Banks FREAK Over Subprime Car IMPLOSION

A lot of folks are freaking out about

the auto market because you've got

platforms like the Financial Times

saying an auto lenders bust signals

strain in the financial health of US

households and they're making this

argument that hey the collapse the

sudden quote messy collapse of

triricolor where banks like JP Morgan

and Barclays are potentially losing

hundreds of millions of dollars came as

a shock and maybe It's a sign that

households are much weaker than we

think. I mean, this comes as we've

already been seeing articles like this

where here we've covered this a few

months ago where cars are so expensive

that buyers now need 7-year car loans.

And if you look at the chart of the

change over time of financing

arrangements that car buyers have been

using, you can see the black line, which

is the five-year line, has fallen from

50% of car loans being 5-year loans in

2005, 20 years later, down to less than

10%. Actually, that's probably about

18%. Yeah, less than 20%. Whereas,

what's happening at the same time is

seven-year car loans, which used to

represent 1.8% 8% of the market have

risen to over 20% of the markets uh uh

you know share. Now, it's understandable

like yes, households are getting

squeezed. Rates are high. So, we extend

loan terms not just on uh cars, but

you're also seeing extended loan terms

on housing with now 40-year interestonly

loans with amortization periods built in

and fixed rates built in being sold to

try to create some private market

competition to the Fannies and Freddy's

of the world who are doing your

traditional 30-year fix. Okay, it's

understandable. When rates are high,

this is what happens. So yes, there is

consumer stress amongst the sadly lower

50% of American households. This we

already know. But is it really a sign of

the financial health of the broad set of

US households that

all of a sudden went straight to

bankruptcy which mind you was mind you

is very unusual for a company with

potentially a billion dollars of debt or

over a billion dollars in debt and

$25,000 different creditors to go

straight to bankruptcy. In fact, that's

you know Bloomberg has a whole piece on

this. They talk about uh personal items

are locked away in Trricolor's

facilities. Uh unusual nature of a

subprime auto lender going straight to

Chapter 7 liquidation. They have a whole

article basically about how unique this

is. While at the same time, of course,

you also have companies, you know, like

the Wall Street Journal reporting an

exclusive here yesterday that Ford is

courting riskier borrowers with lower

rates for F-150 pickup trucks. Keep in

mind Tesla is doing this as well.

Tesla's doing like 0% financing. If

you're a repeat customer, they'll give

you $1,000 off. You'll get the tax

credit. Like, these companies are doing

everything they can right now to throw

sales up. And it makes sense. I think

it's partly one of the reasons why Tesla

is so high right now as as people

markets are pre-anticipating

really, really good delivery numbers for

Tesla. Potentially the best delivery

numbers that we've seen in the last 3

years. Like going back to 2021,

these could be the best delivery numbers

for Tesla because of that massive $7,500

expiring tax credit on September 30th,

which is in 6 days. So, it totally makes

sense to me. But anyway, take a look at

this. Ford is racing to sell more F-150

pickup trucks this quarter by offering

lower interest rates to borrowers with

the weakest acceptable credit histories.

This is where we start walking down a

dangerous path. And you're going to see

some crazy insights here in just a

moment on TriRicaller on, you know,

maybe this wasn't exactly a larger

financial health issue, but potentially

more of an immigration and uh targeted

ignorance and maybe even fraud,

bankruptcy. We've got to talk about

that. Just remember though, my

commentary and financial analysis on a

lot of these companies, including what

we think about timing regarding Tesla

stock price, what's going on with the

cues, price targets on lending related

stocks over the next few weeks versus

the next 6 months, or even price targets

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there. So focusing now on this

bankruptcy, not only is Ford looking at

riskier borrowers, but was famous for

this. Look at this line right here. In a

bond deal this year, Triricirricolor

disclosed that 68% of its borrowers had

no credit score at all. And over half of

thericolor borrowers had no driver's

license. Wait, how are you selling cars

to people who don't even have a driver's

license? This is a little sus. So, we go

look at the website for the company and

their pitch, which now it says, "Thank

you for visiting Triricolor. We are no

longer offering financing, but uh hey,

um please continue to make your payments

if you owe us money because we're

bankrupt and we really need the money."

And then the whole pitch here is find

the best cars without a credit score or

social. It seems like they're purposely

trying to basically lend to illegal

immigrants in Texas. And it wouldn't be

surprising to me that you crossed the

border from El Paso, uh, you know, or

through El Paso under the Biden

administration and then Triricolor is

like, "Hey, what? No social financing?

No problem. All you need is proof of

address, proof of income, and ID."

