Musk Is Mad, Subprime Stumbles, Workplaces Come Alive

May 19, 2022
Today’s flyover is a target-rich environment with a wide swath of news. In order to keep it under 12 hours, we’re talking about Tesla getting kicked from the ESG index (we’ll explain), why signals are not looking good for subprime borrowers, and the new priorities in return-to-work as evidenced by Adidas.
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Tesla gets kicked out of the ESG index and isn’t happy about it

  • ESG = Environmental, social, and governance and has been a growingly popular investment for those who want to (or appear to want to) keep ESG issues at the forefront of the investment strategy
  • “Low carbon emissions plan, labor complaints, and compliance investigations” were cited as reasons for being left off the list while Oil company Exxon Mobile was placed in the top 10, as well as Amazon despite its substantial labor disputes, and JP Morgan which is the largest lender to the fossil fuel industry.
  • Meanwhile, Musk stated “Tesla has done more for the environment than any company ever.”

It’s all about the payments, Subprime borrowers are falling behind, yet most Americans are still above water

  • subprime credit cards and personal loans over 60 days late rising faster than normal, according to credit-reporting firm Equifax Inc
  • Delinquencies on subprime car loans and leases hit an all-time high in February. Numbers go back to 2007
  • Pandemic stimulus is running dry in households affected most by inflation
  • Still overall high credit environment
  • % of subprime loans is trending back up  15.7% Q1 2022 - 15.4% 2021 - 18.9% 2020
  • According to TransUnion, the avg balance of new auto loans reached $28,415 in the first quarter, up 15.2%, or $3,751, vs. a year ago. Including both new and used combined, the average monthly auto payment was $556, up 13% from last year
  • Payments over the minimum on car loans was higher than normal in Q1

Inspiring spaces are a part of return to work at Adidas new HQ

  • Designed by San Francisco-based Studio O+A with LEVER Architecture, the space is graphics heavy and focuses on flexible reconfiguration. Basically bleachers stay put, everything else moves
  • Lines and textures allude to the brand in the absence of the actual, iconic three-lined logo
  • Collaboration is at the core of the return to work strategy

Kyle Mountsier  0:28  

Good morning. It's Thursday, May 19. Paul's about to head to V con. We're talking. Elon is angry and a whole bunch of other stuff. Let's go

Paul Daly  0:41  

to people, all the things. You know what's really cool about this? Well, first of all, I'm in this natural like, I'm in my home office light right now. So if you're watching, you realize like Kyle's hat and his shirt, like have a very deep tone to them and might have all this like, residential. No yellow to it. But yeah, I realized,

Kyle Mountsier  1:00  

like, off off black type color.

Paul Daly  1:02  

Yeah. It's a soft black. You When You're introducing the show, now I understand why you'd have time to make so many faces. Yes, like, yesterday killed me. You're not on our Instagram, go check automotive State of the Union. And you can see the many emotions of Kyle mounts here all in one post Brady Bunch style.

Kyle Mountsier  1:20  

That's exactly it. Yeah, I showed my wife and she was like, that's about accurate.

Paul Daly  1:27  

By life. It is amazing to see that at once. Because I guess you just kind of get used to it. But there you go. I mean, exactly. Like, so I'm on my way to be kind of soon as literally stream is over, I'm heading to the airport to head to Minnesota. For the V con, I am going to try to bring as much of that back to you as I can, as usual. So probably the best I'll be posting on LinkedIn. But probably the best way to follow along would be my Instagram stories. And I'll try to try to try to bring some of the innovation from outside automotive to

Kyle Mountsier  1:56  

Yeah, in automotive. Yeah. Because here's the thing we have over the last week just been packing in our schedule, with conversations about what he kind of started to an ounce yesterday, which was, which is a sudo con. And we're starting to have like some deep conversations with collaborators across the industry that are that are hoping to help us collaborate and bring something new and fresh to the industry. And what's really cool is every conversation that we get, and we start having these like conversations with potential sponsors, or people that want to attend the event, or that might speak is there is this mode of collaboration, we were actually talking yesterday, it's this idea of Oh no, yeah. If if, if the sky is kind of the limit, and that, you know, there's no preset notion of what this is going to look like, hey, let's feed into this, let's dive in. And let's Oh, if this could look this way, or this could look this way. So it's all these different ideas coming from a bunch of different people. And what it's doing is like enhancing our ability to serve the automotive community. So that's what I'm excited about.

