In this podcast, Motley Fool host Ricky Mulvey and analyst Bill Barker discuss:
- General Motors' quarter and a look at its dispute with United Auto Workers.
- A slowdown in electric vehicle production.
- Coca Cola's business and stock performance.
- Why a record number of CEOs have left their seats this year.
Plus, Motley Fool retirement expert Robert Brokamp and host Alison Southwick discuss the pillars of retirement planning.
To catch full episodes of all The Motley Fool's free podcasts, check out our podcast center. To get started investing, check out our quick-start guide to investing in stocks. A full transcript follows the video.
This video was recorded on Oct. 24, 2023
Ricky Mulvey: Strike? Wait, what strike? Oh, that one. You're listening, to Motley Fool Money. I'm Ricky Mulvey, joined today by Bill Barker. Bill, good to see you.
Bill Barker: Good to be here.
Ricky Mulvey: So one of the more exciting companies at least right now, reported earnings this morning, General Motors beat top and bottom lines but pulled guidance because of the ongoing United Auto Workers strike. Often when management pulls guidance or lowers it a little bit, investors react negatively and there's a big sell-off. Didn't seem to happen in this case, what do you think is going on?
Bill Barker: Well, I think that pulling guidance is usually a sign that things have gone wrong or going wrong and the particular reason that no guidance can be given is already known. The strike really has no definite endpoint, and there's no bargaining power that you can improve by saying, well, we think this is going to clear up at some certain point, so just take a step back. Say we can't tell you what the next quarter is going to be like. You already knew that in the market is going to react to the actual news, which in this case is what happened in the past quarter rather than what's happening in the near future.
Ricky Mulvey: Yeah, there seems to be multiple games being played in this case where GM is not just reporting to shareholders, but also there's the political game of what do you do about this strike. There's a little bit of a disagreement between CEO Mary Barra and the United Auto Workers on it. Barra said, "The current offer is the most significant that GM has ever proposed to the UAW. And the majority of our workforce will make more than $40 an hour, or roughly $84,000 a year by the end of this agreement's term continuing, they've demanded a record contract and that's exactly what we've offered for weeks now. A historic contract with record wage increases, record job security, and world-class healthcare. A very different picture from the UAW saying, "despite having made more than $10 billion in profits in the past nine months, breaking revenue records for another consecutive quarter and beating Wall Street expectations, GM's latest offer fails to reward UAW members for the profits they've generated. GM's offer lags behind Ford, with the company proposing a two-tier wage progression the weakest 401K contribution offer on the table a deficient Cola, and other shortcomings. UAW also, responding to the earnings announcement by announcing a strike at the Arlington Assembly plant, which makes those very profitable, full-size SUVs." Bill Barker. That is enough setup. What say you to this argument as an investor?
Bill Barker: Well, they're both right. You can pick your numbers to make your story look good and it's a record offer. I'm sure that doesn't say that it's a record of inflation adjusted or that GM is making record profits on an inflation-adjusted basis. These are just headline figures that you can use to support the points you want to make. They're not terribly close, it seems like in the negotiations, and I think the workers can probably afford in the current climate, to hold out for a bit. I imagine it's a little bit easier if you're on strike to find some secondary money that you can make somewhere. But I think that this doesn't seem to be all that much closer to being resolved yet and I don't know what is going to change that.
Ricky Mulvey: Yeah, I do have a feeling we talked about this a little bit and I've discussed this with co-host Edri Woollard. I would be very surprised to see this go past Christmas. I think I talked to a game theory strategist a few weeks ago on the show named Mark Robinson. Basically, that would be politically unsavoury for the union because people get time off over Christmas. Not having a salary to buy Christmas gifts might not be the best and you also have a union leader who just won an election on razor-thin margins. We'll see how it plays out, but you know what? I'm willing to put that guess on the record. The other part of this earnings announcement is that Barra announced that GM is, "moderating the acceleration of electric vehicle production in North America doing this to protect our pricing" saying this is because of slower demand. They're also looking to implement engineering efficiencies to make those vehicles less expensive and more profitable. It seems like the big elephant in the room that GM is responding to as well is Tesla. You think this is also maybe in response to some of those Tesla price cuts?
