Business

Automakers head north to test new cars. This year is proving more difficult

Volvo

When Swedish automaker Volvo opened its proving ground in Kiruna, Sweden, 30 years ago, the mission was clear: “Making sure that our products are truly fit for the harshest of winter conditions.”

The remote location was ideal. Kiruna, situated about 90 miles north of the Arctic Circle, historically has long, cold winters and snow cover until mid-May. This year, Volvo engineers have been forced to postpone their annual testing or rely on subarctic cold boxes to replicate the region’s harsh conditions.

“Normally we’re used to a long season of winter testing,” John Lundegren, an engineering manager at Volvo, told ABC News. “The season is getting more unpredictable. You can have warm weather in the middle of the winter. What happens is the snow melts and you have icy conditions. We’ve seen the weather start to change in the last five years.”

The unpredictable weather can delay a vehicle’s rollout and production schedule and interfere with critical testing of new vehicles: braking, battery heating, thermal management, performance and drivability and even cabin heating and defrosting.

“We have people coming to do brake testing, but we don’t have any snow on the tracks,” Lundegren explained. “So we have to wait for snowy conditions, and I don’t think we have that in the pipeline for 10 days. It impacts how efficient we can be.”

He went on, “We’re trying to develop cars faster and faster, so having this short period of time where we can do the very important winter testing affects our whole development process.”

Sven Albiecht, a chassis and drivetrain development engineer at Volkswagen, said the above-normal temperatures in Sweden and northern Scandinavia have been “difficult” for the German automaker.

“We need freezing conditions,” he told ABC News. “We’re testing later and ending earlier. … The work is a little more compressed.”

Like Volvo, Volkswagen parks vehicles overnight in fridgelike chambers to study how the cold affects a vehicle’s responsiveness. The chambers are often more reliable than Mother Nature.

“We have to make sure the doors open at minus 40 degrees,” Albiecht said.

Ice and slippery surfaces are also essential for tuning a vehicle’s anti-lock braking system and electronic stability program, he added.

The volatile weather has not yet convinced Volkswagen to find new testing sites. But Albiecht said he’s well aware that “something is happening. That is a fact.”

According to Erik Kjellström, a professor in climatology at the Swedish Meteorological and Hydrological Institute (SMHI), the snow cover in large parts of Sweden is much less this year when compared to previous years.

“There is usually much more snow right now. It’s been rainy and slushy in northern parts of the country and the coast,” he told ABC News. “The winter season keeps getting shorter and starting later. People are disturbed.”

He pointed out that the average temperature in Sweden has “gone up quite a lot” in the last few decades. SMHI predicts the average annual temperature in the country will be 2 to 6 degrees Celsius higher by the end of the century, “depending on how much greenhouse gas emissions continue.”

What’s more, northern Sweden will likely see the greatest change in temperature and “winters that are both significantly warmer and colder than the average climate,” according to SMHI. And in southern Sweden, the number of days with snow cover has decreased. “Many winter industries are dependent on snow and are kept back if the snow cover is too thin and sporadic,” according to SMHI.

“We are living through these changes, and it’s quite frightening,” Kjellström said. “There’s been a strong impact on wildlife and nature.”

Polestar, the Swedish electric performance car brand, runs tests on its vehicles in Jokkmokk, a small town located in the Arctic Circle. The erratic weather there is raising alarms for the company’s engineers.

“The winter testing in Jokkmokk allows our engineers to fine-tune the steering, balance the chassis and push the brake predictability to the max in the most extreme conditions,” a spokesperson told ABC News. “But cold weather isn’t something we can take for granted anymore, not even in Swedish Lapland. Climate change is real, and our mission is to accelerate the shift to sustainable mobility.”

Companies that perform annual winter vehicle tests in the United States are seeing similar climate-related dilemmas. Jake Fisher, who oversees Consumer Reports’ auto testing program, said he and his team have traveled from Colchester, Connecticut, to the Canadian border to get their work done.

“It costs quite a bit of money to travel north to get these snow conditions,” Fisher told ABC News. “The warmer temperatures are affecting our testing, too. The development [of vehicles] will get more expensive. Automakers will have to follow the weather and go farther north.”

The lack of snow and mild weather cannot impede these necessary tests, he argued.

“Automakers are making sure all of the vehicle’s components operate at extremely cold temperatures,” Fisher said. “The heating system, the powertrain cooling, making sure windows defrost and stay defrosted — engineers do a lot of work. If automakers can’t get this weather, they can’t validate the car.”

Bridgestone, the tire and rubber company, sends its engineers around the globe to test how the company’s tires perform in varying terrains and harsh environments. Tire testing can take weeks or even months in locales such as Colorado, Michigan, Finland and Sweden, with drivers observing understeer, oversteer and tire recovery. Last year, a series of tests scheduled to take place in Michigan had to be canceled because of unexpectedly warm weather.