Paul Daly  3:01  

Without a doubt, hey, look, if you're interested in being a part of the collaboration for asotu con, hit us up, just send an email to crew at a every conversation we had yesterday with industry partners was like, how would we do this best, and there's not going to be a ton of room for everybody. We have limited partners, but we want to make everyone super meaningful, and kind of figure out the best way we can serve them so they can serve the industry, and so on and so forth. If you're a dealer and you want to go, we're again, we're gonna have limited tickets. But this is going to be a real event, you can go to asotu and sign up on the cheeses website you'll ever see. Because we were just like, we need the slides. So if you just want to see a cheesy website, just go to asotu, and we'll make it happen. Dude, there was so much to talk about this morning. We didn't know what to include in the show and what not.

Kyle Mountsier  3:50  

It was like so there's 38 headlines that we can go

Paul Daly  3:54  

oh my. Sometimes it's just like crickets. And like this morning log again, we're just like, we could talk about that for 20. We could talk about that this show could have been 12 hours long, easy. Easy, easy. So we just curated three that we thought were relevant, and they're not all doom and gloom because not everything is crushing everybody. I know. I know. It's hard. Exactly right. If you're in the stock market in crypto, it's hard not to be glued to it. and think, oh my gosh, oh my gosh, but guess what? Recessions have come and gone now having lived through one and been in business actually through an await you gain you start to realize why the best operators just do so great through a recession. Because they're not because they're not freaking out. Right? We're not We're not in a recession yet. But if I were a betting man,

Kyle Mountsier  4:40  

yeah, most people most people are saying like it's coming. It's just a matter. It's a matter of when not if

Paul Daly  4:46  

it's the counterpoint of inflation. So it's like, Look, you can't you can't stop inflation without a market contraction.

Kyle Mountsier  4:53  

Right. Exactly. Well, and I think that the smartest savviest business operators and owners and and all of that are just going to continue. I mean, here's what's really cool about this. We've had a period of two years of pivoting, at every instance, right? It's like every month, every two months, there is a massive pivot that has to happen in order for you to have to engage a new market dynamic. And this is just, if you just perceive it as a new market dynamic. It just takes a pivot, our industry is great well set up to pivot. And so financial,

Paul Daly  5:27  

it's like, like, like, okay. It's like physical conditioning. Right? When your body is, is that home internet, when when your body is ready to move, right? Because you've been doing the conditioning and you're doing the stretching and you've been doing that the diet, right. It's like, you're just ready to move whatever comes your way. I feel like automotives, like built for this. Exactly.

Kyle Mountsier  5:51  

Exactly. All right.

Paul Daly  5:53  

Let's talk about some stories

Kyle Mountsier  5:54  

of getting a mood. Segue. That was a cheap one. That was a cheap one. I'm sorry. I

Paul Daly  6:01  

just wanted to press the button. Depressed. today.

Kyle Mountsier  6:09  

Yeah, so Tesla, a, like, literally, they have solar panels and EVS gets kicked out of the ESG index yesterday. So if you don't know what the ESG index is, essentially, it's a it's an index of the companies that are being the most environmentally socially and governance. And so like, the way that they're operating their business, kind of healthy, and the way that and the way that people are seeing the investment in their company as a future state. And so it was quite interesting to see that Tesla was moved out of that top list

Paul Daly  6:50  

to actually finish they actually it's not in the show notes, by the way in the podcast, and we have the show notes. So if you want to go back to it and catch links through there, so Tesla actually finished in the bottom quartile. And so Elon Musk is upset, right? Because this is like it's it's a it's kind of a guiding principle where you can, you can make investments based on people who are being you know, so called environmentally friendly and things like this. And Elon tweets out Exxon is rated top 10 best in the world, environment, social and governance. While Tesla didn't make the list, he said it's a scam. It's been weaponized by phony social justice warriors. So the issue is obviously there are some substantive, you know, substantive metrics, but there's also a lot of variable in there a lot of opinion. Yeah. You know, so even like big investment firms, like Blackrock have said, they're going to stop paying attention to it because of the arbitrary nature of it. So but basically, low carbon emission, like they cited that Tesla's out because of a low carbon emissions plan, labor complaint complaints, and some ongoing compliance investigations, you know, from accidents and things like that. In the top 10, Exxon, Amazon was also there, despite, obviously, you've heard about a few labor disputes in the Amazon world. And JP Morgan, is also on the list, who happens to be the largest lender to fossil fuel, the fossil fuel industry. So, you know, while Musk is over here, saying, and I quote, Tesla has done more for the environment than any company ever.

