May 14, 2017

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Business May 14, 2017

Automakers Feeling Squeeze From Investors Despite Strong Sales

Hyundai Motor Co. vehicles sit on display for sale on the lot of in the Van Nuys neighborhood of Los Angeles, California, U.S.

Patrick T. Fallon/Bloomberg via Getty Images

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Patrick T. Fallon/Bloomberg via Getty Images

After seven years of growth, the auto market is seeing weakness.

In April, sales were off by 4.7 percent. That’s despite the continued robust sales of highly profitable SUVs and trucks. That’s no big deal for an industry that just got off of two record seasons, but not so for investors.

The pain is being felt across the auto world.

This week, Ford CEO Mark Fields took heat for the company’s stagnant share price at the company’s annual meeting. While the company is the number one seller of trucks and SUVs, investors have been upset over the stock price given the market.

Bill Ford Jr., the executive chairman of his namesake’s company, tried to reassure shareholders, according to The Detroit News.

“We’re as frustrated as you are by the stock price,” said Ford Jr. “Most of (the Ford family’s) net worth is tied up in the company, and stock price matters a lot to us. We’re frustrated, but our business is performing well. We’re making investments both for today and for tomorrow, and I believe that’s the right thing to do.”

Ford has spent billions investing in new technology to prepare for the advent of autonomous vehicles, along with most of its top rivals. Michelle Krebs with AutoTrader says the industry is feeling the squeeze as it tries to anticipate change.

The problem, Krebs says, is that carmakers like Ford “have to continue to operate the current business, and set the company up for the future by making some investments, but who knows when the pay day will come.”

The problems go beyond Ford

Volkswagen continues to be under investigation. Most recently, the company came under fire for payments to a labor union leader. And the company appears to be on the verge of another round of layoffs as VW tries to overcome years of scandal and billions in settlement payouts.

Executives at global giant Toyota are predicting a profit decline for the second year in a row.

“In an environment where sales are stagnating, it’s tough that we need to invest in areas which won’t generate profits due to paradigm shifts,” said Akio Toyoda, the company’s president last week.

Toyota has been hurt, in part, as it shifts to build more trucks and SUVs, as well as invest in billions in artificial intelligence and other technology in preparation for autonomous vehicles.

General Motors is facing a challenge by activist investor David Einhorn, the founder of Greenlight Capital. Einhorn, a major GM shareholder, has complained about the company’s performance. He’s proposing to split the company’s common stock:

“GM’s shares are barely trading above their 2010 IPO price despite an equity bull market, and there is a significant gap between the intrinsic value of GM and its stock price. Accordingly, GM has failed to create much long-term shareholder value. GM can fix this!”

The criticism from Einhorn discounts that GM has been consistently profitable, partly because of the billions the company has been bringing in selling highly profitable pickup trucks. GM’s CEO Mary Barra has been praised by the industry despite the apparent weakness of her company’s shares. Joann Muller of Forbes writes of Barra on the company’s stock price:

“GM shares don’t show it — they’re stuck at 2010’s post-bankruptcy IPO level — but General Motors is a different company under Barra. Gone are the empty promises and arrogant bluster. With Barra at the helm, there’s a quiet confidence that if GM just sticks to its plan, good will eventually come. It’s a classic case of under-promising and over-delivering, as in the first quarter, when GM soundly beat Wall Street’s expectations with a 33% jump in net income.”

Why all the shade from Wall Street? While truck profits are the present, autonomous or self driving car profits are somewhere in the future.

“This has happened before”, says AutoTrader’s Krebs. “There’s always been the question of profits now or investing in the future. But what happens when Apple, or Tesla upends the industry.”

She says when, or if, that happens, who was profitable this quarter will seem quaint.

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Sports May 14, 2017

Pentagon Disrupts Path For College Athletes Hoping To Be Drafted By The Pros

NPR’s Lulu Garcia-Navarro asks the Denver Post’s Nicki Jhabvala about a change in policy that will no longer waive the active duty requirement for students drafted into professional sports leagues.

LULU GARCIA-NAVARRO, HOST:

For college students who are also top-level athletes, it’s the dream path – graduate straight from college to the likes of the NBA and the NFL. And until recently, that included students at American service academies – the Army’s West Point, the Naval Academy in Annapolis and the Air Force Academy in Colorado Springs. Jalen Robinette, a wide receiver for the Air Force, had a shot at the dream in 2017.