“The conditions were fantastic until the week before we were slated to go,” Matthew Thomas, manager of consumer marketing intelligence at Bridgestone, told ABC News. “Then the temperature rose and there was a lot of rain — it degraded the testing surfaces in a way we didn’t feel confident in the testing. We scraped the testing.”

He added, “The weather is very unpredictable week over week.”

An abnormal winter season does not mean motorists can forgo winter tires, he said.

“There will always be a need for winter-capable tires,” he said. “When one region has a mild winter, another region may have a very severe winter. Snow and ice continue to be a major cause of collision for drivers.”

Subzero temperatures are even more consequential for battery electric vehicle (BEV) testing. Volvo’s Lundegren said he and his fellow engineers are still understanding how to make these batteries more efficient in bone-chilling temperatures.

“In the past, we had an issue with just starting the vehicle,” he said. “That’s why we have so many cold boxes this year. BEVs are still new for us in certain aspects. How do you optimize the battery for heat, for the propulsion? Finding the sweet spot on how to use as little energy as possible is really important when it comes to BEV tuning.”

Fisher pointed out that cold weather is an electric vehicle’s worst enemy.

“EVs do have range issues in the cold — there’s no question,” he said. “The efficiency of EVs plummet in cold temperatures. The range can be cut by up to half. It takes so much electricity to warm the vehicle.”

Albiecht, however, argued that gasoline and diesel engines may not always work perfectly in winter either.

“Diesel has to burn, and burning in very low temps is more difficult — it’s like starting a fire in the cold,” he said. “There are a lot of mechanical parts in an internal combustion engine. Electric cars have no oil, no fluids and fewer parts. They are more simple. An electric motor never has problems starting.”

Benny Leuchter, a Volkswagen factory race and test driver, has traveled the world to test-drive vehicles. The weeks and months analyzing vehicles in extreme temperatures is “tough on the engineers,” he conceded. What’s learned in the Arctic, though, has real-world consequences for consumers.

“We’re developing our all-wheel drive and electric systems. … Driving dynamics should work on dry, wet and snowy roads,” he told ABC News. “It’s worth it to develop and test these cars under these very hard conditions so the cars work every time.”

Copyright © 2025, ABC Audio. All rights reserved.

Business

Economists say Trump tariff threats, DOGE job cuts are ‘chilling’ the economy

Andrew Harnik/Getty Images

(WASHINGTON) — Economists say the uncertainty from President Donald Trump’s tariff threats and mass layoffs of government workers are starting to have a “chilling” effect on the U.S. economy.

“It’s a very difficult business environment, because they can’t plan for what their cost structure is going to be,” said Rachel Ziemba, an adjunct senior fellow at the Center for a New American Security. “It’s adding to investment uncertainty, and some people are holding back on investments.”

Trump has so far imposed 10% tariffs on Chinese imports and says he’ll impose additional 10%, plus 25% tariffs on Canada and Mexico on March 4. Trump also says he will impose “reciprocal tariffs” that match the duties other countries levy on the U.S. That comes on top of tariff plans on cars, semiconductors, steel and aluminum. Even if Trump doesn’t ultimately move forward with all his tariff threats, the mere uncertainty has a chilling effect.

“If one of the inputs of your factory goes up by 25%, you might cut your production and say maybe we’ll have to fire some people,” Ziemba added.

Meanwhile, the Department of Government Efficiency’s slashing of the federal workforce across the country “also impacts consumption, because people are losing their jobs or are afraid of losing their jobs, so that might cause them to save more money,“ Ziemba said.

This week, The Conference Board’s consumer sentiment survey found that it registered the largest monthly decline since August 2021.

“Views of current labor market conditions weakened. Consumers became pessimistic about future business conditions and less optimistic about future income. Pessimism about future employment prospects worsened and reached a 10-month high,” said Stephanie Guichard, senior economist for global indicators at The Conference Board.

“Average 12-month inflation expectations surged from 5.2% to 6% in February. This increase likely reflected a mix of factors, including sticky inflation but also the recent jump in prices of key household staples like eggs and the expected impact of tariffs,” Guichard said.

The Canada and Mexico tariffs would have a sweeping effect, since those are America’s two biggest trading partners. It could raise prices at the grocery store and the gas pump. Ziemba also noted that the cost of cars could increase by several thousand dollars.

“Every time a car part crosses the border, 25% tariffs could be very onerous,” Ziemba said. “We could see the cost of building a house go up quite substantially.”

Copyright © 2025, ABC Audio. All rights reserved.

Business

Consumer confidence falters, signaling worry about economy under Trump

Bonnie Cash/UPI/Bloomberg via Getty Images

(NEW YORK) — Consumer confidence plummeted in February, indicating worry about the direction of the U.S. economy under President Donald Trump.

