Subprime auto dealer America’s Car-Mart on the brink

America’s Car-Mart Inc. thrived through the recession of the ’90s, the 2008 financial crisis and the turmoil of COVID-19 by doing one thing well: selling and financing used, high-mileage used cars to cash-strapped, deeply subprime buyers.

Now, that machine is making waves. The company, which is under tight pressure on cash and credit, is struggling to give new loans to customers or buy more cars to sell them. The dealer disclosed a loss last week, reporting a 52% decline in inventory and a 27% decline in car sales.

CEO Doug Campbell reiterated that his company is looking for new financing to begin operations faster. Management is also exploring potential asset sales, which could lead to the company moving into or out of bankruptcy court protection entirely, according to people familiar with the matter.

A representative for Car-Mart declined to comment.

It would be an inauspicious end for the 45-year-old buy here, pay here pioneer who went from a regional mainstay to a stock market darling during the post-COVID auto boom. Car-Mart also joins the growing line of debt-ridden companies and is finding out what happens when the well of easy money finally runs dry.

This calculation is coming after the increase in rates and a ban on extremely cheap borrowing. While many companies in sectors ranging from consumer goods to chemicals are floating on debt issued before costs rose, other companies from fast-food franchises to chemical manufacturers are grappling with the consequences of borrowing too much.

As the massive wall of pandemic-era corporate debt approaches maturity, market watchers are warning that more trouble is likely ahead.

For Car-Mart, the decision to court a particularly inexcusable Wall Street funding structure led to the potential ruin of $700 million. The company entered the asset-backed securitization market in 2022, and borrowed about $2.5 billion over the next three years by bundling its subprime car loans into bonds sold to institutional investors.

“Securitization is a treadmill with a pre-determined schedule. If you borrow less than expected, you’re not moving forward, you’re forced into a de-leveraging cycle,” said Bobby Jones, chief investment officer at 1900 Wealth Management. “The ABS machine doesn’t care if you get tired halfway through; either you finish on your own terms or it finishes you.”

Initially, the strategy worked as planned. The ABS market opened up a deep pool of low-cost capital, allowing Car-Mart to grow its customer base and finance receivables, from about $810 million in 2021 to more than $1.5 billion four years later.

dog n suds

It was a surprising growth for an organization that began in 1981 after founder Bill Fleeman converted a Dog N’ Suds fast food operation in Rogers, Ark., before the business was purchased by publicly traded Crown Group Inc. for $41 million in 1998. Yet the Wall Street machinery that helped propel it from those modest roots was soon to become a structural chokehold.

During the pandemic, stimulus-laden buyers flooded the supply-constrained market. Although this background initially boosted Car-Mart’s sales, it also increased the company’s own costs. To maintain momentum, Car-Mart took out large loans.

When inflation and interest rates began to rise rapidly, impacting the disposable income of working-class buyers, many consumer debts became increasingly burdensome. By 2023, the company was seeing credit losses increase, forcing it to tighten lending standards – a move that reduced sales.

That move exposed another central dilemma of debt-based growth: once cheap borrowing is secured, rapid expansion is no longer just an objective but a necessity for survival.

Those pressures also frightened the banks on which Car-Mart depended for working capital, some of which began to withdraw from making loans to the firm.

According to some, to combat shrinking funds, Car-Mart tried to raise money in risky debt markets, lending to investors through unsecured bonds or loans. As the company’s problems mounted, those lenders demanded a yield that Car-Mart had not bargained for, and no deal occurred.

loan modification

To complicate matters, the company delayed its annual report to mid-July 2025, citing the need to “enhance disclosures related to loan modifications for borrowers experiencing financial difficulty.” Shortly afterward, Car-Mart said there were “deficiencies” in its reporting related to those modifications.

In other filings, Car-Mart said that about half of its loans require an average of one or more “minor modifications” to adjust customers’ financial circumstances — a high level by market standards. While such changes are not always indicative of trouble, they may help keep official default rates low.

Connected: Former Tricolor COO pleads guilty to fraud charges

The headwinds were severe – and Car-Mart’s reliance on ABS deals led to a deep crisis. Loan contracts required that most of the money collected from its consumer loans be placed in trust accounts designed to guarantee payments to bondholders.

Reliance on ABS to fund lending is fine in bullish times, but it could become an issue if consumer conditions worsen, according to Rob McArthur, senior short-only equity analyst at Unicus Research. This structure could encourage risky lending that could have adverse effects if rates rise or harm consumers.

“Dealers want to sell cars today and worry about loan performance later,” McArthur said. He said that with ABS, there may be less accountability from set up.

Left with few options, Car-Mart entered into loan negotiations with Silver Point Capital, an investment firm that offers the flexible, special financing that characterizes the private credit market offering.

Yet just as financial relief seemed imminent, rival subprime auto lender Tricolor Holdings went bankrupt amid fraud allegations. According to some people familiar with the matter, this panicked the credit markets and led to a change in the calculus for Silver Point, which sharply raised pricing and tightened the terms on the financing under discussion.

A representative for Car-Mart declined to comment.

While the five-year, $300 million loan, which the parties finally agreed to in October, provided Car-Mart with the liquidity it needed to repay the restrictive asset-backed credit line, it came at a steep price: Car-Mart had to surrender warrants yielding silver points worth up to 10% of its equity, while paying an interest rate of SOFR plus 7.50%.

It also now faced tighter covenants and triggers that would allow Silver Point to quickly and easily take control over any default by Car-Mart — which were seen as almost guaranteed by the new lender until the deal closed, according to the people.

Over the next six months, the company headed straight toward that default.

‘single focus’

Although the Silver Point may have provided immediate relief, it did not fix the ABS cash-flow situation. In March, Car-Mart reported a 22% decline in third-quarter sales volume compared to the previous year and attributed the decline to “constraints on core capacity as a result of the company’s ongoing capital structure transformation.”

During a March earnings call, the firm’s CEO Campbell made it clear that securing an additional financing source, specifically a revolving warehouse facility to act as a liquidity bridge between loan origination and securitization, was the firm’s “sole focus.”

But the process is moving slowly in the tight credit environment, he said. And with the credit bridge halted, financial constraints forced management to reduce its footprint to conserve cash, resulting in the closure of 42 of 136 dealership locations and staff cuts.

According to its results, Car-Mart’s problem of falling sales has deepened. With less space and staff available for dealmaking risks, its capital structure is increasingly finding it difficult to keep pace with demands.

hedge financing

It continues to look for rescue financing — potentially in the form of preferred equity or senior debt — and to explore selling more of its dealerships and potentially gradually closing the firm, according to people familiar.

In June, Car-Mart disclosed that it had defaulted on a Silver Point loan, allowing the hedge fund to make changes to its board of directors and gain some influence over the company’s next steps, including whether it ultimately files for bankruptcy protection.

Now, management is considering a way by which the slow sale and closing of Car-Mart’s assets could be completed without entering Chapter 11, according to the people, who said the plans are not yet final and could still change. The opportunity to bypass court fees may appeal to Silver Point, which is set to get an attractive return on its investment given the company’s estimated liquidation value, the people said.

“Their balance sheet enables them to withstand the ups and downs,” Jones said of Car-Mart. But “a fateful decision to rearrange their capital structure left them little wiggle room if their book didn’t work out as planned or the origination would be slow or catastrophic, if both happened simultaneously.”

Written by Eliza Ronalds-Hannon, Reshmi Basu and Scott Carpenter