(SOUNDBITE OF ARCHIVED RECORDING)

UNIDENTIFIED ANNOUNCER: End zone, it’s caught, touchdown, Robinette.

UNIDENTIFIED REPORTER: So don’t be surprised if Robinette becomes the first Falcon drafted in almost 20 years.

JALEN ROBINETTE: This could be something that happens. And if it doesn’t, then I have a pretty good plan B, which is being an officer in the greatest air force there is in the world.

GARCIA-NAVARRO: That plan B became a bit more likely when the Pentagon reversed a policy that allowed players drafted into the pros to substitute two years of reserve duty for the normal two years of active service. In this edition of Out of Bounds, graduating to the pros instead of military service. Nicki Jhabvala reports for The Denver Post, and she’s been following this story.

Welcome to the program.

NICKI JHABVALA: Hi. Thank you for having me.

GARCIA-NAVARRO: How important was this waiver to these students?

JHABVALA: Very important. This is part of a 2016 policy. It didn’t create any guarantees for them. But, you know, once guys like Jalen Robinette realized they had a shot at the pros, they spent a lot of time, money, energy preparing for life as both an Air Force grad and a potential NFL player.

GARCIA-NAVARRO: Do we know the reason for the Pentagon changing course?

JHABVALA: They say they’re in the business of developing service members. This affects really only about three athletes across all sports at all service academies. So to take that away from those three athletes, there had to be a good reason. But right now, they’re just saying it’s because they’re more focused on developing service members than professional athletes.

GARCIA-NAVARRO: Let’s take a little bit of a look at the history here. This isn’t the first time a policy like this has been rescinded. Do we know their thinking on this?

JHABVALA: Well, I think that’s a question these athletes want answered, too. From the players I talk to, they don’t have an issue with the policy. It’s certainly the Department of Defense’s right to enact any policy it feels is best for these service members. And they knew when they committed to one of these service academies that they would be required to fulfill some sort of active duty. But the timing has become the big issue, the timing after these athletes were told they would have a chance to possibly go pro – to have it taken from them is concerning in many ways because of the time and the money they put forward. But they don’t have any clear answers right now other than the fact that the DOD simply can change the policy whenever it feels it’s necessary.

GARCIA-NAVARRO: So let’s talk about Jalen Robinette. He’s the reason this is in the news. Tell us about him and where his NFL future is at right now.

JHABVALA: So Jalen Robinette was projected to be a mid-round pick before they reversed course. He’s the Air Force’s all-time leading receiver and was one of the most sought-after prospects in the area really. But no team has signed him yet. And if they do – if this policy is still in place, he will have to be put on a reserve military list for a couple years while he serves his active duty, and then he might have a chance to return. But it’s a big risk for an NFL team, and it really puts his future in the NFL in a very, very tough spot right now.

GARCIA-NAVARRO: Why is it a big risk for an NFL team to do that?

JHABVALA: Because if they were to draft a guy that they couldn’t use for two years, in their mind it would be somewhat of a waste of a draft pick. He is in his prime right now. Two years down the road, when he’s been out of the game, it’s not guaranteed that he will be.

GARCIA-NAVARRO: Could this have effectively ended his career, his hopes of joining the NFL?

JHABVALA: He says it hasn’t ended his hopes. But being away from the game for two years – if that’s, you know, what ends up happening, it certainly reduces his chances. But it’s not impossible. Players have done it before. Many players in the past, like Ben Garland, an offensive lineman who is now with the Atlanta Falcons, did it. So it’s certainly not impossible, but it is much tougher.

GARCIA-NAVARRO: What next? I mean, are we waiting for a review? Do we think that there’ll be a reversal of the decision?

JHABVALA: It’s a very hard fight going against the Department of Defense, as you can imagine. But Jalen Robinette’s agent, as well as those of some other players who, you know, are dealing with this now, they’re continuing to fight it. They’re asking for their clients to be grandfathered into the old policies since, you know, the timing was just so brutal really. They’re still very hopeful that something can be done, but it is a uphill battle, and there’s no guarantee.

GARCIA-NAVARRO: Nicki Jhabvala reports for The Denver Post. Thanks so much for being with us.

JHABVALA: Thanks for having me.

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