Kyle Mountsier  8:20  

You know, okay, so that's interesting, because I think that, you know, when you think about the end product, and what it does for the environment, that's one thing. But I that's what we're starting to see even a debate, right, right. It's a debate. But we're starting to see like these companies that have been doing this for a long time, the whole trail of like, through the employee relationship through the aggregation of some of these, you know, like, like taking care of fossil fuels, and just the history to be able to make those decisions at scale, I think actually are doing these companies are doing a lot more than what we may be realized. And because of the type of fuel we were, we were like hedging bets or making decisions. And I think that we're seeing that in the Eevee world, especially with things like how to acquire all of these raw materials that are needed for batteries where they're coming from what's necessary from the house.

Paul Daly  9:17  

Right. Yes, exactly. Conditions and how their mind, you know, I guess if you know, thinking about a little bit more critically, you know, say you're ExxonMobil, right, and, you know, what you do is drill holes in the ground and extract oil, that's your business, right? I guess you could make a substantive improvement, right. Like you can't change it. That's what your business is right now. But you can make a big difference in how you do that. Right. Which would you I guess, reduce the negative impact not necessarily produce a positive impact, right, like by reducing the negative impact, it would kind of in turn be a positive impact. I don't know. Whatever it is, I'm sure there are no politics involved whatsoever.

Kyle Mountsier  9:55  

None. No, there's no money, no lobby, no lobby. That is objective, it was completely objective and clean.

Paul Daly  10:03  

But we thought it was relevant to talk about right, because obviously, Tesla's in the news a lot. Elon Musk is in the news and what without a doubt, like, it does affect the perception of the auto industry, it does provide opportunity for traditional OEMs to really step up and carry the torch. And, you know, like everything, like media and pop culture is an opportunity, right? It's always moving in the direction and you just have to figure out like, understanding the lanes that people are running in, help you understand, like how you can position and move to to serve the customer best, and in this case, serve kind of the planet the best. So I thought it was worth talking about and look, who doesn't like this is

Kyle Mountsier  10:37  

super random, but I'm just having this mindset, like we typically say, and we're gonna, I'm gonna flush this out on some other thing. Maybe it's a LinkedIn post, I don't know. But we keep saying like legacy OEMs and traditional OEMs. I just wonder if they were in the room? If they would feel good about that? I don't know. Maybe not. And maybe we need to reframe that, because I think that they are challenging that. How would you categorize them? I don't know. That's what I'm trying to figure out in my head right now in real time.

Paul Daly  11:03  

Right? Yeah, I mean, legacy is, I'd rather be legacy than traditional, I think, right? Because traditional, you know, implies a mode of operation, when legacy just implies like, timeline, time, right? I've been here and just call it we'll call them reinventing OEMs. Brand new OEMs, versus currently reinventing.

Kyle Mountsier  11:25  

The way that I think that's how I brand it, you know what I think that's the way that the OEMs would want to be considered. And I think the retail side of the industry, actually, that's a better better like mode of perceiving them. Because then what we do is we actually, like push that out into our communities as well. And that's necessary from the retail side and the dealership side, to have that perception. So reinventing, oh, we're gonna reinvent that type of good idea.

Paul Daly  11:49  

Because actually, they have a lot more experience to go.

Kyle Mountsier  11:53  

Right. And it's better to reinvest, like the Exxon, it's like Exxon has a lot more experience to shift and move and organizational structure to be able to change what they're doing. You go. Alright, let's keep going. We got more news to talk about. We got two more things. This this one. Next one is interesting, is there are studies coming out where and we talked about this in our email the other day that the majority of Americans are still above water, from the perspective of like, they're making advanced payments on loans, whether that be homes or auto. So they're in equity positions, for the most part in their major purchases, doesn't

Paul Daly  12:27  

say in equity positions, actually, it's that they're paying above the principal, right? Which credit which and credit cards is pretty common. But in auto, it's not so common, right? That's a good sign when people are paying, you know, more than their payment toward their principal.

Kyle Mountsier  12:41  

Yes, exactly. However, it looks like the subprime credit cards and personal loans over 60 days late are rising faster than normal, according to this new credit report from Equifax. And so they've the delinquency on subprime car loans and leases have hit an all time high in February, which is an all time back to 2007, since they've been tracking it. But I think that that's a very interesting case to see, like that part of the market, swinging quicker than the prime side of the market, right, which is where things like inflation, rising prices, rising prices of consumer goods, as well as high price goods, start to impact that, that capacity for purchasing a lot quicker,

