Auto dealer bailout, anyone?
Some nut wrote that last October. What was he thinking?
Good gawd of course Sonic Automotive and any other highly leveraged, large capital-cost entity is hurting, warning of bankruptcy. The more they depended on hot-check money from our Ponzi scheme banking system, they more they now hurt.
Let me explain this so that even chronic half-fullers like John Connaughton can understand. America’s financial system is undergoing a fundamental correction in the pricing of risk. In fact, you could say we are in the process of re-introducing the concept of risk to the system.
This does not mean the End of the World, or dust bowls, or soup kitchens with lines around the block. It does mean, however, that certain business models which turned on lending out money — or more accurately — booking revenue almost solely based on sales ostensibly “financed” by risk-free loans, may no longer be sustainable. To the extent this describes Sonic the firm is in serious trouble.
And that trouble may mean bankruptcy, layoffs, and all manner of reductions in economic activity. This in turn reduces the amount of income available to Sonic employees, suppliers, etc. They will then spend less. This will go on until they find new sources of income or Sonic rights itself. Multiply this process across other business lines, and that’s where we are in this economy.
Looking ahead a few months, we have the prospect of a hefty inflation tax increasing the cost of inputs while depressing the amount of disposable income available to buy things like…Bruton Smith’s cars. Anyone looking at this process and declaring the worst is over elevates faith over reason.