Bill Barker: Well, we'll see if it translates into they're talking about trying to protect their pricing. Therefore trying not to make too many vehicles that don't get sold very quickly and then have to make price cuts. The vehicle by which you clear the inventory, there's not as much demand as they were hoping for. They pointed to slower demand. That doesn't give you a lot of pricing power and Tesla's price cuts also don't give you a lot of pricing power, and they are not playing the game of just building vehicles to look good in the eyes of whoever thinks that making more electric vehicles is the best thing. They've got the headlines for the amount of the business that they are going to focus on EV, and they're taking a step back that's not going to make as big a headline when you take a little step back from that.
Ricky Mulvey: Worth talking about also a different mission in terms of GM assuming that they're trying to make a profit by selling cars. Tesla maybe with a little bit more of a stated existential mission of moving everyone to an electric vehicle future. I think there's some different incentives at play as well.
Bill Barker: Yeah, well, I think that right now GM can only afford so many different ways that it's losing money with the strike as well. Now is not the time to invest heavily into something that is not making a profit right now. There's plenty of time to do that in the future. The demand, presumably if they are able to get more efficient, which they're talking about implementing these engineering efficiencies that will allow them to be more competitive and either lower the prices and maintain margin or just make more vehicles and make it up on volume. They don't have it yet. They haven't landed on the super popular item yet, and they've got time to figure that out.
Ricky Mulvey: In the meantime, the CFO estimates the strike has cost GM $200 million in revenue a week moving forward. While we move forward, let's take a look at Coca-Cola also reported this morning a few highlights. Organic sales up 11% from the prior year, mostly from higher prices, but volume also grew. They raised full-year guidance for the top and bottom line. CEO James Quincey says he expects price increases to moderate in the coming year. Anything stand out to you about this quarter from Coca-Cola?
Bill Barker: Nothing really jumps out as exciting. It was a good quarter, solid quarter, better than the market expected. Part of that, I guess if you're looking for something good that's applicable beyond Coke would be that the transportation prices are better. That helped their margins a little bit. The profits improved fairly nicely. Organic sales up 11% of course, that includes a lot of inflation over the last 12 months. It's moderated in the last few months, but if you take the last 12, I don't know what that is worth 8% of that total top-line organic sales number of 11%. Better than expected case volumes, everything a little bit better than expected that adds up to a nice quarter.
Ricky Mulvey: The one that the CEO was not eager to talk about in prepared remarks, but an analyst sure wanted to hear about it, is the future impact of those GLP1, the weight loss drugs, it's probably one key reason the stock is down about 11% on the year while the business continues to perform. I thought you know what, if this is an overreaction and could this be a good time to pick up a defensive stock?
Bill Barker: Well, it's on a multiples basis. Coke is probably other than around the panic in 2020 at the beginning of March, about as good a price on enterprise value to bit, or sales price to earnings as it's been since about 2016, early 2017.
Bill Barker: So the market is not pricing in as much optimism, still low 2023 multiple on earnings. Yeah, I would say it's a more attractive opportunity today, made possible by some of that Ozempic and other drugs of the same category. Fears, I wouldn't put that much stock myself in the American public, curtailing eating over the long term. But we'll see.
Ricky Mulvey: Well as CEO James Quincey, pointed out on NBC, this company is in the liquids business, so even if people are eating less, they still need to drink things. Also, about two thirds of Coca-Cola products have low or no calories, so if you're on Ozempic, maybe you don't want regular Coke, but you know diet Coke is still there for you.
Bill Barker: Well, I guess the mechanism of the drug curbs cravings for food, but not necessarily cravings for sugary things, because of the way that it interacts with blood sugar. How that adds up to the entire suite of Coke's offerings, I don't know, but it's not impacting things yet. I understand some caution by the market on what might happen. The main sales, as you've said, are in low-calorie or no-calorie drinks anyway. I think that Coke is better insulated than its rival Pepsi.
Ricky Mulvey: Moving on to the final topic, stepping away from earnings. It seems like more CEOs are leaving, we've covered a few of them on the show. It's because they are,1,400 chief executives have left their positions this year, according to a report by executive coaching firm Challenger Gray and Christmas Incorporated. That's a pair of three names. Anyway, that's up by 50 percent from the same period last year. Some of the reasons include pandemic burnout, and also a greater stability. CEOs tend to leave when there's greater stability. They don't want to leave while things are mixed up. But any other factors coming to your mind about this wave of CEO departures we're seeing this year?
