVs, go up.
Cris deRitis : If in fact the demand is shifted.
Elaine Buckberg: Right. But the demand is there when you find the right for the right product. If for example, we've got a multi-year wait list on the Hummer EV so, okay. There won't be, if you want to buy a Hummer EV you're not probably getting incentives on it, but the supplies also small, so it's not going to have a big impact on the CPI. Now, the big thing is whether, and when we get the EV tax credit, that's in what has been the build back better package would maybe in some smaller package, I don't know whether it'll what name that we'll have, but the EV tax credit, as in the most recent versions of the bill, $7,500 base credit, another $500.
If the battery's made in the US, 4,500 more, if it's US and union made, as well as credits for used vehicles and commercial purchase of vehicles, this is a game changer. And out through the end of 2031. So this is a big game changer in terms of the relative cost of an internal combustion engine vehicle to an EV vehicle and compressing that price differential is like number one on the list of what consumers tell us that they want and would make them convert to an EV.
Mark Zandi : Even more than more charging stations in greater range, you think it's more important?
Elaine Buckberg: It's price differential it's range, it's making sure I have charging everywhere. Let's take that on in a second. And it's that I don't have to sacrifice what I want my vehicle to look like for it to be an EV, but that price differential is huge and right now currently law provides for up to $7,500 incentives, but only for the first 250 vehicles made so sold by an automaker, which means that those automakers, including GM, that really produced winning vehicles no longer have it.
So to say, this will be in market for 10 years is really huge in terms of shifting adoption and changing that price differential and making more people wear willing to buy an EV. Another important thing is education. And as more people also realize how much cheaper owning an EV is both in terms of your fuel cost and in terms of lower service needs and just the ease of owning an EV. I think that will all also really help when people aren't great necessarily at present discounted value calculations, and they can be myopic about cost, but if they really better understand the cost advantages of ownership and can think about that total ownership cost that will help.
Mark Zandi : Well, it sounds like you feel like [inaudible 01:02:59] economic jargon. The price elasticity here is pretty high for EVs, meaning it's quite sensitive to that subsidy and therefore the ultimate price that the consumer face.
Elaine Buckberg: Absolutely. And what's really stunning is our market research team does clinics with consumer live events with EVs continuously and quarter by quarter, we can see a move up or in this is making a hypothetical with some EV education about EVs and a hypothetical choice between a bunch of either internal compassion engine and EVs. They get to see a model of some sort that are comparable in they're, roughly comparable in their size class and functionality, the percentage that goes EV and it's all, it's happening across the spectrum.
It's not just on smaller vehicles, it's on full size pickups and large SUVs. People are really ever increasingly open to an EV and those numbers go up. And just to give you some public statistics though, surveys by consumer reports and epSOS say that about one third of drivers or potential buyers are ready to consider an EV today for their next purchase. And 70% say that they're expecting to buy an EV at some point, or consider an EV at some point, even if not for their next purchase. And that one third ready to consider today is triple what it was in 2018.
Mark Zandi : Hey, Ryan, Chris, you guys own EVs or hybrids? You got, oh, Chris...
Cris deRitis : I have a 10 year...
Mark Zandi : We only drive high-end Italian cars. I don't think they've gotten to EV yet. Yeah. After he drinks his amaretto or whatever. And...
Cris deRitis : He got a very nice vision of...
Mark Zandi : Look at him. Ryan are you driving an EV yet?
Ryan Sweet : Not yet. Our next car, my wife wants to get an EV.
Mark Zandi : Yeah.
Ryan Sweet : I do as well. Next purchase.
Elaine Buckberg: Maybe a nice lyric for your wife. They're beautiful.
Mark Zandi : Which one? Elaine?
Elaine Buckberg: The lyric. It's our Cadillac crossover. That's coming to market later this year. It's gorgeous.
Mark Zandi : That sounds, I like to thought.
Elaine Buckberg: I think your wife would like it, Ryan.
Ryan Sweet : I like it.
Mark Zandi : You see how she sells? It's really very subtle.
Ryan Sweet : I'm about after this, I'm going to Google it.
Mark Zandi : I'm definitely interested now. That was great. That was fantastic. Well, going back to that...
Ryan Sweet : What about you, Mark?
Mark Zandi : That's my next car. It's going to be an EV for sure. I'm going to, I lease but I'm going to, my next car is going to be an EV for sure.
Ryan Sweet : So would it be a gas tax or an EV incentive that would push you over the edge there?
Mark Zandi : For me to buy?
Ryan Sweet : Yeah.
Mark Zandi : Well, no, either way, at this point I'm so nervous about getting to net zero I'm all in now on, we got to do something. [crosstalk 01:06:05].
Ryan Sweet : You don't need any [inaudible 01:06:06] and so...
