Subprime Auto Performance Mixed as Seasonal Strength Meets Rising Credit Stress

dv01’s latest Auto Performance report highlights a seasonally volatile December, with stronger cure and payment behavior offsetting continued pressure from rising impairments and sharply higher loss severities. While borrower behavior continues to suppress charge-offs relative to historical norms, underlying credit stress remains elevated heading into 2026.

What the Data Shows

• Seasonality Drives Mixed Performance: December reflected typical year-end weakness, but cure and made-payment rates rebounded sharply, reversing much of November’s decline and helping contain charge-offs despite worsening headline credit metrics.
• Impairments and Charge-Offs Continue to Diverge: The divergence between the two metrics remains profound, with 30+ Impairments 500 bps above December 2019 levels and charge-offs 150 bps lower. This is driven by curing as borrowers continue to manage payments to avoid repossessions.
• Early-Vintage Stress Re-Emerges: Impairments among loans aged 9-14 rose sharply after six months of stability, raising concerns about whether recent vintage improvement can persist into 2026 despite seasonally favorable conditions ahead.

What We’re Watching

• Does Seasonal Strength Hold Into Q1?: Q1 is typically the strongest quarter for credit performance—will seasonal improvement be enough to stabilize auto credit, especially relative to continued strength in consumer unsecured?
• Early Performance as a Signal for 2026: Will impairment pressure among newer vintages ease in the coming months, or does December mark a turning point in underwriting performance?
• Investor Response to Rising Severities: As severities push toward 60%, how will investors recalibrate risk given charge-offs remain historically suppressed but continue to trend higher?