Bill Barker: I think it is a lot of built up. The numbers were lower, 2020, 2021, 2022. While people struggled with how to get through the pandemic. You had just a certain things were bought back then in volume and can no longer be bought in volume. The dearth of CEO departures because of the pandemic, and people feeling an obligation to stick around and see the companies they were at through a crisis built up a little backlog. I think that's what the number is mostly pointing to. I don't know. I think that in general CEO positions are about as good a thing to have today as they've been in the past. So I think that there isn't going to be an explosion of departures from those jobs. One of the largest categories was for government jobs. I think that's an indication of something other than just business being all that tough.
Ricky Mulvey: As always, appreciate your time and your insight, Bill Barker.
Bill Barker: Thanks for having me.
Ricky Mulvey: The analysts you here on the show have a whole other day job, providing premium coverage and recommendations for the Motley Fools suite of stock investing services. We're giving our listeners a discount on Motley Fool's flagship service. It's called stock advisor. If you're interested in more analysis from our team, two stock recommendations per month, and access to stock advisor's full scorecard of companies, visit Fool.com/MFM discount. We will also put a link in the show notes. Up next, it's always good to talk about the daily news, but some fundamentals don't change. Alison Southwick, and Robert Brokamp, discuss the pillars of retirement planning.
Alison Southwick: Retirement, it's the number 1 financial goal for most Americans. Very few people want to work forever, even those who generally like their jobs. Unfortunately, no one is planning your retirement for you, at least not if you're an American. A recent Wall Street Journal article with the headline, The US gets a C plus in Retirement, discuss the latest assessment from the Mercer CFA Institute Global Pension Index. The US came in 22nd out of 47 countries. Partially because social security has solvency issues and employers are not required to provide retirement plans. Of course, you're curious who ranked number 1, and the answer is the Netherlands. Their pension system gives residents three sources of income in retirement. Public pension for everyone, depending on how long they've worked in the Netherlands. Then there's also a semi-mandatory requirement for employers to provide a pension. Finally, individuals can also opt to contribute to a private retirement account. Good news for the Dutch, but if you're in the US, you're on your own. Well except we're here to help, and by we, I mean Bro, because today he's going to discuss seven key retirement planning principles that will hopefully improve your odds of achieving financial independence. All right, Bro, first up is retirement is a goal within an unknown duration.
Robert Brokamp: When you think of some sort of a financial goal you think like, "Okay, I need a certain amount of money at a certain date," yet this goal will last from the day you retire to the day you expire. Those are two dates that are difficult to predict. We've discussed on the show before the fact that actually most people retire sooner than they expected. Unless we have some sort of terminal illness, you don't know when you're going to pass on to that great tax shelter in the sky. What should you do? Well, first of all, I think it makes sense to assume that you'll retire two to three years sooner than you think you will. Then on the other end, assume a life expectancy that builds in a reasonable margin of safety. I think most financial planning experts these days start with age 95. But you can use a tool such as the Longevity Illustrator, from the Society of Actuaries, found at Longevity Illustrator.org, to choose a more customized life expectancy for you.
Alison Southwick: The second retirement planning principle is that retirement is not one goal but a series of goals.
Robert Brokamp: I think retirement is often framed as a goal with a single deadline, a single price tag. Sometimes that price tag is called something like your magic number. A recent survey from Schwab, found that workers on average think they need to save 1.8 million dollars for retirement. Which is interesting because that's more than the vast majority of people have saved. But I think it's actually better to think of retirement as a series of goals. Essentially the amount you need in your first year of retirement and the amount you need in your second year retirement, and then your third year, and so on. Because your budget is going to change throughout retirement. If you use an online calculator, or even if you've seen a financial planner, they will likely assume that your retirement expenses increase annually along with inflation. But many studies have found that actually this isn't true for most retirees. As we age we just spend less, we do less, we buy less, things like that. So a good starting point is to assume that your expenses will rise, but at a rate that is 1 percent below the overall rate inflation. It sounds like a small tweak, but compounded over many years you'll find that this significantly changes how much you need to save for retirement.