A gauge of consumer confidence registered its largest monthly drop since August 2021, the nonpartisan Conference Board said on Tuesday.

Meanwhile, the share of consumers who expect a recession within the next year surged to a nine-month high, the data showed. A growing portion of consumers believe the job market will worsen, the stock market will fall and interest rates will rise, the report added.

Trump has issued a flurry of economy-related directives since he took office last month, including tariff proposals, spending cuts and an assault on diversity, equity and inclusion initiatives.

Earlier this month, Trump announced 25% tariffs on goods from Mexico and Canada as well as 10% tariffs on products from China.

Trump paused the tariffs on Mexico and Canada for one month after striking a deal with each of the two countries on drug trafficking and border security. On Monday, Trump said he plans to go forward with the tariffs when that pause lifts next week.

Seven of every 10 American adults believe tariffs will raise prices, an Ipsos survey found last week.

Concern about rising prices coincides with a bout of resurgent inflation that stretches back to the final months of the Biden administration. Consumer prices rose 3% in January compared to a year ago, registering a percentage point higher than the Federal Reserve’s target of 2%.

Egg prices, a closely watched symbol of rising costs, soared 53% in January compared to a year ago. An avian flu has decimated the egg supply, lifting prices higher.

“Consumers who fear the impact of higher tariffs, spending cuts, and deportations are getting worried and are likely to be more cautious,” Bill Adams, chief economist at Comerica Bank in Dallas, told ABC News.

Meanwhile, U.S. hiring slowed at the outset of the year. The nation added 143,000 jobs in January, far fewer than the 265,000 jobs gained a month prior, government data showed.

Still, some measures of consumer sentiment improved this month. Consumers’ assessment of current business conditions moved higher, while an uptick in purchasing plans for a home extended a monthslong recovery.

The fresh data follows a report last month from the University of Michigan showing that its gauge of consumer sentiment had declined for the first time in six months.

The results showed a sharp disparity between Democrats and Republicans, however. Attitudes among Democrats worsened while sentiment among Republicans improved.

Copyright © 2025, ABC Audio. All rights reserved.

Business

Americans’ credit card debt reaches new record high: New York Federal Reserve

Adam Gault/Getty Images

(NEW YORK) — Americans’ household debt — including credit cards, mortgages, auto loans and student loans — is at a new all-time high $18.04 trillion, according to a report released Thursday by the Federal Reserve Bank of New York.

Overall debt grew by $93 billion in the last three months of 2024 — and about half of that increase was new credit card debt.

Americans’ total credit card balances now stand at a record-high $1.21 trillion.

On a call with reporters Thursday, New York Federal Reserve researchers said credit card debt typically goes up at the end of the year when consumers do their holiday shopping. Researchers said they expect balances will decline at the start of this year as shoppers start to pay down that debt.

High interest rates are another factor behind elevated credit card debt levels, the researchers said. They added that income levels have been going up as debt is increasing, a positive sign for the health of the economy.

Delinquencies — reflecting missed payments on credit card bills — also ticked up in the fourth quarter.

The report highlighted higher delinquency rates for auto loans, too. Americans hold nearly $1.7 trillion in auto loan debt.

New York Federal Reserve researchers said higher new and used car prices in the wake of the pandemic are a key reason why some Americans are behind on their auto payments.

“While mortgage delinquency rates are similar to pre-pandemic levels, auto loan delinquency transition rates remain elevated,” said Wilbert van der Klaauw, economic research adviser at the New York Federal Reserve. “High auto loan delinquency rates are broad-based across credit scores and income levels.”

Copyright © 2025, ABC Audio. All rights reserved.

Business

Tesla shares have plunged while Musk takes on Washington. Is that the reason?

Christian Marquardt/Getty Images

(NEW YORK) — While Elon Musk has vaulted into a powerful role overhauling government agencies and upending Washington, the world’s richest person has suffered a $106 billion drop in wealth due to steep decline in shares of his Tesla electric car company.

Tesla’s stock price has plummeted 30% from its all-time high in December, including a 21% selloff since Inauguration Day. The losses have sent Musk’s net worth tumbling from a peak of $486 billion on Dec. 17 to its current level of about $380 billion, according to Bloomberg.

The stock woes have divided current and former Tesla shareholders. Critics of Musk fault his new role and polarizing reputation, blaming recent reports showing lackluster sales in some regions on his foray into politics. They say Musk must step away from the Trump administration for the company to thrive.
Supporters, on the other hand, say Musk’s role in the White House has little to do with the selloff, noting that Tesla shares remain higher than where they stood on Election Day. Instead, some say, the company is suffering growing pains as it weathers stiff competition in electric vehicles and pursues new ventures like self-driving taxis.

