Cliff Sosin
speaker
323 appearances
1 recordings
1 series
first heard Apr 2025
last heard Apr 2025
Cliff Sosin’s voice in public audio — every appearance, attributed to the second.
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Appearances
And look, the reality is, is like, The sort of 10,000-foot telling of the story was they were OK getting more efficient between March and November of 2022, and they got really amazing at it after November of 2022. It took them six months to figure it out. That's fine. So I lived through those six months.
like i just described it um it felt like a very long time and for context it's by far your biggest position you know absolutely by far it's my biggest position and you know didn't help that nothing else i don't seem to be doing well at the time either you know by the time you get to the fall of 22 um demand just keeps going away. And they hadn't, by that point, caught up on costs to fix it.
So everyone at this point, not everyone, but there was a narrative out there, look, the problem is it doesn't work. The problem is they're trying to get the profitability, but they can't do it. If they keep cutting costs, they can't. They said, okay, in May, there's operational plans. Okay, so I'm gonna re-underwrite everything. And it's like, I think they can do this. This makes sense to me.
And they have a lot of liquidity to make this work. Fast forward six months, they've burned a lot of liquidity. They're way behind, right? And now at that point, you're like, well, if next year looks like this year, we're going to run out of money kind of in 13, 14 months. You'd ask, well, is that going to happen? You'd say, well. No, I don't think so. I don't think so.
I think they're going to fix it. I think the union economics work. And by the way, this crazy thing with the credit markets is going to end at some point. And I'm sure Navy Federal isn't going to give away free money forever. But then you'd say, yeah, but of course, I never thought Navy Federal would be giving away free money for nine months.
I thought it was going to be a few weeks before they noticed that interest rates had changed. I never thought that they'd have so much trouble chasing demand this far down. And so At that point, that was when it was the most challenging part of the investment. Because at that point, you did have to put on the table. Ernie would say, look, we're cutting costs and we're burning cash.
And as our costs go down, eventually we'll be profitable. But as to the pace of that versus the cash burn, reasonable people could disagree as to whether we'll get there in time, which is super reassuring. And then what happened was they got much faster at cutting costs. the banking system discovered that interest rates had gone up. And that really helped.
And sometime instead of January, February of 23, instead of chasing demand, it looked like they were restraining it. And you can see that because if you think about delivery lead times on the website as a line. you can see how long the line is to get a car. You could see that the units were steady, but the lines were longer, if that makes any sense. Then rates,
fixed themselves and the industry is seen, you know, as car prices, manufacturing improved, car prices ground lower and over time, you know, unit volumes have improved, you know, industry-wide a bit, although they're still pretty low. And they succeeded in cutting a lot of costs and, you know, and got to the place they are today, which is, you know, that everything worked.
Oh, I forgot to mention, because everyone thinks the whole story is they got this deal with Apollo. Yeah, so basically, along the way, one of the levers they had to pull was putting their lenders in a prisoner's dilemma. So you have bondholders, and you basically say, look, we might not be able to pay any of you. But the first person who accepts less gets paid first.
And if your documents are written, you can do that the right way. If it's written the right way, you can do that. And they were. Um, and so they ended up negotiating this new secured loan structure and people converted their debt into new debt, which is safer, uh, more higher priority at a discount.
Um, and that whole exchange happened in the, in the summer of 23 and a lot of sort of the retelling of the stories. And by virtue of that exchange, they like saved the business. By that point, the data I was looking at said that everything was great. Um, that was just kind of like... you know, the cherry on top because that saved them a ton of money in terms of interest expense and debt.
But it was not by any stretch the thing that turned the business.
There are stupid questions. I would have sold all of it at the peak and bought all of it.
I knew the issues they were having logistically in Q1. Like I could see it. And when I say I could see it, like we look at a lot of data on the website. So I knew that Omicron was an issue. And so the disappointing surprise was that as Omicron kind of cleared up, you know, it was like I was waiting for like some units to come out of the system. I was like, why are they not selling any units?
It was kind of clear there was a problem, but then the stock had thirted. And it went down, the first sort of most of that thirting was because things were really bad during Omicron. But until you realize that there was a deep demand problem, that seemed like the sort of thing that happens in markets when you have a short-term operational hiccup. And it was only once demand didn't
kind of recover, that you're like, uh-oh, something's wrong. But by then, prices go down so much, you're kind of like, well. I didn't actually buy any the whole way down to there. And the reason was just, it was a big position, and I generally don't buy more of things that are over a certain amount of the fund. And I was sort of waiting.
It was kind of like, well, if it gets below that, I'll buy more. If it doesn't, it's fine. And then I bought a bit more after that. But by then, something was off, so I kind of didn't buy a lot. And then they came out with this operational plan and they did this issuance at 80. And I thought, okay, they'll fix this. This is it. So I bought a bunch more.
And then the stock went all the way down to 20. And in that intervening period, I'd gone out to visit them again and I'd gone through the whole operational plan with them and tried to basically do a blank sheet of paper underwriting. And I convinced myself that this would work. No, Clifford, you weren't a moron. Yes, the stock was down 95%. But this was okay and they'll be fine.
They're going to sort it out. But I realized at that point that... There were more kind of deep operational fixes in the business than I'd realized. And so my thinking at the time was like, they should be fine. I'll buy half now and I'll buy half when I can see it turn.
Showing 241–260 of 323 · page 13 of 17
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