Tricolor – When Incentives Overrun Controls
The bankruptcy of Tricolor Holdings has drawn global attention to subprime auto finance. Tricolor was a Dallas-based used car dealer and subprime auto lender serving borrowers with limited credit history. It operated at the intersection of retail car sales and consumer lending, a model that can blur incentives when sales and underwriting sit under one roof.
We have monitored this case closely, and this analysis explains what happened, what it reveals about lender controls, and how Garrington’s approach differs in both principle and practice.
Executive Summary
Tricolor filed for Chapter 7 liquidation in September 2025. Within days, lenders disclosed significant potential losses and investigators began probing allegations that vehicle collateral had been pledged more than once. Early court presentations and press reports indicate that records linked tens of thousands of loans to vehicles that were already securing other debts. That breakdown in collateral control is central to the case and to the lessons for specialty finance and private credit.
What Happened, Concisely
Filing and scale
Tricolor filed for Chapter 7 and moved directly to liquidation rather than restructuring. The petition listed more than one billion dollars in both assets and liabilities and identified more than twenty-five thousand creditors.
Bank losses and investigations
Fifth Third Bank reported it may incur between one hundred seventy and two hundred million dollars in losses due to alleged external fraud involving Tricolor. Reports also noted potential exposure at other banks. Federal investigators and a court-appointed trustee began formal probes.
Collateral irregularities
A preliminary trustee review and multiple reports revealed that at least twenty-nine thousand loans pledged to creditors were tied to vehicles already securing other debts. Counsel for the trustee described the situation as a potential pervasive fraud of extraordinary proportions.
Case administration updates
The court granted the trustee limited operational authority to secure assets and records. The creditors’ meeting has been rescheduled for November, pending the completion of the required filings.
Macro context
Rising rates and pressure on lower-income consumers have pushed auto delinquencies higher, creating a stress backdrop that can accelerate failure once governance falters.
Why Chapter 7 Matters
In U.S. bankruptcy law, Chapter 7 is a liquidation process in which a company ceases operations and a trustee sells its assets to repay creditors. Chapter 11, by contrast, allows a company to continue operating while restructuring its debts and negotiating repayment terms under court supervision.
The fact that Tricolor filed directly under Chapter 7 is significant. It suggests that management and creditors saw no viable path to reorganization once irregularities surfaced. The speed with which the case moved to liquidation highlights how deeply confidence had been eroded. It also reinforces how quickly a loss of governance, collateral integrity, and lender control can convert a going concern into a liquidation event.
What the Case Illustrates
Incentives matter when the seller is also the lender
The buy here, pay here model combines selling the car and providing the loan. That structure can reward volume first and credit quality second. Without independent checks on vehicle value and borrower risk, collateral and underwriting discipline can erode.
Security is only as strong as title, tracking, and priority
Secured lending depends on the ability to verify the asset, perfect the lien, and maintain clear priority. Allegations of duplicate pledging and commingled titles show how quickly security can become theoretical when controls fail.
Speed to liquidation signals a trust breakdown.
As noted above, going straight to Chapter 7 suggests that stakeholders saw limited prospects for reorganization once irregularities surfaced. That is a marker of governance failure rather than a simple macro story.
Regulatory and market attention will follow the controls
As probes advance, market focus will be on who actually controlled cash and collateral, which lenders maintained perfected interests, and how quickly collections could be secured. Those elements often determine recovery.
Garrington’s Perspective on Auto Lending
We do not finance buy-here-pay-here dealerships. We back pure financing counterparties that originate and service loans independently of vehicle sales. That separation supports credit discipline and removes the sales incentive from underwriting decisions.
Our structures are designed around enforceability and proximity to collateral. The core features include conservative advance rates against principal balance, loan level eligibility tests, covenanted delinquency limits, cash dominion, portfolio audits, dealer concentration limits, and the ability to assume servicing with direct access to borrower payment systems when required.
These controls keep us close to the asset, the lien, and the cash flows that repay our capital.
We also prefer to be the primary or sole senior lender. We avoid participating in facilities where we lack equal decision rights. That positioning reduces distance from both the decision makers and the collateral itself.
For Our Investors: Key Takeaways
Combining retail car sales with lending can create misaligned incentives that weaken underwriting, valuation, and controls.
Duplicate pledging and title lapses can turn secured into unsecured in practice, which drives recovery outcomes more than headline yield ever can.
Lenders with perfected liens, cash dominion, and the right to assume servicing usually move first and recover more when stress appears.
Garrington’s approach begins with structure, visibility, and accountability, and continues with ongoing audits and active account management rather than set-and-forget lending.
Closing Perspective
Tricolor is not a referendum on auto finance. It is a reminder that lending only works when governance, alignment, and control remain intact from origination to repayment.
At Garrington, we manage complexity by insisting on verified collateral, enforceable security, transparent reporting, and continuous proximity to the cash cycle. Integrity and discipline are not marketing lines for us. They are the operating system that protects investor capital and supports borrowers who value a true lending partner.
Sources
1.Reuters. Auto dealer Tricolor files for bankruptcy and moves to liquidate. September 2025.
2.Bloomberg. Tricolor records show same cars tied to thousands of loans. October 2025.
3.Bloomberg Law. Tricolor trustee says initial probes suggest pervasive fraud. October 2025.
4.Dallas Morning News, citing Bloomberg Wire. The trustee is probing a fraud of extraordinary proportion. October 2025.
5.Auto Finance News. Judge allows trustee to operate in a limited capacity and the creditors’ meeting is rescheduled. October 2025.
6.Reuters. Auto sector bankruptcies and rising consumer credit stress. September 2025.