“I don’t have a problem if Elon wants to save a bunch of money for America. I say, ‘Where’s the good part in this for Tesla'” Ross Gerber, a prominent Tesla investor, told ABC News, referring to cost-cutting efforts undertaken by Musk’s Department of Government Efficiency.
Tesla representatives did not respond to ABC News’ request for comment.

Despite disagreement over the effect of Musk’s government role, both current and former Tesla shareholders who spoke to ABC News broadly acknowledged the company’s recent business hiccups.

Tesla sold fewer cars in 2024 than it did the year prior, marking the company’s first year-over-year sales decline in more than a decade, earnings released in January showed.
As rivals have challenged Tesla’s dominance over the electric vehicle market, the company has promised a future revenue stream from autonomous taxis, also known as robotaxis.

Musk announced in late January that the company would roll out its robotaxi test program in Austin, Texas, in June. But within days, China-based competitor BYD unveiled advances in self-driving technology, which the company said was set to be included in models costing as little as $9,600.
Gary Black, managing partner of The Future Fund, which manages $100 million in assets, including Tesla shares, said the recent selloff of Tesla is primarily the result of investor jitters about whether the company can dominate self-driving technology the way it did electric vehicles.

“Over time, you will see Teslas and other cars self-drive. But Tesla is not going to be the only one,” Black told ABC News’ Elizabeth Schulze.

The stock also faced downward pressure this week when a Musk-led group of investors offered to buy OpenAI for $97.4 billion, making possible a scenario in which Musk would sell some of his Tesla shares to finance the deal, Black said.
Black said that, in his opinion, the downturn has nothing to do with Musk’s government role.

“It’s always good to know the president of the United States — to be able to pick up your phone and say, you know, ‘I need this favor, that favor,'” Black said.

A jump in Tesla shares after Trump’s victory suggests many investors viewed the relationship that way. The stock price soared about 85% over a six-week period following Election Day.

But some investors lay the blame for the downturn squarely at Musk’s feet.

Nell Minow, Vice Chair of ValueEdge Advisors and a longtime critic of Musk, said Musk has been “absent” from the company.

“I think that he is a huge drag on the stock right now,” Minow told Schulze. “No question, he’s a problem.”

“Elon Musk is to the Tesla brand what the Green Giant is to corn,” Minow said. “He has made himself the brand and that is always very risky.”
Minow, who said she donated nearly all of her Tesla shares to charity last year, also criticized the Tesla board for what she said was a failure to hold Musk to account, or update shareholders and the public about a leadership plan while Musk runs DOGE.

“We don’t know what the board is thinking. They have not spoken out in any way,” Minow said. “They have not made a filing with the SEC about what the impact of this side hustle is, and the employees and the shareholders need some kind of certainty.”

New York City Comptroller Brad Lander echoed concerns about the board’s ability to rein in Musk. Lander, who oversees $1.25 billion in Tesla stock through the city’s five pension systems, said the lack of oversight was a “long-standing problem.”

“Independent governance is designed to provide a voice for shareholders at the table,” Lander, who is running for New York City mayor and has publicly sparred with Musk, said in a statement to ABC News. “When companies are controlled by a set of directors with either family or aligned interests, they lose this.”

For his part, Musk has looked to hype up Tesla’s prospects, saying on an earnings call last month that he believes there is an opportunity for it to be “the most valuable company in the world.”

During the call, AllianceBernstein Research analyst Daniel Roska questioned Musk on how Tesla plans to meet its ambitious projections given its high valuation.

Musk emphasized Tesla’s focus on real-world AI, claiming the company is making significant strides.

“We’re working on perfecting real-world AI and making rapid progress week over week, if not month over month,” Musk said. “I go where the problem is, essentially … I focus where the challenges are the greatest.”

Some Tesla shareholders remain bullish on the company despite its short-term drop. Angel investor Larry Goldberg, known as “Tesla Larry,” posted on X that he supports Musk’s political efforts, even if they impact the company’s stock price.

“If the Trump administration (and DOGE) does not fix the deficit, my Tesla shares — and everyone’s US stocks and bonds will be worthless,” Goldberg wrote.

Musk reposted Goldberg’s comment, adding, “Exactly.”

ABC News’ Will Steakin contributed to this report.

Copyright © 2025, ABC Audio. All rights reserved.

Business

Tesla shares have plunged while Musk takes on Washington. Is that the reason?

(Anton Petrus/Getty Images)

(NEW YORK) — While Elon Musk has vaulted into a powerful role overhauling government agencies and upending Washington, the world’s richest person has suffered a $106 billion drop in wealth due to steep decline in shares of his Tesla electric car company.

Tesla’s stock price has plummeted 30% from its all-time high in December, including a 21% selloff since Inauguration Day. The losses have sent Musk’s net worth tumbling from a peak of $486 billion on Dec. 17 to its current level of about $380 billion, according to Bloomberg.

