In a move that has sent ripples through the automotive industry and raised alarm among economic experts, First Brands, a prominent manufacturer of filters, brakes, wipers, and lighting systems, sought Chapter 11 bankruptcy protection late Sunday night. The event marks the continuation of a worrying trend in the automotive sector, with recent bankruptcies including subprime auto lender Tricolor Holdings and parts supplier Marelli, which catered to Nissan and Chrysler.
First Brands, known for its aftermarket presence, also supplied original equipment (OE) to major automotive giants such as Ford, General Motors, Stellantis, and the VW Group. This latest financial stumble has economists on high alert for signs of broader economic distress, reminiscent of the ominous prelude to the 2008 financial meltdown.
The automotive loan market, now valued at a staggering $1.7 trillion, has become the second-largest consumer debt category, trailing only behind mortgage debt. While not as colossal as the $10.6 trillion mortgage debt that precipitated the 2008 crisis, the burgeoning automotive debt is a source of significant concern. Lenders, eager to sustain sales volumes, have increasingly extended credit to financially strained buyers, leading to a rise in subprime car loan delinquencies—an early warning sign of potential debt crises that could spill over into mortgage defaults.
Erin Witte, director of consumer protection at the Consumer Federation of America, highlighted the plight of low-income car buyers, who are disproportionately affected by the instability of the auto finance market. The collapse of Tricolor Holdings, for instance, left many borrowers without vehicles, unsettled trade-ins, and the threat of wrongful repossessions or credit damage.
David Whiston, an analyst at Morningstar, underscored affordability as the primary concern, with the looming question of how much tariff costs will be passed on to consumers. President Donald Trump's 25 percent automotive tariffs have compounded the market's strain, forcing automakers to absorb billions in costs or downsize their workforce. Despite these efforts, vehicle prices have soared by 30 percent since 2019, with the average new vehicle now commanding a price tag of $49,968.
The financial burden of vehicle ownership has become increasingly untenable, leading to 1.6 million Americans losing their vehicles to repossession last year. Kevin Roberts, director of market and economic intelligence at CarGurus, noted that average new vehicle prices have been hovering around the $50,000 mark for the past year, a trend that is unsustainable according to Mark Templin, Toyota’s chief operating officer for North America.
As the industry braces for the impact of First Brands' bankruptcy and the potential ripple effects on the economy, the focus shifts to the underlying issues of affordability and the precarious balance between maintaining sales and ensuring financial stability for consumers.
