Tricolor bankruptcy, a canary in the coalmine?

1 day ago

Hi HODLers,

The Texas-based firm specialized in lending to car buyers with no credit history or Social Security number. It was known to facilitate purchases for illegal immigrants as it had few controls. It was mostly implanted in the South West of the US.

Subprime auto lender Tricolor Holdings filed for Chapter 7 bankruptcy last week, and the collateral damage could strike banks and trading houses. This prompted questions about the health of the $1.7tn auto finance sector.

It would package these loans and resell them as Asset-Backed Securities (ABS) to bigger Banks.

Lack of any risk assessment / controls

two-thirds of its borrowers did not have a credit score. For those who did, the average was 614 which is considered very low
More than half did not have a drivers' license

There is no doubt there are problems in subprime auto, and the problems have been growing for years,

said Rod Dubitsky, an independent consultant who formerly worked at Moody’s rating agency and Credit Suisse.

Since the new Trump administration took office, a lot of Tricolor's clients who work in the cash economy have been waiting and working less because of ICE raid fears, some have been going home while others were deported. This put an additional pressure on a business who was already mismanaged.

Things started to get worse and the company was put under Chapter 11 in August. At the start of September, Tricolor laid off nearly all of its 1,500 employees as it realized it will have to be liquidated.