The stock woes have divided current and former Tesla shareholders. Critics of Musk fault his new role and polarizing reputation, blaming recent reports showing lackluster sales in some regions on his foray into politics. They say Musk must step away from the Trump administration for the company to thrive.

Supporters, on the other hand, say Musk’s role in the White House has little to do with the selloff, noting that Tesla shares remain higher than where they stood on Election Day. Instead, some say, the company is suffering growing pains as it weathers stiff competition in electric vehicles and pursues new ventures like self-driving taxis.

“I don’t have a problem if Elon wants to save a bunch of money for America. I say, ‘Where’s the good part in this for Tesla'” Ross Gerber, a prominent Tesla investor, told ABC News, referring to cost-cutting efforts undertaken by Musk’s Department of Government Efficiency.

Tesla representatives did not respond to ABC News’ request for comment.

Despite disagreement over the effect of Musk’s government role, both current and former Tesla shareholders who spoke to ABC News broadly acknowledged the company’s recent business hiccups.

Tesla sold fewer cars in 2024 than it did the year prior, marking the company’s first year-over-year sales decline in more than a decade, earnings released in January showed.

As rivals have challenged Tesla’s dominance over the electric vehicle market, the company has promised a future revenue stream from autonomous taxis, also known as robotaxis.

Musk announced in late January that the company would roll out its robotaxi test program in Austin, Texas, in June. But within days, China-based competitor BYD unveiled advances in self-driving technology, which the company said was set to be included in models costing as little as $9,600.

Gary Black, managing partner of The Future Fund, which manages $100 million in assets, including Tesla shares, said the recent selloff of Tesla is primarily the result of investor jitters about whether the company can dominate self-driving technology the way it did electric vehicles.

“Over time, you will see Teslas and other cars self-drive. But Tesla is not going to be the only one,” Black told ABC News’ Elizabeth Schulze.

The stock also faced downward pressure this week when a Musk-led group of investors offered to buy OpenAI for $97.4 billion, making possible a scenario in which Musk would sell some of his Tesla shares to finance the deal, Black said.

Black said that, in his opinion, the downturn has nothing to do with Musk’s government role.

“It’s always good to know the president of the United States — to be able to pick up your phone and say, you know, ‘I need this favor, that favor,'” Black said.

A jump in Tesla shares after Trump’s victory suggests many investors viewed the relationship that way. The stock price soared about 85% over a six-week period following Election Day.

But some investors lay the blame for the downturn squarely at Musk’s feet.

Nell Minow, Vice Chair of ValueEdge Advisors and a longtime critic of Musk, said Musk has been “absent” from the company.

“I think that he is a huge drag on the stock right now,” Minow told Schulze. “No question, he’s a problem.”

“Elon Musk is to the Tesla brand what the Green Giant is to corn,” Minow said. “He has made himself the brand and that is always very risky.”

Minow, who said she donated nearly all of her Tesla shares to charity last year, also criticized the Tesla board for what she said was a failure to hold Musk to account, or update shareholders and the public about a leadership plan while Musk runs DOGE.

“We don’t know what the board is thinking. They have not spoken out in any way,” Minow said. “They have not made a filing with the SEC about what the impact of this side hustle is, and the employees and the shareholders need some kind of certainty.”

New York City Comptroller Brad Lander echoed concerns about the board’s ability to reign in Musk. Lander, who oversees $1.25 billion in Tesla stock through the city’s five pension systems, said the lack of oversight was a “long-standing problem.”

“Independent governance is designed to provide a voice for shareholders at the table,” Lander, who is running for New York City mayor and has publicly sparred with Musk, said in a statement to ABC News. “When companies are controlled by a set of directors with either family or aligned interests, they lose this.”

For his part, Musk has looked to hype up Tesla’s prospects, saying on an earnings call last month that he believes there is an opportunity for it to be “the most valuable company in the world.”

During the call, AllianceBernstein Research analyst Daniel Roska questioned Musk on how Tesla plans to meet its ambitious projections given its high valuation.

Musk emphasized Tesla’s focus on real-world AI, claiming the company is making significant strides.

“We’re working on perfecting real-world AI and making rapid progress week over week, if not month over month,” Musk said. “I go where the problem is, essentially … I focus where the challenges are the greatest.”

Some Tesla shareholders remain bullish on the company despite its short-term drop. Angel investor Larry Goldberg, known as “Tesla Larry,” posted on X that he supports Musk’s political efforts, even if they impact the company’s stock price.

“If the Trump administration (and DOGE) does not fix the deficit, my Tesla shares — and everyone’s US stocks and bonds will be worthless,” Goldberg wrote.

Musk reposted Goldberg’s comment, adding, “Exactly.”

ABC News’ Will Steakin contributed to this report.