Notice how it says you don't need a

driver's license. It literally says your

passport works. It's because a lot of

people will come with a Mexican passport

or, you know, a Chinese passport or

whatever and they're looking for a car,

which makes sense. You typically need a

car in America to to get anything done,

unlike in Europe where you could get

around often with a bike. But look at

some of the items that you have on their

website. Does a bank provide financing

forric? Uh, no. We do it and we do it

without credit or social. Now, it's

interesting the way they wrote this

because usually you would say no social

security number or without credit or

social security number. But by saying

no, without credit or social, it it

seems to like target more of that

Hispanic community, which is what this

company is known for. You may apply for

financing without a credit history. And

having a social security number is not a

requirement for applying for a loan at

Tricolor. Takes about 30 uh minutes to

get an application done. And you can get

in for as low as $1,600 with some weird

grammatical mistypings on the website

here. Uh now when we go a little bit

further into Yelp reviews for the

company, anytime I seericolor, I see low

reviews and these are before the

bankruptcy. But when we actually go into

some of the reviews, listen to this from

2019. They're doing illegal stuff over

there. And we don't we can't corroborate

this. This is just a Yelp review from

2019, right? They're doing illegal stuff

over there. My son purchased a car and

they knew he was not making enough

money. So the lady there doctorred the

paychucks paycheck stuff so he could get

the car. They catered to the Hispanic

community and they sell garbage broken

down cars. When the car broke down, we

tried to make weekly payments of $50. We

tried to have the car voluntarily

repossessed. They refused. They just

wanted their money back, which I mean in

fairness that makes sense. They are a

lender. uh salesman came out in Pleasant

Grove and spoke almost no English. I

could tell he was trying to help, but

their pricing was ridiculous. Here's a

review I had to translate. Uh it says,

"I made a hu mistake, huge mistake of

allowing the a dealership employee to

write a positive review on my behalf.

She asked me to and I did while being

recorded signing the electronic contract

in the back office. I de later I later

deleted the review because it did not

reflect my true experience, but they

continued to display it on their website

without my authorization, even though I

already sent them an email demanding

they remove it. I was told I could

refinance the car later, but when I

sought professional advice, they

informed me the price of the vehicle was

extremely inflated and no reputable bank

would finance it for that amount.

Clearly, they sold me an overpriced car.

Although they say you sign at your own

free will, the process was manipulative

and pressure-filled. I no longer wanted

the car. I left the back office as I was

signing the electronic contract to

inform them. They made me feel that

being afraid was normal and convinced me

to continue. Anyway, this goes on. So,

really what you got is a company that

just seems like a blatant fraud. Uh, and

that's why they're being investigated by

the Justice Department. And that's why

now, you know, they there are reports

that they owe a billion dollars to over

25,000 credit card uh credit uh

creditors. And you can see here being

investigated by the Justice Department.

This to me is not necessarily a sign

beyond what we already know that you

know the bottom 50% of consumers are

struggling. But this company going

bankrupt. People are wondering Kevin is

this like a Leman moment. To me this is

a moment where you have banks

purposefully blind to credit risks. And

take a look at some of these lines

because it's not not justricolor but

it's also first brand group which first

brand group was doing something really

interesting where they had invoices or

money that they were owed for supplies

for uh you know vehicle parts and then

they would basically do a payday advance

on those invoices to get money sooner

because their credit situation was so

crappy. they also are going bankrupt.

And so you have people declaring here

where these loans have lost like 90% of

their value in the span of a day. 90%

drop in a day. You have people literally

quoting to the Financial Times. The

shocking part of it, the investor said

JP Morgan is one of the most

sophisticated lenders in the world. How

the hell could they have missed this?

I'll tell you how they could have missed

this. They don't care. JP Morgan is not

a great bank. It is a big bank. That's a

really big difference. And I think it's

really valuable to think about that

difference for a moment. Just because

you're a big Goliath doesn't make you

anything more than a big fat buffoon.

That's my take when it comes to JP

Morgan. I actually think a lot of their

products and their services are really

antiquated. I could rant about them for

a long time, but that's just my personal

opinion and my experience. So, I went to

a different uh well, multiple different

uh banks, still bank at large banks as

well. But what I found my my most

favorite experience has has been with uh

a fintech uh and I have an affiliate

link for them. You should go check it

out. Meet Kevin.com/bank.

This is banking done right. Really,

really good. You know, payment

processes, AC processes, wires, all this

stuff is free. Like, the fact that they

don't charge us for all we use them for

is insane because we use them with House

Aack. are like, "How are they not

charging us a monthly fee for this? It's

crazy. Just the services that they

offer. We really, really love them." So,

meet me.com/bank.

Again, that is an affiliate link. Uh,

but I'm not like officially sponsored by

them. And it's my opinion that JP Morgan

sucks. But you have to realize JP Morgan

is a giant buffoon who is too big to

fail. It's one of the reasons I went to

JP Morgan because I thought, "Oh, you

know, I don't want to be at a smaller

bank. I I want to be at, you know, a too

big to fail bank." But then drone Powell

basically told us that the entire

banking sector and FDIC limits don't

matter. We're bailing out everybody

remember during the banking crisis in

2023. So really doesn't matter. Like the

Fed's going to backs stop the banking

industry. It's my opinion, you know, #

no guarantees. But the point here that's

really interesting is you have like

investors that are saying, "How could JP

Morgan miss this?" Because they're dumb.

It doesn't matter. They're too big to

fail. They don't actually want to look

too deep because they want to make the

loan. They get their commissions and

move on. Who cares? Guess who ends up

losing the money? You think JP Morgan

really gets left holding the bag? It's

all the people buying these bonds.

