Cliff Sosin

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.

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.

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.

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.

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 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.

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 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,

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.

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.

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.