Copyright © 2025, ABC Audio. All rights reserved.

Business

Inflation increased in January, posing obstacle for Trump tariff plans

Frederic J. Brown/AFP via Getty Images

(NEW YORK) — Consumer prices rose 3% in January compared to a year ago, ticking up from the previous month and posing an obstacle for Trump administration tariff policies that many economists expect to raise some prices, government data on Wednesday showed. The inflation reading came in higher than economists had predicted.

The fresh data extends a bout of resurgent inflation that stretches back to last year. Two weeks ago, the Federal Reserve opted to hold interest rates steady in part out of concern regarding the stubborn price increases.

Egg prices, a closely watched symbol of rising costs, soared 53% in January compared to a year ago. An avian flu has decimated the egg supply, lifting prices higher.

Beef prices climbed 5% and bacon prices jumped 6% in January compared to a year ago, data showed. By contrast, prices dropped over that same period for bread, rice and tomatoes.

Core inflation — a measure that strips out volatile food and energy prices — increased 3.3% over the year ending in December, ticking lower than the previous month, the data showed. That gauge also sped up from the previous month.

Inflation has slowed dramatically from a peak in June 2022, but price increases remain a percentage point higher than the Fed’s target rate.

Since Trump took office on Jan. 20, he has announced a series of tariffs, which economists say could push prices higher. Tariffs on steel and aluminum announced by Trump this week could raise prices for a set of products that includes refrigerators, beer and automobiles, experts previously told ABC News.

In a post on Truth Social on Wednesday morning, Trump appeared to fault former President Joe Biden for the uptick in inflation, writing: “BIDEN INFLATION UP!”

Biden served during more than half of the month of January, leaving office on Jan. 20. Trump, however, said during the presidential campaign earlier this year that he would bring down prices “starting on day one.”

This is a developing story. Please check back for updates.
 

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Business

Ex-employees say Tom Krause, tapped by Musk to overhaul Treasury, was a ‘hatchet man’

Chip Somodevilla/POOL/AFP via Getty Images

(NEW YORK) — An Elon Musk ally hired to overhaul the U.S. Department of Treasury has a lengthy record of undertaking hardline reforms in the private sector that demoralized staff and made them fear for their jobs, according to interviews with several former employees at his tech firm.

Tom Krause, the CEO of Silicon Valley-based Cloud Software Group, oversaw layoffs at his company in each of the last three years while instituting a return-to-office mandate, rigid performance ratings, and a request that weekly updates be sent from workers directly to Krause, the former employees told ABC News — echoing the sort of reforms that Musk’s new Department of Government Efficiency has begun undertaking within government agencies.

One former Cloud Software Group employee said she hid her pregnancy for fear it could make her a target of layoffs. An ex-manager said they dreaded filing performance reviews of subordinates, knowing some workers may fall victim to the next cycle of cuts. Another former employee said they avoided expressing unease in company emails or in the messaging app Slack out of concern that it could jeopardize their job.

“They’re taking business practices popular in boardrooms and on golf clubs, and they’re taking them into government,” Kathleen Roan, a former senior content designer at Cloud Software Group who retired in 2024, told ABC News.

Krause in recent days has vaulted into a key position at the Treasury Department, overseeing its $5 trillion payment system, which sends funds to tens of millions of Americans for programs like Medicare and Social Security, the agency’s website says.

In a press release, the agency said Krause brings decades of experience “managing balance sheets” to the agency’s effort to “maximize payment integrity.”

Neither Krause nor Cloud Software Group responded to a request for comment from ABC News.

A ‘hatchet man’

Several former employees ABC spoke with praised Krause as a savvy business leader, and one said they enjoyed their tenure at the company. But most of them requested that they not be identified due to concerns about reprisals.

“There was a whittling away of the things that made you feel like you were a valued employee and then finally ‘Oh, now we’re going to start eliminating jobs,'” Roan said of her time at the company under Krause. “They saw people as expendable.”

Cloud Software Group company was established in 2022 through the acquisition of enterprise software firm Citrix in a private equity-backed $16.5 billion deal, followed by a merger with TIBCO Software.

Krause, who had previously served as president of software at Palo Alto-based Broadcom, was named CEO of the new firm.

Within months, in January 2023, the company cut 15% of its workforce.

“The feeling was that he was there to cut expenses down and be a hatchet man, similar to what’s happening now in the government,” a former human resources employee said. “Everyone was on edge.”

Some of the cost-cutting measures at Cloud Software Group under Krause were first reported by The American Prospect.

Within months of Krause’s arrival, the company also requested that employees return to the office, multiple former employees said.

At the same time, the company closed some offices in an effort to reduce overhead costs, multiple former employees told ABC News. The closures left some workers without an office nearby, making them exempt from the return-to-office requirement, a former employee said.

