Bankruptcies In Auto Lending Reveal Cracks In US Credit

What’s going on here?

Bankruptcies at First Brands and Tricolor Holdings are shining a light on rising credit stress in the US auto industry, especially for low-income and migrant families, while wealthier Americans and the wider bond market seem largely unfazed.

What does this mean?

First Brands, an auto-parts maker, filed for bankruptcy after struggling to refinance its debt – a challenge made worse by tariffs affecting the industry. Tricolor Holdings, which provided auto loans to Hispanic workers across six states, also went under as financial pressure mounted on borrowers with limited credit access. Investors are now wary, as seen by wider spreads in the auto loan asset-backed securities market, signaling concerns over rising risk. The split is clear: subprime and used-car borrowers face record-high delinquencies and soaring ownership costs, while big-ticket corporate bond deals, like Electronic Arts’ leveraged buyout, are going ahead smoothly. It all points to a widening financial gap – higher-income households are holding strong thanks to healthy stock and housing markets, but those with fewer resources are feeling squeezed.

Why should I care?

For markets: Credit stress shows up in auto finance.

Auto loan delinquencies have hit record highs, especially in subprime segments, as rising vehicle prices and borrowing costs pressure used-car buyers. Investors are responding by demanding bigger yields for auto loan-backed bonds, reflecting growing caution. Still, most of this turbulence is limited to riskier pockets, since the wider corporate bond market has stayed surprisingly solid.

The bigger picture: The financial divide is growing.

As rates stay high and the job market wobbles, lower-income Americans – including many served by Tricolor – are bearing the brunt of economic stress. Meanwhile, wealthier households are benefiting from strong gains in stocks and real estate. These auto industry bankruptcies underscore a deepening gap in financial security across the US.