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

An America's Car-Mart used car dealership in Woodstock, Ga., on July 20. (Dustin Chambers/Bloomberg)

America’s Car-Mart Inc. thrived during a ‘90s slump, the 2008 financial crisis and the upheaval of COVID-19 by doing one thing well: selling and financing older, high-mileage used cars for cash-strapped, deeply subprime buyers.

Now, that machine is sputtering. Hamstrung by a tightening squeeze on cash and credit, the company is struggling to write new loans to customers or buy more cars to sell to them. The dealer laid bare the damage last week, reporting a 52% plunge in inventory and a 27% drop in car sales.

CEO Doug Campbell reiterated that his firm is hunting for new financing to jump-start operations. Management has also been exploring potential asset sales that could see the company wind down altogether, either in or out of bankruptcy court protection, 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 that exploded from a regional mainstay into a stock market darling during the post-COVID auto boom. Car-Mart also joins the growing ranks of debt-fueled companies discovering what happens when the well of easy money finally runs dry. 

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Campbell 

That reckoning is arriving after rate hikes put an end to ultra-cheap borrowing. While many companies in sectors from consumer goods to chemicals continue to float on debt they issued before costs climbed, others, from fast-food franchisees to chemical makers, have run headfirst into the consequences of the borrowing binge. 

As a massive wall of pandemic-era corporate debt nears maturity, market watchers have been warning there’s likely more pain in store. 

For Car-Mart, the path to a potential $700 million unraveling was paved by its decision to court a particularly unforgiving Wall Street funding structure. The firm dove into the asset-backed securitization market in 2022, borrowing roughly $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-set program. If you make fewer loans than expected, you’re not coasting, you’re in a forced 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; you either finish on your own terms or it finishes you.”

Initially, the strategy worked as planned. The ABS market unlocked a deep pool of low-cost capital, allowing Car-Mart to scale its customer base and its finance receivables which swelled from around $810 million in 2021 to over $1.5 billion four years later.  

Dog N Suds

It was a dizzying evolution for an outfit that began in 1981, after founder Bill Fleeman converted a Dog N Suds fast food operation in Rogers, Ark., before the business was bought by the publicly-traded Crown Group Inc. for $41 million in 1998. Yet the very Wall Street machinery that helped propel it beyond those humble roots was soon to become a structural chokehold.

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During the pandemic, stimulus-flushed buyers flooded a supply-constrained market. While this backdrop initially bolstered Car-Mart’s sales, it also drove up the company’s own costs. To keep pace, Car-Mart underwrote larger loans.

When inflation and interest rates began to rapidly climb, hammering the disposable income of working-class buyers, many consumer loans quickly became burdensome. By 2023, the company was seeing a rise in credit losses, compelling it to tighten lending standards — a move that depleted sales. 

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

Those pressures also spooked the banks Car-Mart relied on for working capital, some of which began pulling back lending to the firm.

To counter the shrinking funds, Car-Mart sought to raise money in the riskier debt markets, sounding out credit investors for an unsecured bond or loan, according to some of the people. As the company’s issues mounted, those lenders demanded a yield Car-Mart hadn’t bargained for, and no such deal materialized.

Loan modifications

Compounding matters, the firm delayed its annual report, citing in a mid-July 2025 filing the need to “enhance disclosures related to loan modifications for borrowers experiencing financial difficulty.” Shortly after, Car-Mart said there were “deficiencies” over its reporting related to those modifications.

In other filings, Car-Mart said that around half of its loans required on average one or more “minor modifications” to accommodate customers’ financial circumstances — a high level by market standards. While such changes aren’t always an indicator of trouble, they can help keep official default rates lower. 

RELATED: Former Tricolor COO pleads guilty to fraud charges

The headwinds were severe — and Car-Mart’s reliance on ABS deals made for a deeper crunch. The debt contracts required that much of the money collected from its consumer loans be walled off into trust accounts designed to guarantee payouts to bondholders. 

Reliance on ABS to fund lending is fine in boom times, but can become an issue when consumer conditions deteriorate, according to Rob MacArthur, a senior short-only equity analyst at Unicus Research. The structure can incentivize riskier lending that tends to backfire once rates rise or consumers suffer. 

“Dealers want to sell cars today and worry about the performance of the loans later,” MacArthur said, adding that with ABS, the set up can lead to less accountability. 

Left with few options, Car-Mart entered debt talks with Silver Point Capital, an investment firm offering the kind of flexible, bespoke financing that characterizes the private credit market proposition. 

Yet just as financial relief seemed imminent, rival subprime auto lender Tricolor Holdings collapsed into bankruptcy amid fraud allegations. That panicked credit markets and changed the calculus for Silver Point, which quickly moved to raise pricing and tighten terms on the financing under discussion, according to some of the people familiar with the matter. 

A representative for Car-Mart declined to comment. 

While the five-year, $300 million loan the parties ultimately agreed upon in October provided the liquidity Car-Mart needed to repay a restrictive asset-backed line of credit, it came at a steep price: Car-Mart had to hand over warrants giving Silver Point up to 10% of its equity, while paying an interest rate of SOFR plus 7.50%.

It also now faced tight covenants and triggers that would allow Silver Point to swiftly and easily take a measure of control upon any default by Car-Mart — which by the time the deal closed was seen by the new lenders as nearly guaranteed, according to the people.

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

‘Singular focus’

While Silver Point may have provided immediate relief, it didn’t fix the ABS cash-flow situation. In March, Car-Mart reported a 22% drop in third-quarter sales volumes compared to the prior year and blamed the decline on “constraints on originating capacity resulting from the company’s ongoing capital structure transition.”

During the 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 “singular focus.” 

But the process in a tightening credit environment was moving slowly, he said. And with the credit bridge stalled, the financial squeeze forced management to shrink its footprint to conserve cash, culminating in the closure of 42 of 136 dealership locations and reduction of staff.

Car-Mart’s declining sales problem has only deepened since, according to its results. Fewer locations and staff available for dealmaking risks adding to its difficulty keeping pace with the volume its capital structure demands. 

Rescue financing

It continues to seek rescue financing — potentially in the form of preferred equity or senior debt — and to explore selling off more of its dealerships and potentially letting the firm slowly wind down, according to the people familiar. 

In June, Car-Mart disclosed it defaulted on the Silver Point loan, which let the hedge fund 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 weighing a path that could see the slow sale and closure of Car-Mart’s assets completed without ever entering Chapter 11, according to the people, who said plans aren’t yet final and could still change. The chance to bypass court fees may appeal to Silver Point, which stands to nab an attractive return on its investment given estimates of the company’s liquidation value, the people said.

“Their balance sheet enabled them to ride the highs and lows,” Jones said about Car-Mart. But a “fateful decision to retool their capital structure gave them very little wiggle room should their book perform below plan or originations slow down or catastrophically if both occurred simultaneously.”

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