The headlines are buzzing about auto lending stress, subprime delinquencies and repossession volumes. Add a few bankruptcies to the mix, including floor plan lender Tricolor Holdings, and it’s easy to think the sky is falling and understand why even JPMorgan’s Jamie Dimon is up on his big pulpit talking about “cockroaches” and implying more infestations to come. But let’s cut through the noise and look at the data.

Here’s the reality: Tricolor was an anomaly. Their business model targeted consumers with no credit score and heavily relied on immigrant communities. The collapse was driven by alleged fraud, specifically a scheme involving double-pledging loan portfolios as collateral to multiple banks. Tricolor chose liquidation over restructuring, but this bankruptcy is not a systemic signal.

Like Tricolor, PrimaLend provided buy here, pay here (BHPH) financing solutions. However, PrimaLend did not sell cars directly. Instead, PrimaLend offered receivables financing, floor plan loans and other capital solutions to help BHPH dealers grow. On the other hand, Tricolor operated as a used car retailer and subprime auto lender, combining vehicle sales and in-house financing for customers with poor or no credit. While these two bankruptcies can’t be ignored, they are anomalies and not an indication of systemic trouble with lending.

Yes, delinquencies have remained at historically high levels for three years now, and we’ve been tracking that closely. While the pace of growth has slowed, these elevated readings are not noise – they signal true financial stress in the market. Growth has slowed, but elevated levels reflect real stress. The question is: What’s driving it? A few things are obvious:

  • Inflation and student loan repayments are squeezing budgets.
  • Record-high payment levels from 2021-2022 purchases stretched borrowers thin.
  • Stress is concentrated among current subprime borrowers, especially those with negative equity from used-car purchases during peak pricing, and those juggling student loans.

When we look beyond delinquencies, the rest of the loan portfolio remains solid and stable. Historically, auto loan defaults mount when borrowers lose their jobs. We are navigating recent weeks without updated government data, but no indicators suggest that layoffs are accelerating. If the economy navigates the end of this year without going into a recession, 2026 will deliver higher take-home pay and record tax refunds, which will help reduce some of the stress and keep the economy growing.

Related to the low unemployment rate, defaults have not risen in lockstep with delinquencies. Defaults were below normal in 2023, then normalized and spiked late last year. But here’s the key: The peak was last year. This year has been stable. September saw a slight uptick, but defaults were down nearly 9% year over year. If the economy were unraveling, defaults wouldn’t be falling.

Repos follow defaults, and with defaults stabilizing, there’s no surge signaling systemic collapse. Ally’s recent earnings confirm this: stable to improving loan performance – even with a heavier subprime mix than most banks.

Bottom line: There is stress in the loan portfolio now, but it’s concentrated among lower-income, poor-credit consumers. Lenders are pricing for risk with wide yield spreads. We see no signs of a domino effect poised to rock the auto market or the economy. Tricolor was a cockroach, but sometimes a big one shows up when seasons change, at least that has been my experience living in the South. That doesn’t mean the house is infested.