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Auto Sector Bankruptcies: A Canary in the Coal Mine for Consumer Credit?

Market Movers: The Opening Bell

October 7, 2025

Video Transcript

Recent auto sector bankruptcies have raised concerns about the financial health of low income households.

Now auto parts maker First Brands filing for bankruptcy following the recent collapse of subprime auto lender Tricolor Holdings.

While each case is unique, they do signal broader stress in auto-related credit markets, and bond spreads on auto loans have.

In this month showing rising risks, still, the overall US corporate credit market remains stable, with deal making picking up after the Fed's rate cut.

And for Americans, high used car prices and also borrowing costs are driving up auto loan defaults and repossessions hurting vulnerable consumers.

A new report does warn this could lead to A wider consumer crisis.

Joining me this morning to weigh in is Shannon Martin, insurance analyst at Bankrate.

Shannon, great to have you here.

Thank you so much for joining me.

So the Consumer Federation of America calls these defaults a canary in the coal mine for larger economic issues.

So first, what is your take on the American car owner and the associated costs?

Well, the cost of owning a car in America has increased drastically.

Um, we know just from last year, this year, the cost, the hidden cost of car ownership expenses have increased by over 3%.

Um, so our report looks at some of the hidden costs that people might not think about until after they leave the dealership, and that's car insurance, vehicle repairs and maintenance, gas, and taxes.

And on average, Americans are paying around $6800 a year, and these costs, which is around an extra $575 per month.

And Shannon, first brands filed for bankruptcy and this comes after the recent collapse of subprime auto lender Tricolor Holdings.

So what is behind the stress in auto-related credit markets?

Well, it's been a kind of a long time coming in terms of car insurance.

We know that inflation kind of peaked in 2022.

And those impacts didn't really hit the car insurance rate until around 2024.

Now between last year and this year, rates have gone up by about 15%, but during 2025, rates have actually only gone up a little bit under 2%.

So car insurance is a driving factor.

Inflation is right behind why car insurance is increasing so much based on the cost of parts and labor.

But we are concerned about what's going to hold for our drivers next year once the tariffs kind of really kick in and start showing up in the cost of car insurance.

Yeah, and Shannon, as you mentioned, there are a lot of moving parts here and all of us are keeping a close eye on rising prices.

So tell us how current economic challenges are impacting auto insurance prices and coverage options for low income drivers.

Well, low income drivers are really kind of in the toughest spot because of course they want to do everything they can to save money on car insurance.

But as inflation drives up the cost of repairs and things like medical payments, older cars are maintaining their value longer, so you really don't want to start removing collision coverage because you need protection on your vehicle for longer.

And then as medical costs continue to increase, that's what your car insurance pays for.

So lowering your liability coverage, for example, really just puts you in a financially unsafe position.

So it's really hard right now for low income households.

The best thing that they can do is kind of shop around, compare rates, look for discounts, and do their best to maintain a good driving record.

And also tell us what trends you're seeing when it comes to insurance claims related to auto loan default.

Well, insurance claims and auto loan defaults, um, they might not really necessarily go hand in hand.

Um, but what I can comment on is that we know that there was an increase in car thefts over the past two years, and last year there was a dramatic decrease in theft.

So, um, the states have worked with police to kind of curb the thefts, and then we know that there's been more safety features installed in vehicles.

So that's one good sign.

That can help lower car insurance rates.

We also know that car crash fatalities have decreased over the past couple of years when there was a really high increase, um, around 2022, 2021.

So there are some signals that could help car insurance rates go down, but tariffs and inflation also kind of keep those numbers elevated.

And finally, before I let you go, tell us what factors make car ownership costs so much higher in states like Florida compared to, say, New Hampshire.

Well, car insurance is kind of the biggest thing.

So states like Florida, Nevada, Louisiana, they have the highest hidden costs.

Drivers in those areas pay over $8000 per year for car insurance.

That adds, I'm sorry, for a hidden costs related to owning a car.

Part of that has to do with how their policies are constructed constructed.

For example, Florida has personal injury protection instead of having to carry bodily injury coverage.

And then if you're in a state that has personal injury protection, that type of coverage is more prevalent to fraud, and that kind of increases the cost of car insurance.

And then you also have the, you know, climate factor of extreme weather really taking a toll on claims.

So all those things kind of factor into why some states cost more than others.

OK, Shannon, we will have to leave it there, but a lot of moving parts, so thank you so much for joining us today and for simplifying a very complicated subject.

“Inflation kind of peaked in 2022, and those impacts didn’t really hit the car insurance rate until around 2024.” – 02:02

Shannon Martin, Insurance Analyst at Bankrate, joins Remy Blaire to discuss the recent upheaval in the auto sector, marked by the bankruptcies of auto parts maker First Brands and subprime auto lender Tricolor Holdings. These developments raise concerns about the financial health of low-income households and signal broader stress within auto-related credit markets. Remy highlights the widening bond spreads on auto loans, indicating rising risks, while noting that the overall U.S. corporate credit market remains stable, with an uptick in deal-making following the Federal Reserve’s rate cut.

Shannon discusses the escalating costs of car ownership in America, revealing that hidden expenses have increased by over 3% in the past year, averaging around $6,800 annually. This translates to an additional financial burden of approximately $575 per month for American drivers, a significant challenge for many, particularly those in low-income brackets.

Shannon explains the factors contributing to the stress in auto-related credit markets, particularly the impact of inflation on car insurance rates. She notes that while car insurance rates have risen by about 15% from last year to this year, the increases are expected to persist as tariffs come into effect. This situation places low-income drivers in a difficult position, as they must balance the need for adequate coverage with the rising costs of repairs and medical payments.

The conversation also touches on trends in insurance claims related to auto loan defaults. Shannon points out a recent increase in car thefts, followed by a decrease due to collaborative efforts between states and law enforcement. Additionally, she mentions the decline in car crash fatalities, which could potentially lead to lower car insurance rates, although inflation and tariffs continue to pose significant challenges.

Remy and Shannon further explore the stark differences in car ownership costs across states, particularly comparing Florida and New Hampshire. Shannon highlights that states like Florida experience higher hidden costs due to their insurance policies, which are more susceptible to fraud, as well as the impact of extreme weather on claims.

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