What subprime auto loan bankruptcies mean for the economy

Is the sky falling? Is it 2008 all over again? No, on that first one. Probably not, on the second.

But in any case, bankruptcies last month at subprime auto lender Tricolor and auto parts supplier First Brands spooked some portions of Wall Street, particularly as those bankruptcies suggested pain for lower-income consumers.

While plenty of bank execs voiced little trepidation about any deeper, systemic issues in the credit market, during an October 14 earnings call, JPMorgan Chase CEO Jamie Dimon said his “antenna goes up when things like that happen,” in reference to those two bankruptcies. “And I probably shouldn’t say this, but when you see one cockroach, there are probably more,” he added.

Ah, yes. It’s always super soothing to hear about cockroaches in the economy. Don’t call an exterminator, though: Auto experts who spoke to CFO Brew largely think the woes underlying those bankruptcies will stay contained. If not, trouble could arise.

Just OK-shaped. “There’s always a lot of alarmist articles about subprime autos being some sort of massive bubble à la 2008 housing, or something that’s going to destroy the world,” Morningstar analyst David Whiston, who covers GM, Ford, and other auto retailers, told CFO Brew. “You have to keep it in perspective, in that subprime auto lending is confined generally to used vehicle buyers, not new vehicle buyers.” 

That’s where a term you may remember from an undergrad econ class comes in: the K-shaped economy.

As wealthy Americans continue to spend freely—the top 10% of households in the US are responsible for almost half of all spending, per Moody’s Analytics—lower-income households seem to be pulling back. That general trend is playing out across industries, and it’s just as true in auto.

From a strictly sales perspective, the automotive market is actually quite healthy, Erin Keating, executive analyst for Cox Automotive, told CFO Brew, adding that “we know that’s really being held up by the wealthier, higher income families and households in the country.”

Case in point: Average new vehicle prices last month topped $50,000 for the first time ever, according to Cox Automotive data released October 13. This, while auto loan delinquency rates soar.

“Those individuals that are holding up that market, and have held up that market for quite some time are, for all intents and purposes, financially healthy,” Keating added. “We’re not seeing that the broader new vehicle market is going to be at risk because of a couple of these lender bankruptcies.”

Proverbial canaries. Notably, both Tricolor and First Brands are being probed for potential fraud, suggesting that the so-called “cockroaches” are more likely of the internal, rather than economy-wide, variety. “That’s hopefully more isolated to those companies, rather than [being] the proverbial canary in the coal mine croaking,” Whiston said.

The deeper concern, he added, would be if these bankruptcies trigger a reaction at banks that touches the wider economy. “From my perspective, it’s more a risk of contagion to the point that it squeezes liquidity in the whole US economy,” he said. “An example would be the Tricolor bankruptcy, if that were to cause a complete meltdown at a big bank or something.”

But that’s very much a worst-case scenario. In all, the story the automotive industry is telling right now is largely one about rising prices, particularly as many automakers get ready to pass tariff-induced price increases to consumers in 2026, both Whiston and Keating said.

“I’m not hearing anyone in the industry say that things are on the verge of collapse or anything like that,” Whiston stressed. “There’s been concerns about affordability, not just in the past few months. That’s been going on for a couple years, at least.”

“The automotive market, to me, indicates that, along with everything else, things are inflationary right now, but that it’s expected, and that for those individuals that are in the market for a new vehicle, that have financial health—which again, is the part of the K-shaped economy that we know is holding up most consumer goods—that they will keep buying…so long as automakers are disciplined [on inventory and pricing],” Keating said.