They're the ones who get hold left

holding the bag. What you've really done

is you've made you've you have bankers

like JP Morgan put together a pile of

crap and then they securitize it with a

AAA rating or whatever just like oh my

gosh imagine this 2008 that's exactly

what happened then. Now, you might be

like, "Oh, well, Kevin, where's this AAA

rating talk coming from?" Right here,

Tricircolor based on despite all you saw

about Triricolor with like fraud on Yelp

or all these allegations, right? How

their website looks, the typos on their

website, like all this stuff, and how

they're literally bragging about not

using credit, which is like, you know,

red flag number one that you're going to

get people who are probably going to be

delinquent. Uh, Triricolor had won a

pristine AAA rating as it borrowed in

credit markets while first brand uh uh

brands may have amassed as much as $10

billion in offbalance sheet financing.

Now, these companies didn't report to

the SEC like there are a lot of private

companies that report financials to the

SEC. Like House Hack, we report to the

SEC, you know, we report. But there are

a lot of private companies that don't.

And so this kind of stuff just gets

hidden. And now uh the Financial Times

is like, "Oh, is this is this a one-off

incident or are there cracks in the

credit market?" Uh you know, this is

going to end up leading others to become

more gunshy. And this is true. This is

how like the cycle starts, right? The

cycle starts with excessive lending.

Then the frauds go out. When the frauds

go out, then investors who thought the

big banks had their back start waking up

and realizing, man, you know, maybe we

don't want to invest in all these crazy

credit opportunities that are offering

these crazy high yields because they're

super high risk. And then you get

Columbia University's business school

saying, oh, failure could prompt

investors to be more cautious. You

think?

No duh.

Ratings agencies will scrutinize deals

more, which means the availability of

credit may be somewhat reduced. Of

course, First Brands is negotiating for

the res for rescue financing from

lenders uh to plug an urgent liquidity

hole. The debt is selling for just

pennies on the dollar. Lenders had poor

visibility into invoicebacked financing

at the at First Brands. Yeah, it's a

payday loan, bro. Like, like you don't

need a lot of visibility to know that

you're going to end up getting burned. I

It's just straight obvious.

But apparently people are surprised uh

by these styles of loans financing

technique that allows companies to sell

outstanding customer invoices to banks

or investors in return for upfront cash.

Payday loan

and the their actual fundamentals kept

mostly private. We don't know. And then

the rating agencies, they don't talk to

each other. This is just like 2008 all

over again where like you could get an A

rating from one because they think you

only have one set of debt, but you

actually have three times as much debt

as you're letting on. This is exactly

how Bill Huang got whacked. You know, he

ended up being able to leverage like a

$20 million portfolio into billions of

dollars

by going to multiple different banks,

pledging the same securities, and

getting margin loans against the same

assets at multiple different banks.

banks don't care. They just want their

money and then they end up getting, you

know, burned and then what? The Fed

comes and bails them out. It's it's

basically like crony capitalism for the

big banks. And so now, bottom line out

of all this, is this situation something

where like, oh my gosh, I'm like nervous

this could be bad for the whole market?

No. Because there's so much greed in

markets right now that it doesn't really

matter. Okay, who cares? Like, they made

a little poopsy doopsies. These

companies are going to go bankrupt.

everybody's going to forget about them

in 6 months and it's not going to

matter. The only way it matters is if

credit standards really start tightening

up and frankly it's not likely to happen

because you've got companies like Oracle

or other companies that are now

financing against Nvidia chips. I mean

Oracle literally just this morning came

out with a seven-part series of

unsecured notes. These aren't

convertibles. These are just straight

debt uh at about 134 basis point premium

over the equivalent treasuries. 5-year

note, seven-year note, 10 year note,

20-year note, 30-year note. I think they

even got a 50-year note. They got a

bunch of notes because they're financing

to borrow, borrow, borrow, borrow. It

will end in a giant collapse one day.

The thing is, nobody knows when. But

right now, we're still in this

environment of massive greed and the

accumulation of debt where, you know,

some of these frauds going BK eh gets

written off and people move on. But the

too big to fail button is going to come

again and history is going to look just

like 2008 again. Uh is it a sign that

the bubble is popping now? No. Is it

concerning that debt markets can write

off an investment 90% in a day like we

saw withricolor?

Yes. That's wild. I mean they're not

even going to reorganization. You know,

the fact that they're going straight to

liquidation is scary. See, Chapter 7

trustes are required by statute to move

fast, unlike chapter 11. The speed can

mean selling assets at a discount,

potentially reducing what creditors get

back. Sure, well, you're also going to

sandbag, you know, the valuation of

these used cars, which if a lot of them

were being sold to illegal immigrants,

it does make you wonder if a lot of them

are just being deported and the reason

they're not able to make their payments

is because they got deported. So, it

could be Trump's fault. You know, this

could just be the the perfect storm

forricolor, but not necessarily, in my

opinion, a you know, massive systemic

risk of some sort

>> knows about this.

>> We'll we'll try a little advertising and

see how it goes. Congratulations, man.

You have done so much. People love you.

People look up to you.

>> Kevin Pra there, financial analyst and

YouTuber. Meet Kevin. Always great to

get your take.