Twin Bankruptcies Shake U.S. Automotive and Credit Markets

In September 2025, the U.S. automotive industry faced significant upheaval with the bankruptcies of First Brands Group and Tricolor Holdings. These events have exposed substantial financial irregularities and raised concerns about the stability of credit markets.

First Brands Group, a major auto parts supplier known for brands like Raybestos and FRAM, filed for Chapter 11 bankruptcy protection in Texas on September 28, 2025. The company reported liabilities exceeding $10 billion, with assets estimated between $1 billion and $10 billion. The bankruptcy was attributed to substantial revenue losses and concerns over opaque off-balance-sheet financing practices. An internal investigation revealed a $2.3 billion discrepancy related to third-party factoring arrangements, prompting the formation of a special committee to probe potential multiple factoring of customer invoices. Charles Moore, the company's new chief restructuring officer, stated that the review uncovered possible commingling of collateral, affecting $376 million in inventory. To maintain operations during restructuring, First Brands secured $1.1 billion in debtor-in-possession financing.

Tricolor Holdings, a subprime auto lender specializing in financing consumers with limited credit history, filed for Chapter 7 bankruptcy on September 10, 2025. The filing indicated assets and liabilities between $1 billion and $10 billion, with over 25,000 creditors, including major financial institutions like JPMorgan Chase, Barclays, and Fifth Third Bank. The bankruptcy raised concerns about potential fraud, with allegations of "double-pledging" loans across multiple lenders and duplicating vehicle identification numbers to generate multiple loans per vehicle. Fifth Third Bank reported a $178 million loss from the Tricolor bankruptcy, despite a 14% increase in third-quarter profit. JPMorgan Chase CEO Jamie Dimon acknowledged the bank's exposure to Tricolor as "not our finest moment," with the bank incurring a $170 million charge-off in the third quarter due to this situation.

The collapses of First Brands and Tricolor have prompted increased scrutiny of Wall Street's credit exposure, particularly regarding non-depository financial institutions (NDFIs). JPMorgan analysts noted that these bankruptcies have ignited a new wave of credit anxiety, driving up banks’ funding costs and shaking confidence in the financial system’s hidden ties to private equity firms and hedge funds. The U.S. Department of Justice has initiated a preliminary inquiry into First Brands' collapse, focusing on the company's financial dealings and interactions with creditors. The U.S. Trustee, part of the Department of Justice, has requested a court-appointed independent examiner to investigate the bankruptcy of First Brands, citing suspected fraud, dishonesty, or criminal behavior by the company’s current executives or board members.

The twin bankruptcies of First Brands Group and Tricolor Holdings serve as a stark reminder of the fragility within the automotive sector and the broader financial system. As investigations unfold, the need for enhanced transparency and robust risk management practices becomes increasingly evident to prevent future financial crises.