America's Car-Mart has been around for 45 years. It sells used cars to people with weak credit and handles the loans itself. That model worked great when money was cheap.
But then interest rates climbed. The company borrowed roughly $2.5 billion between 2022 and 2025 by bundling its subprime auto loans into bonds known as asset-backed securities, or ABS. That is a fancy way of saying it sold piles of car loans to investors for cash upfront.
The catch: those ABS contracts forced most of the loan repayments from customers to go straight to bondholders, not back to Car-Mart. The company ran on the difference.
When the economy slowed and subprime borrowers started missing payments, Car-Mart had to tighten its lending. That meant fewer new loans. Fewer new loans meant less cash coming in.
And the ABS machine did not care. As 1900 Wealth Management's chief investment officer, Bobby Jones, put it: "Securitization is a treadmill with a pre-set program. If you make fewer loans than expected, you're not coasting, you're in a forced de-leveraging cycle."
Car-Mart's finance receivables surged to more than $1.5 billion by 2025, up from $810 million in 2021. That growth looked good until borrowers could not pay. About half of Car-Mart's loans already needed at least one minor modification. Rising inflation and higher interest rates made things worse.
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Car-Mart tried to find a lifeline.
Around the same time, a separate subprime auto lender named Tricolor Holdings filed for bankruptcy after being accused of fraud. That rattled the private-credit market. Banks that had been providing working capital pulled back.
Car-Mart's planned financing from Silver Point became much more expensive, and the company hurtled toward default over the next six months.
The result: Third-quarter sales volumes dropped 22% compared to the prior year. Its inventory is now down 52% from a year ago.
CEO Doug Campbell said the company's "singular focus" is securing a revolving warehouse facility - basically a line of credit to keep buying cars. But that is not coming easily. Silver Point now has board representation.
America's Car-Mart is a relatively small player. Its potential unraveling is estimated at $700 million. That is a drop compared to the roughly $2.5 billion it borrowed. But the story is a warning for anyone invested in subprime auto loans or the companies that package them.
The ABS model works great when everything goes right. When it goes wrong, the company running the treadmill cannot slow down or step off. Cash gets locked up for bondholders.
Lending dries up. And if a rival collapses at the wrong moment, the whole rescue plan can fall apart.
For everyday investors, the lesson is not about panicking. It is about understanding the risks in any bond or stock tied to consumer debt. Subprime borrowers are the first to feel a rate hike.
Their defaults ripple through lenders, then through the securities those lenders create. Car-Mart is not the only one facing this pressure. Other lenders with heavy ABS exposure could find themselves in a similar spot.
The bottom line: When easy money goes away, the companies that depended on it get squeezed first. America's Car-Mart is living that squeeze right now, and the outcome will tell you a lot about how much risk is still hiding in the subprime market.
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