Mark Zandi : My carbon tends to be high as I have propane heaters on my back deck, so I can stay on my deck in the middle of January in suburban fill. So I got to do something to offset my carbon footprint.
Elaine Buckberg: And if you have a house with a back deck and private parking, the convenience of it easy is just amazing. For our EV we never go to the gas station. We plug in...
Mark Zandi : That sounds [inaudible 01:06:33].
Elaine Buckberg: Right at home, every probably with our mileage, once a week, and you never need to go to the gas station and we have solar panels so we literally charge on the sunshine. I'm like, oh.
Mark Zandi : Now she's bragging. I consider this to be bragging now.
Elaine Buckberg: But you want to get to net zero, I'm incentivizing [inaudible 01:06:53] I'm giving you more compelling reasoning.
Ryan Sweet : You're absolutely right.
Mark Zandi : Hey, but if I gave you a book and I said, you could only spend it on charging stations or a tax credit, which would it be?
Elaine Buckberg: I think the tax credit moves the consumer fastest.
Mark Zandi : Interesting.
Elaine Buckberg: But I think it's critical to have public charging infrastructure and the 7.5 billion that's already been spent. And the bipartisan infrastructure package is catalytic. So again, you and I have a single family home, but I spend most of my life in apartments so for people who live in apartments and for highway charging, it's essential to have that charging so that 75% of new car buyers have an owned home with dedicated parking. But that percentage is going to decline as you get into use car buyers and you want an EV for everyone. So, first of all, on the highways, you want people to have the assurance that they can own one vehicle. It'll serve all their purposes, and there'll be fast charging available without a queue, if they want to take that thanksgiving road trip.
And so that's essential to roll out DC fast charging on our highway corridors, USDOT is very focused on that, although ultimately it'll be on the states and local governments to actually put that charging in place. And then you need charging in the community for those people who can't charge at home or at work. Workplace charging can be very powerful as well and you need that to be placed where people stop. So a fast charger at the grocery store so while you're in the grocery store for 20 minutes, you can be charging your vehicle so that's really critical.
Mark Zandi : Yeah.
Elaine Buckberg: To a long term widespread adoption.
Mark Zandi : Hey, we're taking a lot of your time and I don't want to take too much more time, but I have two quick questions for you.
Elaine Buckberg: Okay.
Mark Zandi : First question, when am I going to be able to take a level four autonomous taxi in Philadelphia? When's that going to happen?
Ryan Sweet : Do you think?
Elaine Buckberg: So I don't know exactly when cruise automation plans to get there, but in San Francisco right now, our cruise automation partially owned sub where we're the majority owner. They are letting, employees are riding on the streets and driver less vehicles, no one at the wheel. There's some great videos as you can look up on that and so it's a matter of when it gets to Philadelphia, but I think with that happening, it's in the handful of years away.
Mark Zandi : That's not cool.
Elaine Buckberg: And cities like urban areas where there's high demand for vehicles is exactly where ride sharing, ride hailing autonomous or otherwise is most efficient so that's where it's coming first to those downtown areas.
Mark Zandi : Can't wait, final question, a little glib and you can tell me if I'm off the rails here, but you remember that old phrase as GM goes, so goes the US economy? You remember that? I think it was GM CEO, CERCA 1960 or 55. Is that still the case? Do you think Elaine is GM goes so, goes to the US economy?
Elaine Buckberg: But the economy is very diverse, but GM is tied into virtually every market between the inputs, to our goods, the labor market, the importance of a vehicle as the second biggest expense, any household will make, so very closely tied auto sales normally when we're not having chip supply issues are highly procyclical, and people have very tight emotional relationships with their vehicles.
Mark Zandi : Okay. So you're saying, yes, it's still critical and because your chief economy is a GM and you were fantastic at selling GM cars. I think the economy's prospects are excellent. I think we're in pretty good shape here. Just saying but we're going to be following you and really do... This was fantastic really learned a lot. Gave me... Particularly appreciate it because you gave a lot of fodder when my discussions with Mr. Brisson and his auto forecast, but thank you so much for participating. Any last words, any last pearls of wisdom, guys? Anything else you want to ask Elaine?
Ryan Sweet : No.
Elaine Buckberg: Great to be here. Thanks for having me.
Mark Zandi : Thank you so much Elaine. Hey.
Ryan Sweet : Yeah. Thank you.
Mark Zandi : I'm supposed to say something Ryan, do what I'm supposed to say to end this?
Ryan Sweet : At Mark Zandi?
Mark Zandi : We would appreciate reviews so if you want to give us a review and if you've got suggestions for topics for the future, please fire away you can email us or go to economy.com and there's a place there for you to tell us what you want, would like us to address, but we're looking for ideas, but happy to do that. Hey, thanks Elaine and thanks everyone. Take care until next week.