Posted on 10/18/2025 8:51:37 PM PDT by SeekAndFind
One of the key engines of the U.S. economy is starting to misfire and it’s happening in auto lending. Since the pandemic, car buyers have faced a costly mix: record sticker prices, shrinking dealer incentives, and higher borrowing costs. To make car ownership possible, more Americans, especially lower-income households, have turned to used vehicles and stretched loans out over longer terms.
Now, the strain is showing. Delinquencies are rising, repossessions are climbing, and subprime borrowers are feeling the squeeze as wages stagnate and unemployment edges higher. On the surface, the economy still looks strong, but the auto market is one of the clearest signs that many households are hitting their breaking point.
Consumers with lower credit scores are increasingly struggling to stay current on their loans:
Repossession activity tells the same story. Roughly 1.73 million vehicles were repossessed last year, the most since 2009, according to Cox Automotive. While repossessions have since leveled off, they remain well above pre-pandemic levels.
“These are borrowers who may have stretched their budgets to afford a higher price of the asset, as well as a higher payment because of the interest rate,” said Joelle Scally, economic policy adviser at the Federal Reserve Bank of New York.
The financial stress became especially visible last month with the bankruptcy of Tricolor Holdings, a lender that held roughly 100,000 active auto loans and catered to consumers with limited or no credit history—including undocumented immigrants and people without Social Security numbers.
The company is also facing fraud allegations involving its dealings with banks. A trustee has hired an outside adviser to investigate.
Tricolor’s failure prompted analysts at S&P Global Ratings to warn investors about certain securities backed by loans to borrowers with no established credit profiles—especially against the backdrop of stricter immigration enforcement.
Industry experts, however, say the Tricolor collapse appears to be an exception rather than a systemic trigger, at least for now.
Subprime loans still make up a relatively small share of total auto financing across banks, credit unions, and captive finance divisions.
However, automakers have recently loosened credit standards, according to Cox Automotive, signaling a willingness to chase volume even if it means taking on more risk.
Despite rising delinquencies, bond investors haven’t flinched. Yields on securities backed by subprime auto loans remain relatively low, reflecting confidence that tighter underwriting over the last few years will limit further fallout.
“Investors are willing to buy those bonds despite elevated delinquencies,” said Theresa O’Neill, an asset-backed securities strategist at Bank of America.
Even as inflation cools elsewhere, new cars remain expensive—and that’s pressuring budgets across the board.
That strategy is sending more would-be new-car buyers to the used market.
Ford, for example, recently announced plans to offer lower interest rates to buyers with weaker credit to help unload unsold F-150 pickups, its best-selling model. Even so, the company says only 3% to 4% of its loans involve higher-risk customers.
At General Motors’ credit arm, around 12% of loans this year have gone to borrowers with FICO scores below 620.
Lenders are tightrope-walking between demand and default risk. At Consumer Portfolio Services—a major subprime auto financer—repossession volume has surged. The value of loans ending in repossession has more than doubled since 2022, reaching nearly $98 million in Q2 of this year.
“The customer is constrained and under pressure,” said company president and COO Michael Lavin. The firm has already pulled back on issuing new loans.
Americans need cars to get to work, take care of families, and participate in daily life. When financing becomes unaffordable, it exposes deeper cracks in the consumer economy.
Here’s what investors and observers should watch:
✅ Delinquencies as a recession signal: Rising default rates among lower-income borrowers often show stress before it hits the broader market.
✅ Risk appetite on Wall Street: Continued demand for subprime auto loan securities suggests investors still believe defaults will be contained—but that could change quickly.
✅ Automaker strategies: If sales slow and repossessions rise, automakers may face pressure to reintroduce incentives or ramp up lower-cost models.
✅ Household strain: High payments and rising unemployment could pull more middle-income consumers into delinquency territory sooner than expected.
For now, Wall Street may not be panicking but Main Street is already feeling the pain. And history shows that when the auto market starts misfiring, the rest of the economy is rarely far behind.
“Doom, despair and agony on me. Deep, dark depression; excessive misery”.
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