Alison Southwick: Our next retirement planning principle is that your taxes will change from one year to the next.
Robert Brokamp: When you're working, your tax bill is mostly determined by your paycheck. Unless you're self employed, taxes are withheld from your paycheck and sent to Uncle Sam for you based on how you completed the W4 form. But retirement is a whole different ball game, so you're going to likely have multiple sources of income. Things like social security, pensions, annuities, dividends, capital gains, interest and distributions from traditional and Roth retirement accounts. Each is taxed differently, and taxes are not automatically withheld from most of these sources. When they are withheld, usually the default rate is the same for all Americans. Then when you reach your 70s, you're required to take out money from your traditional retirement accounts. The takeaway here is as you enter retirement, it's crucial to understand how your tax situation is going to change and ensure that you're paying enough throughout the year in order to avoid owing penalties to Uncle Sam, and then you have to reevaluate every year adjusting for changes in where your income is coming from.
Alison Southwick: All right. Next retirement planning principle is to be flexible with how much you spend.
Robert Brokamp: If you were to ask someone how much of their portfolio they can withdraw and their first year of retirement, they'll probably say 4%, and this so called 4% rule has been around since 1994. It was created by a fellow by the name of Bill Bengen. The interesting thing about this was, in all his research, Bill has never said it was 4% The very first study he did, he said it was actually 4.15%, increased it to 4.5% in 2006. Now he says it's 4.7% although he told The Wall Street Journal last year that maybe you should bring it down a little bit to 4.4%. Why the changes? Well, throughout his studies, he's basically expanded the number of assets in his study, so he's essentially finding that a better diversified portfolio leads to a higher withdrawal rate. Also, you need to factor in things like where inflation is at the time and stock valuations. The way it works, I don't think it is really understood by most people; and that is, you take that withdrawal rate, which now he says is 4.7% from your portfolio in your first year of retirement, and then you throw it away and you just adjust that dollar amount every year for inflation. But that's not how most people live their life. Your expenses are going to go up and down and they probably should, especially when something happens like last year, when the stock market is down. What you should do is actually take out less from your portfolio. Maybe cut back by 5%-10% if you could afford to do so. That way, you're not selling investments when they're down, you're leaving more shares to benefit when your portfolio eventually recovers, and it'll be one of the best things you can do for the longevity of your life savings.
Alison Southwick: Next retirement principle; assume you'll need long term care.
Robert Brokamp: Yeah, this is not a very happy thought, but unfortunately, we're all going to experience some level of decline, both physically and cognitively. According to long term care.gov, approximately 60% of us will need some assistance in our twilight years that could range from just help with cooking and driving to full time nursing home care, and that's going to range anywhere from $25,000 a year all the way up to well over $100,000 a year. This could include the possibility of getting help managing our finances as we get older because we're not going to be as sharp. Americans manage these risks in different ways, including you just rely on your family, you buy long term care insurance, or you just maintain a big emergency fund which could include home equity. But ignoring the risks is not an option. Every retirement plan should have a plan for how you're going to pay for long term care. Have an updated estate plan and instructions for your spouse and maybe your kids to read if you die or become incapacitated, especially if you're the primary money manager for the household.
Alison Southwick: Our next retirement principle is working a bit longer, can be powerful.
Robert Brokamp: Yeah, if you are behind in your retirement savings, of all the steps you can take to strengthen your retirement, working longer is probably the most effective. I'm going to give an illustration here from a recent report from T. Rowe Price. Let's say you're 62 years old with an annual income of $100,000 and a portfolio worth $900,000 and projected retirement expenses of $63,000 a year. According to the firm's analysis, here are the chances that you won't run out of money based on three retirement ages. If you retire at Age 62, the chance that you won't run out of money is 68%. In other words, you basically have a one and three chance of running out of money. But if you move that up to Age 65 when you retire, your chances of success move up to 91%, or if you retire at Age 67, the chances of success are 97% so almost 100%. That's just from working a few years longer. The impact for you, dear listener, will vary depending on your unique circumstances, but even part time employment in your 60s can significantly increase the odds that your money will last as long as you do. In our October 10th episode, we talked about how many retirees are going back to work. About half of them are doing so for financial reasons and most of them are doing so only on a part time basis and it's going to be a huge help to them.