On Inauguration Day, Trump signed an executive order calling on federal agency heads to mandate in-office work. Musk backed that policy in an op-ed he co-authored in the Wall Street Journal, predicting that mandatory return to work “would result in a wave of voluntary terminations that we welcome.”

‘A much higher level of business discipline’

Employees at Cloud Software Group lost some perks, too.

David Morgan, a former client support provider at Cloud Software Group, said the firm ended his quarterly bonuses, which amounted to $16,000 each year. Workers also stopped receiving “thank you” days, an extra allotment of paid time off, Morgan said.

“Everything we were told would be benefits at the time of hiring was slowly removed,” Morgan said.
An Air Force veteran with a disability, Morgan said he received one day of notice before he lost his job as part of a round of layoffs in January 2024, after having been assured that his position had been safe over the months prior.

In a post on LinkedIn that month, Krause said the company had improved but still required personnel changes.

“Our focus on adding value for our long-standing customers while driving a much higher level of business discipline and accountability is bearing fruit — with customer retention and financial results for our first fiscal year as Cloud Software Group coming in ahead of plan,” Krause said.

“But change often means difficult decisions,” he wrote. “While we have a number of areas of the business where our plans involve additional hiring to support our goals, they also mean a pragmatic look at those places where we simply need fewer or different resources.”

In a direct message to Krause over LinkedIn days later, Morgan wrote, “It’s challenging to reconcile my dedication and commitment to the company with the feeling of being let go in a way that seemed to lack empathy.” It does not appear that Krause responded, according to a screenshot of the conversation reviewed by ABC News.

Another policy shift under Krause brought the implementation of employee-performance ratings on a scale of one to three, multiple former employees said.

The ratings took a toll on one former manager, who said the company required them to label at least one subordinate as a low performer. “I had to give one person a low score, even if I thought they didn’t really deserve a low score,” they said. “It was miserable.”

Rating systems have reportedly been deployed as part of the Trump administration’s recent push to cut staff. Senior staff across the Department of Health and Human Services were told to rank thousands of employees in probationary periods, with as much as 40% to be deemed non-mission critical, the Washington Post reported.

‘It’s very alarming’

Daniel Keum, a professor of management at Columbia University Business School, said the apparent overlap between cost-cutting initiatives at Cloud Software Group and some federal agencies exemplifies the Trump administration’s use of tactics borrowed from the private sector.

“In tech, there’s a mentality that you have to break things to make them a lot better,” Keum told ABC News. “When transposed into federal agencies, that mentality becomes very dicey.”

Nearly all former employees who spoke to ABC News expressed shock or concern about the role at the Treasury taken up by Krause, though one expressed indifference and another voiced support.

“It’s very alarming,” said Roan, the former Cloud Software Group design architect.

“He should absolutely not have anything to do with the U.S. Treasury Department,” said Morgan.

In contrast, a former account executive at the company applauded the choice of Krause for the Treasury role, citing his financial acumen.

“I don’t think you can find a better person to swim in the weeds [and] sit in the edifice of the Treasury Department,” the person said.

In January, Cloud Software Group conducted another round of layoffs. That same month, Krause sent an email to all employees asking them to voluntarily send him a message at the end of each week “telling me what you accomplished,” according to a copy of the email reviewed by ABC News.

The approach draws on best practices from “two great entrepreneurs and CEOs that lead the most valuable companies in the world,” Krause wrote, naming Musk and Nvidia CEO Jensen Huang.

In a separate email in recent days, Krause told employees that he plans to continue in his role at the company during his time at the Treasury, according to a copy of the email reviewed by ABC News that was first reported by CRN.

“I am honored to serve our country,” Krause wrote. “Let me be clear — as CEO of Cloud Software Group, I am committed to our company and to you, our employees.”

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Business

Quiksilver, Billabong and Volcom stores are closing in the US in 2025

(Bundit Minramun/Getty Images)

(NEW YORK) — Quiksilver, Billabong, and Volcom, known for their surf and skate products, are closing stores in the United States.

The parent company of the brick-and-mortar stores, Liberated Brands, filed voluntary Chapter 11 bankruptcy on Sunday, which will result in over 100 retail locations across the country being shuttered, according to a filing.

The company attributes its financial difficulties to several factors, including inflation demands as well as a significant change in consumer spending habits.

ABC News has reached out to Liberated Brands for comment but has not yet received a response.

“The Liberated team has worked tirelessly over the last year to propel these iconic brands forward, but a volatile global economy, consumer spending changes amid a rising cost of living, and inflationary pressures have all taken a heavy toll,” Liberated Brands said in a statement, according to Financier Worldwide.

The statement continued, “Despite this difficult change, we are encouraged that many of our talented associates have found new opportunities with other license holders that will carry these great brands into the future.”

The brands themselves are expected to continue under new management, the company said in a statement.

