What’s going on with the used car market? To answer this question, we first need to know that it’s about more than secondhand motors.
Tricolor Holdings, a large subprime auto lender and used car dealer, filed for Chapter 7 bankruptcy on September 10. First Brands, a major auto parts supplier, followed suit on September 29, filing for Chapter 11 bankruptcy.
These firms’ financial intertwinement with Wall Street is exposing something structural, beyond the decline of two companies. UBS holds over $500 million in debt exposure to First Brands, while investment bank Jefferies last week revealed its $715 million involvement with the company’s invoice-financing scheme. JP Morgan, BlackRock, and Fifth Third Bank all stand to lose hundreds of millions in the collapse of Tricolor, a company once hailed as a progressive, ESG-certified (environmental, social, and governance) investment.
The Tricolor bankruptcy proceedings estimated total liabilities between $1 and $10 billion — though the real number remains hard to pin down, due to the extent of the firm’s off-balance-sheet alchemy.
Two stories can be told here. One concerns the fourfold increase in NDFIs, or non-depository financial institutions, like Tricolor, with funding from commercial banks, which now totals $1.7 trillion according to Barron’s. This story tracks the movement of finance capital out of big banks and into deregulated corners of the market, following the 2010 Dodd-Frank regime, which forced them to undergo intensive stress-testing.
The second story feels like a flashback to the foreclosure crisis. Tranches of AAA-rated asset-backed securities (ABS) are going belly-up after vulnerable consumers — including an outsize share of low-income Hispanic and undocumented…
Auteur: Clark Randall