Alison Southwick: Our final retirement planning principle is to find a purpose, or at least some friends.
Robert Brokamp: Half of the retirees who are unretiring are doing so for non-financial reasons. In our episode from a couple of weeks back, we cited a survey from paychecks which found that the reasons provided by this other half included things like: getting bored, feeling lonely, retirement is not what I expected, or I need more social interaction. You may have heard about the Harvard Happiness Study, which has been tracking various measures of well being since 1938, and as people got older, the surveys began including questions about retirement. Based on these responses, the Number 1 challenge for retirees is replacing the social connections they had when they were working. Then last year, CNBC published an article by George Jurgen. He was forced to retire at Age 52 due to health issues that were supposed to give him just six months to live. Fortunately, he survived and he eventually went back to work. In the article he wrote, "After my near death experience, I had been in retirement for 10 years. I found myself bored, restless, and stuck. My enthusiasm and energy diminished. My mental health suffered". At Age 62, he decided to try something new. He actually conducted a survey of more than 15,000 retirees over the age of 60, and he asked them one question; what is your single biggest challenge in retirement? Some of the responses he received included things like, I missed doing the work that I love. I don't think retiring is for me. I want to go back to teaching. I'm not sure what to do with my time. I feel lost. Jurgen concluded that "The biggest retirement challenge that no one talks about, in my experience, is finding purpose." He wrote about this in a book entitled, Dare to Discover Your Purpose, Retire, Refire, Rewire. I'm sure that there are many people listening to this, who are rolling their eyes. Basically, they can't wait to retire and they're not worried about having enough to. Indeed, the evidence is clear that most retirees are pretty happy. But if anything I said about the Harvard Happiness Study or George Jurgen's survey, feels like it could ring true for you, then a part of your retirement planning should be looking for something meaningful to do, and people to do it with.
Alison Southwick: There you have it. Seven retirement planning principles that will hopefully improve your odds of achieving financial independence and an awesome retirement. Before we go though, speaking of an awesome retirement, I'm taking you all on a long overdue trip to the Corrections Corner. As a retirement expert pro and someone who listens and nods me, we've kept a keen eye on the villages. The massive retirement community in Florida known for happy hours that started at 11:00 AM, golf carts galore, and shockingly high rates of STDs. We laughed. Oh, how we laughed when we learned [laughs] that the villages had a system for if a person wanted to advertise their swinger status level and what they're down for, or I guess up for. Anyway, the system was attached to different colored loofahs that you stick on your car window or antenna. Blue meant you're into this yellow meant you're up for that, et cetera. For our long time answers podcast friends, I have somewhat disappointing update for you.
Robert Brokamp: Oh, no, are you going to tell me this was not true?
Alison Southwick: It's the truth behind the shower scrubbies. [laughs] Just this last week, I thought I would check in on our friends over at the villages for some news. None other than the Daily Mail, yes, seriously, The Daily Mail, reported that, in fact, the shower scrubbies attached to car windows or antennas are there too. Bro, do you want to guess?
Robert Brokamp: I don't know, and I've been to the villages many times. Not for what you're thinking about though.
Alison Southwick: They are used to help the owner find their car in the parking lot.
Robert Brokamp: Oh, is it their car or their golf cart?
Alison Southwick: It's like putting a fancy tag on your luggage so you don't get it mixed up with someone else's bag, because golf carts tend to look alike, cars tend to look alike, et cetera. That's what The Daily Mail is saying, that people are reporting on the purpose for the scrubbies, which adds arguably an even more hilarious angle to the story that someone's sweet grandmother, who gets turned around in the piggly, wiggly, perky glot, came up with a clever solution, but instead is being perceived as this wild swinger. Anyway, whoever decided to perpetuate this myth is a hero and clearly deserves a golf cart parade.
Ricky Mulvey: As always, people on the program may own stocks mentioned and the Motley Fool may have formal recommendations for or against, so don't by or sell anything based solely on what you hear. I'm Ricky Mulvey, thanks for listening. We'll be back tomorrow.