Paul Daly  13:27  

right. Yeah, I mean, we're still in an overall the report show, it was almost like dueling reports, we have them both linked up. But one is saying like, Hey, we're actually doing really good, everyone's making their payments, the indicators are high. However, when you break that down into subsets, you realize that the subprime community is actually suffering fastest from inflation, which makes sense, right, less disposable income, right, less available credit. So the gas prices of the vehicle prices, right, everything that's going up is all of a sudden starting to pension during the pandemic. That never happened, because there were so much stimulus money being pumped into people's pockets, and pumped into people's savings accounts. And this is an indicator that inflation is hitting them, and now those are starting to run out. So, you know, the average balance of new auto loans is actually up 15% Over a year ago. So um, you know, we know that that's trending, like the average monthly auto payments up 13% from last year. So again, we're seeing more of this affordability squeeze. And I guess it makes sense that the subprime market would show the first indicators of it. So for those of you listening, who have a subprime business, right, you're probably going to be saying like, yeah, I felt like this was the case. And now you're going to start seeing it's the case, this is likely going to spill over into the entire market. And again, part part of the the market correction, this is part of what has to happen in order for inflation to slow down. So just keep your heads up. Right. Again, affordability, we've talked about it several times over the last few weeks, it is going to be a primary issue. So I think the brands and the companies and the dealerships that start moving to that now We'll be ready to fire and ready to serve that community just even a little bit better. Yeah,

Kyle Mountsier  15:05  

exactly. All right, we got one more, and you gotta get

Paul Daly  15:07  

on a fun one.

Kyle Mountsier  15:08  

This is a really fun one. And so adidas has built a new headquarters. And it was designed by a San Francisco based studio Oh, plus a with lever architecture. And the interesting thing, yeah, first of all, I don't know how to say a name, right?

Paul Daly  15:26  

Maybe it's OMA and they just the pluses.

Kyle Mountsier  15:29  

Right. But it's really interesting how they've built in flexible textures and lines. And they are alluding to the overall brand in the spatial recognition. But the core strategy was about how do we create spaces where collaboration is encouraged. And I think that we've been talking about this in the automotive industry a lot. And we've got a couple other pictures up here. But you can see it like these.

Paul Daly  15:55  

So well, you can't see Susan. Yeah, let's explain it for a second. Go back to that last picture, Isaac. So what we're seeing is large displays on fairly empty walls and basic construction. So you have a lot of concrete, textured walls, graphics, and like wood beams, there are bleachers with someone like doing a little presentation or group meaning you can keep pivoting through it through the mosaic. You know, it's like high school. Well, I don't know what high school you went to, that doesn't feel anything like my high school. And it's there's

Kyle Mountsier  16:25  

a lot of like, literally, if you if you walked through the halls of my high school, this is like how the high school looks and feels it's very

Paul Daly  16:33  

bougie High School. Yes. So there's a lot of wood beams, but they focused on textures, graphics heavy. And the reason we included this story is because the return to work conversation in auto, we're kind of outside of it a little bit, because we never really shut down, right, we never shut down, we just kept going to work. But for the rest of the world, we're saying is returned to work going to happen, right? A lot of our consumers are dealing with this and a focus on collaboration and spaces to bring people back. And to give people like a different way, a more flexible way of thinking and operating. And from a brand standpoint, making the space feel like your culture is so you know, obviously, it's a sneaker culture, there are no logos anywhere, so you don't see like the Adidas three lines everywhere. But what you do see is sneaker textures, fabric and textiles. And so, you know, we thought it was just, you know,

Kyle Mountsier  17:23  

fittings like you would, you know, the the reason why there's bleachers is because they're a sports brand, right? So they're, they're, they're, they're enabling that, like perception of our brand is, is where we're living every single day.

Paul Daly  17:36  

Yeah, and I think that dealers across the country, this is an underutilized tactic and strategy to push your values deeper into your organization. I know that OEMs have regulations, and we have image programs, and there are things but there's flexibility within that. There's flexibility within spaces you create, where if you're intentional about it, you actually have a space a physical space working to build your culture, which actually works to serve your customers better, which actually works to just improve your business all the time. And so we'd like to take those things from say what the most progressive people are doing not to say you have to go and build like a soccer field, but that would be awesome. That would be awesome. We wouldn't we wouldn't disagree with that. Actually, that's probably something you could do. Get a little land little community soccer field we we have Kyle approves

Kyle Mountsier  18:24  

of that. You may or may not find me there, right?

Paul Daly  18:27  

Hold hold some exhibition games, like we're just bizdev and No, no, but really, but the space that you're in is a very underutilized piece. Not not like a this is about like Toyota or Honda. But this is about what you're about from a culture standpoint, and design spaces that do that for people. So there you go. Those are the three very most important things.

Kyle Mountsier  18:48  

That's all we've got time for today. Walk around your space today. Walk around with your people think about how you might actually use that as an impetus for better culture improvement.

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