Daniel Chu was vacationing in Italy when his phone rang with the call that would end his career. On the line was a banker from JPMorgan Chase & Co., the financial giant that had helped bankroll his sprawling used-car business, Tricolor Holdings. The message was blunt: there was a major problem with the collateral backing hundreds of millions in loans. Chu boarded a plane to New York immediately, setting in motion a dramatic three-week unraveling that culminated in Tricolor’s collapse on September 10 — a downfall that, according to Bloomberg, has sent tremors through the $25 trillion U.S. credit market.
What began as one company’s implosion quickly grew into something larger. Within weeks, another heavily indebted firm, First Brands Group, filed for bankruptcy, and two regional banks disclosed they were hit by similar alleged loan-fraud schemes. For a brief moment, investors fled risky debt, prompting JPMorgan Chief Executive Jamie Dimon to warn that more “cockroaches” could be hiding in portfolios across Wall Street.
Chu, the son of Chinese immigrants who founded Tricolor two decades ago to extend credit to undocumented Latino communities, maintained his innocence to the end. He told bankers he knew nothing of the suspected fraud and scrambled to secure emergency funding to keep his company afloat. But the hole in Tricolor’s finances proved too deep. With over $2 billion in liabilities, the remains of his once-thriving dealership network — tens of thousands of used vehicles, roughly 70,000 auto loans, and warehouses filled with repossessed cars — are now being sold off to repay creditors.
Experts say Tricolor’s demise could foreshadow a broader reckoning in subprime auto finance. “Markets shudder when entities start to fail,” said Kathleen Engel, a law professor at Suffolk University, who predicted that more dealerships will “go belly up” as banks tighten lending and raise rates. The collapse also carries political symbolism: one of the most spectacular corporate bankruptcies of Donald Trump’s second term came from a business built to serve the very immigrants his administration has targeted with stricter deportation policies.
Bloomberg’s reporting, based on interviews with dozens of current and former employees, paints a portrait of a charismatic yet controversial entrepreneur with a long history of risky ventures. After a short-lived college basketball coaching career ended in scandal, Chu turned to used cars in the early 1990s, co-founding PAACO Automotive to target Hispanic borrowers with little access to credit. That company grew fast before being sold amid accounting irregularities. Chu later launched Tricolor in 2007, envisioning it as both a business and a social mission — “a better product and a better service” for an overlooked market, he said in a 2019 interview.
The timing was perfect. Private equity and Wall Street were pouring money into subprime auto loans, hunting for yield in an era of ultra-low interest rates. By 2018, Tricolor had secured major warehouse financing from Credit Suisse and JPMorgan, eventually tapping more than $770 million in credit facilities and selling over $2.7 billion in asset-backed bonds, with JPMorgan leading most of those deals. BlackRock also joined in, investing $90 million through one of its ESG funds — a move that raised eyebrows given the industry’s reputation for predatory practices.
As cheap money fueled its rise, Tricolor expanded rapidly across Texas, California, Nevada, and Arizona, boasting that it was helping undocumented customers build credit. Yet behind the image of social impact, complaints piled up. Customers and employees described aggressive sales tactics, confusing loan terms, and relentless collection calls. Lawsuits began to mount, and auditors raised questions about Tricolor’s accounting practices and Chu’s personal spending on luxury items and private jets.
By 2023, the boom had turned to strain. Rising interest rates, soaring car prices, and a surge in loan delinquencies hit the subprime auto market hard. Tricolor’s cash was dwindling, and vendors went unpaid even as executives publicly claimed business was thriving. Then, in late summer, a junior analyst at Waterfall Asset Management spotted anomalies in the loan data — signs that the same collateral may have been pledged to multiple lenders. JPMorgan quickly cut off its financing line. Fifth Third Bancorp followed, saying key loan files were “corrupted.”
The revelation triggered a collapse in Tricolor’s bonds, with some plunging to just 12 cents on the dollar. Chu assembled a crisis team — hiring Sidley Austin, Houlihan Lokey, and Alvarez & Marsal — to pursue a restructuring, but the rescue faltered. Potential investors refused to fund a bankruptcy reorganization unless a new board was installed, yet insurers balked at covering directors amid fraud allegations. As cash reserves evaporated, advisers concluded there was no way to meet payroll. On September 10, lawyers filed for Chapter 7 liquidation in Dallas, ending Tricolor’s 17-year run.
When liquidators arrived at company sites, they found dealerships shuttered mid-operation, cars abandoned in repair bays, and customer vehicles stranded with belongings still inside. The U.S. attorney’s office in Manhattan has since opened an investigation, while creditors and investors brace for heavy losses.
For Daniel Chu, once hailed as a model of socially conscious capitalism, the downfall was swift and final. From a dream of financial inclusion to a cautionary tale of leverage, lax oversight, and overreach, Tricolor’s collapse now stands as one of the most striking reminders of how fast fortunes can turn when faith in collateral — and credibility — evaporates.
