A Crisis in the Driveway

What the wave of car repossessions says about the state of the American middle class.

Jamie Dimon doesn’t scare easily. The JPMorgan boss has lived through 2008, the London Whale mess, and more regulatory knife fights than most CEOs will ever see. So when he reaches for pest control metaphors to describe American credit, it lands.

When you see one cockroach, there’s probably more.

He said it after Tricolor Holdings face-planted into Chapter 7 in September. JPMorgan took a hit. Fifth Third did too. Barclays joined the club. Tricolor wasn’t just another overleveraged lender that guessed wrong. Court filings describe alleged fraud that would make a used-car lot blush: the same loans pledged to multiple lenders, VINs duplicated to conjure collateral that didn’t exist.

Zoom out and the picture gets darker.

Delinquency rates in auto credit have climbed past their Great Recession peaks. Subprime delinquencies set a modern record this year. The highest ever. Not during the dot-com hangover. Not during the housing crash. Now.

You can delay a card bill. Negotiate a hospital charge. Argue with your landlord and hope. But the car is how you get to work and get your kids to school. When repos hit recession levels, people aren’t reckless. They’re broke.

The average monthly car payment sits around $760. In 2019 it was closer to $550. Wages didn’t rise that fast. If you’re stuck in deep subprime, rates look like small-business credit cards. The difference between excellent credit and lousy credit on the same used car can be roughly 40 percent more every month.

Then there’s negative equity. More than a quarter of trade-ins arrive underwater, and thousands of dollars get rolled into the next note. The new loan isn’t just the new car. It’s the old mistake stapled on top. That’s how a $30,000 car quietly becomes a $36,000-plus obligation. Payments cross into mortgage-ish territory for an asset that is busy depreciating in your driveway.

To keep the monthly hit manageable, terms stretch. Eighty-four months. Sometimes ninety-six. That is eight years of payments on a car most people won’t keep for eight years. Early payments are mostly interest. Depreciation is front-loaded. You start underwater and stay there.

At the institutional level this shows up as LTV problems. Loan-to-value ratios swell past 100 percent, even into the 120s and 150s. Translation for civilians: the collateral is smaller than the loan from day one. When a borrower defaults, selling the car doesn’t bail the lender out. The only way it pencils is if you plan to extract interest for as long as possible and hand the eventual losses to someone else.

Which brings us back to Tricolor. They wore a Community Development Institution halo and ran dealerships alongside financing. They reported recovery rates that looked better than the market. If a mid-tier lender in a supposedly simple market can run alleged schemes that basic verification should catch, what exactly is happening in the opaque corners of private credit?

Regulators have been warning about the shadow banking ecosystem. Consumer complaints are piling up at non-depository firms. And stress is creeping up the credit ladder: not just subprime, but near-prime and prime. Even super-prime borrowers have seen severe delinquencies spike.

And the cycle feeds on itself. Repossessed cars don’t vanish. They flood the used market, pushing prices down. Falling used-car values widen the negative-equity hole. Lower recoveries mean bigger losses per default. Losses mean tighter lending and higher rates. Higher rates mean more defaults. Repeat.

Lenders know repos are expensive and messy. Tow trucks, storage, auction fees, legal costs. In a softening market the sale might recover about sixty cents on the dollar. So you see more modifications. Longer terms. Tweaked rates. Customized plans. It sounds compassionate. It is mostly math. Keep the payment coming. Keep the loss theoretical.

Dimon’s line keeps echoing. When you see one cockroach, there’s probably more. Tricolor is one you can see under the kitchen light. The worrying question isn’t whether there are others. It’s where they are hiding, and who is holding the bag when the lights come on.