The announcement of these store closings follows other huge department stores such as Macy’s, Kohl’s and more that are also closing their doors at locations throughout the U.S.

In January, Macy’s announced the closure of 66 Macy’s non-go-forward store locations. Macy’s said it intended to close almost 150 underproductive stores in total over a three-year period.

These closures are a part of the Bold New Chapter strategy, which was announced in February 2024, with the goal of returning “the company to sustainable, profitable sales growth,” the company said.

Kohl’s also announced last month that it would be shuttering 27 underperforming stores and all would occur by April.

“As we continue to build on our long-term growth strategy, it is important that we also take difficult but necessary actions to support the health and future of our business for our customers and our teams,” said Tom Kingsbury, Kohl’s chief executive officer, in a statement.

 

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Business

Trump’s tariffs could increase home prices and mortgage rates, some experts say

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(WASHINGTON) — Housing prices are soaring twice as fast as overall inflation. The average rate on a 30-year mortgage topped 7% in January for the first time since last spring. Observers as disparate as J.P. Morgan and the left-leaning nonprofit Center for American Progress have declared a “housing affordability crisis.”

The cost crunch could last longer or even worsen, however, as a result of potential tariffs on Mexico and Canada, experts told ABC News.

The Trump administration threatened to impose 25% tariffs on Mexico and Canada, but the U.S. reached an agreement with each of those countries on Monday to pause the tariffs for one month.

Such duties would likely raise expenses for imported home-building materials, hiking construction costs and increasing home prices, some experts said. Meanwhile, they added, potential price increases for a range of goods across the economy could pressure the Fed to raise interest rates, which in turn would push mortgage rates even higher.

“There are a lot of questions about how we can deal with the housing affordability crisis — these tariffs would do the exact opposite,” Gregg Colburn, a real estate professor at the University of Washington, told ABC News.

In a series of social media posts over recent days, President Donald Trump said the tariffs target Canada, Mexico and China for hosting the manufacture and transport of illicit drugs that end up in the United States. In a Truth Social post on Sunday, Trump urged the three countries to address his concerns, while acknowledging the tariffs may cause some financial hardship within the U.S.

“WILL THERE BE SOME PAIN? YES, MAYBE (AND MAYBE NOT!). BUT WE WILL MAKE AMERICA GREAT AGAIN, AND IT WILL ALL BE WORTH THE PRICE THAT MUST BE PAID,” Trump wrote.

The Trump administration did not immediately respond to ABC News’ request for comment.

Roughly 30% of softwood lumber used in the U.S. is made up of imports, which arrive primarily from Canada. Another component of home construction, wallboard, originates mostly in Mexico, according to tracking site Global Gypsum.

Experts said they expect the prices of soft lumber and wallboard to rise if tariffs on Mexico and Canada take effect, since importers typically pass along a share of the cost of those higher taxes to buyers.

In turn, the added homebuilding costs could push up home prices, putting some of the cost burden onto homebuyers, the experts said.

“It will increase home prices by a noticeable amount,” Ken Johnson, a real estate economist at the University of Mississippi, told ABC News.

Home prices surged about 24% over a nearly two-year period beginning at the outset of the pandemic in December 2019, the fastest rate on record, researchers at the National Bureau of Economic Research found.

Price hikes have slowed since then, however. Home prices rose about 4.5% in 2024, Goldman Sachs said.

“Prices have stopped rising at these incredible rates,” Johnson said, but he warned they could pick up again after tariffs. “People will feel it,” he added.

Tariffs may also impact another source of housing cost woes: high mortgage rates.

The average rate for a 30-year fixed mortgage stands at 6.95%, Freddie Mac data last week showed. That figure has ticked up over recent months, despite a series of interest rate cuts at the Federal Reserve.

Last week, Fed Chair Jerome Powell left interest rates unchanged, saying further rate cuts may slow over the course of 2025.

Duties on Mexico and Canada could further delay interest rate cuts or even trigger rate hikes, since the Fed may move to fight a potential burst of inflation, some experts said.

“If costs are going up, the Fed will do what it’s mandated to do,” Marc Norman, associate dean at the New York University School of Professional Studies and Schack Institute of Real Estate, told ABC News.

The Fed’s benchmark interest rate helps set the level of mortgage rates, which closely track the yield on a 10-year Treasury bond, or the amount paid to a bondholder annually.

If the Fed raises rates in order to control tariff-induced inflation, mortgages could very well rise, some experts said.

“The worry is the Fed might respond to potential inflation growth by either not lowering their rates or by raising their rates, which could lead to higher mortgage rates,” Johnson said.

But the tariffs may not worsen affordability challenges much, Norman said, in part because they would arrive at a moment when challenges already abound, including insufficient housing supply and high construction costs.

“We’re in a crisis already,” Norman said.

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