“Is the car free?” wondered a Tennessee resident, who leased a used Volkswagen Passat from American Car Center.

Last week, the Memphis-based subprime auto lender yanked a $222 million bond deal and then promptly e-mailed 288 employees to inform them they no longer had a job. The company was closing its headquarters and discontinuing all operations.

According to various reporting, workers barely had time to read a company communication sent the previous day, when management said it was engaged in discussions to shore up its liquidity position. American Car Center, which is owned by York Capital, had nearly four-dozen dealerships in at least 10 states.

A local Fox affiliate said this week they’d been trying to contact both American Car Center and York Capital, but had received “no response from either” as of Monday afternoon. FOX13, which interviewed the customer quoted above as well as a local attorney, explained that unfortunately, the cars aren’t likely “free,” even if it wasn’t yet clear who the company’s customers were supposed to pay.

Although the American Car Center story is — how should I put this? — unique, it may be emblematic of troubling underlying trends in the post-COVID market for used vehicles, prices for which have come down materially after surging during a string of fraught months when global supply chains were still reeling from the pandemic.

The turbulence illustrated above continued during early February, when wholesale used-vehicle prices jumped more than 4% from January, the biggest February increase since a 4.4% full-month gain in 2009. The mid-month read on Manheim’s gauge nevertheless represented a 7.3% drop from the full month of February 2022.

When prices surged, some used car owners found themselves in a surreal position: A depreciating asset (almost by definition) was suddenly worth more than the purchase price. But things are reverting to normal now, with average negative equity on used vehicles approaching pre-COVID levels, according to Edmunds.

One concern is that falling values will collide with still-high prices to create a perilous blackhole for Americans intent on trading in “early.” The scare quotes are there to acknowledge that trade-in decisions aren’t always motivated by materialism and that “new car smell,” as it were. In a truly disconcerting article published Wednesday, Bloomberg described the plight of an Atlanta area couple who, in 2020, needed a larger car to accommodate a growing family. They arrived at the dealership $14,000 upside down on their two existing vehicles.

In what I can’t help but describe as a “questionable” financial decision, the couple traded both of their cars in for an SUV, the cost of which ballooned by 35% as the dealer assumed the negative equity on the trade-ins. The peril inherent in that situation wasn’t completely lost on the husband, who expressed some dismay about the prospect of “paying interest on cars I don’t even have anymore.”

But it’s (far) worse than that. Barring another macro shock that turns the market on its head, their SUV is likely to depreciate, which means the decision to pay $17,000 over sticker is virtually guaranteed to leave the couple deeply underwater on the vehicle in perpetuity. I’d be remiss not to mention that it’s a Ford Explorer. Rather than malign American manufacturing, and while acknowledging that the F-150 is a legendary product, allow me to gently suggest that when it comes to longevity and reliability, a Toyota a Ford generally isn’t.

And it just gets worse the further you go. Dealerships are extending the terms on loans out to seven years. In the simplest, most unequivocal terms: If you’re underwater on a vehicle, and you allow a car salesman to talk you into a deal that involves the dealership adding the negative equity onto the price of a used car which is financed over seven years, you have made a potentially catastrophic financial decision. I use the word “catastrophic” not to traffic in hyperbole, but rather to acknowledge the fact that no one who’s financially stable would ever be in such a position or accept such a proposition, so inherent in these scenarios is preexisting precarity. In other words: These borrowers are one bad decision away from some kind of poverty.

According to the latest update from Cox Automotive, defaults are still low but delinquency rates were up more than 20% in January YoY. 1.89% of those loans were severely delinquent. If you think that doesn’t sound high, you’re wrong. It’s the highest in history, or at least in the history of Cox’s data which, notably, does cover the financial crisis (the series goes back to 2006).

The severely delinquent rate for subprime auto loans, like those made by American Car Center, was 7.3% last month, Cox said. That was up 156bps from January of 2022, and the highest ever.

In remarks to the local media outlet mentioned here at the outset, Cindy Ettingoff, the CEO of a Memphis-area legal services firm, said that although she couldn’t speak directly to the American Car Center case, she nevertheless advised confused customers to try their best to discern who they should pay. “They’re selling your paper,” she said, of used car dealers’ penchant for offloading notes to other firms. “If you don’t pay, you’ll find that at some point, someone will appear, usually at night, and tow your vehicle.”

For the privileged among you who could never imagine such a thing (and assuming you never watched any of the several reality TV shows based on the adventures of car repo companies), I should emphasize that Ettingoff wasn’t exaggerating. A January 27 article by Bloomberg’s Claire Ballentine began with an anecdote about a 21-year-old Chicago resident who “walked outside his home in December and couldn’t find his 2013 Dodge Journey.” (Dude, where’s my Journey?)

In what, assuming the pun was intentional, read as a truly impressive display of journalistic agility, Paige Smith and Michael Sasso, writing in the first Bloomberg piece mentioned above, detailed the vexing circumstances of a Washington woman who, thanks to the tyranny of negative equity, “feels ‘trapped’ in her Ford Escape.”