Twin Bankruptcies of Auto Giants Ignite U.S. Credit Market Anxiety

In late September 2025, the U.S. financial sector faced significant upheaval with the near-simultaneous bankruptcies of First Brands Group, an Ohio-based auto parts manufacturer, and Tricolor Holdings, a Dallas-based subprime auto lender. These events have raised concerns about the stability of credit markets, particularly regarding underwriting standards and the transparency of private credit financing.

First Brands Group Bankruptcy

On September 28, 2025, First Brands Group filed for Chapter 11 bankruptcy protection in the Southern District of Texas, disclosing liabilities exceeding $10 billion. The company's aggressive acquisition strategy, heavily financed through substantial debt and opaque off-balance-sheet financing, significantly contributed to its financial distress. The bankruptcy has sparked sharp outflows from U.S. loan funds, indicating investor apprehension about the broader implications for the credit market.

In the wake of the bankruptcy filing, founder and CEO Patrick James resigned, with Charles Moore, the company's Chief Restructuring Officer, stepping in as interim CEO. Moore, with over 30 years of experience in restructuring and performance enhancement in the automotive industry, is set to lead the firm through stabilization and a court-supervised sale.

Tricolor Holdings Bankruptcy

On September 10, 2025, Tricolor Holdings filed for Chapter 7 bankruptcy, listing assets and liabilities each between $1 billion and $10 billion, with over 25,000 creditors, including major banks like JPMorgan Chase, Barclays, and Fifth Third Bancorp. Allegations of fraud, including "double-pledging" loans across multiple lenders, have surfaced, prompting investigations by the Department of Justice. An initial review revealed that at least 29,000 loans pledged to creditors were tied to vehicles already securing other debts, indicating a pervasive fraud of extraordinary proportion.

Impact on Financial Institutions

The bankruptcies have had a substantial impact on major financial institutions. Fifth Third Bancorp reported a $178 million loss from the Tricolor bankruptcy, despite a 14% increase in third-quarter profit driven by strong fee-based income. JPMorgan Chase acknowledged a $170 million charge related to Tricolor. These losses have prompted financial leaders to issue warnings about potential systemic risks in the credit market. Bank of England Governor Andrew Bailey stated that the collapses of First Brands and Tricolor might herald worse to come, emphasizing concerns about opaque non-bank finance and practices like "slicing and dicing" loans.

Market Reactions and Broader Implications

The collapses have led to increased scrutiny of the auto finance sector, particularly subprime lending practices. The auto loan industry is experiencing surging delinquencies and its highest repossession rate since 2009, raising red flags about the health of the auto finance sector. The Tricolor bankruptcy, in particular, has highlighted the vulnerabilities of business models catering to low-credit and no-credit buyers, often without traditional credit checks, in a market increasingly pressured by rising interest rates and economic strain on lower-income households.

Background on Involved Entities

• First Brands Group: An Ohio-based auto parts manufacturer known for its aggressive acquisition strategy, which was heavily financed through substantial debt and opaque off-balance-sheet financing.

• Tricolor Holdings: A Dallas-based subprime auto lender specializing in providing car financing to consumers with little or no credit history. The company operated in six states and was the third-largest used auto retailer in Texas and California. Tricolor had claimed to issue over $5 billion in affordable auto financing to underserved consumers.

• Fifth Third Bancorp: A major financial institution that reported a $178 million loss from the Tricolor bankruptcy. Despite this, the bank reported a 14% increase in third-quarter profit, reaching $608 million, driven by strong fee-based income.

• JPMorgan Chase: Another major financial institution that acknowledged a $170 million charge related to Tricolor.

Direct Quotes from Officials

Bank of England Governor Andrew Bailey stated that the collapses of First Brands and Tricolor might herald worse to come, emphasizing concerns about opaque non-bank finance and practices like "slicing and dicing" loans.

Legal and Economic Facts

The Department of Justice has begun an investigation into the alleged financial misconduct at Tricolor, focusing on allegations of "double-pledging" loans across multiple lenders.

The auto loan industry is experiencing surging delinquencies and its highest repossession rate since 2009, raising concerns about the health of the auto finance sector.

Historical Context

While the auto loan market is smaller in scale than the $12 trillion mortgage market that triggered the 2008 financial crisis, the $1.7 trillion auto loan market shows similar risks of overlooked financial instability. The Tricolor collapse could signal deeper economic troubles, as tighter lending standards may restrict car access for many Americans.

Conclusion

The recent bankruptcies of First Brands Group and Tricolor Holdings have exposed significant vulnerabilities in the U.S. credit markets, particularly within the auto finance sector. These events underscore the need for enhanced transparency, stricter underwriting standards, and robust regulatory oversight to prevent future financial crises.