Subprime Auto Update: A Weaker-Than-Expected Start to 2026

dv01’s latest Auto Performance report highlights a weaker-than-expected start to 2026. January underperformed seasonal trends, with impairments remaining elevated and loss severities accelerating sharply. To deliver insights in a timely manner, the underlying dataset for our analysis is now based on a subset of our Subprime Auto Benchmark and incorporates loans from Carvana’s CRVNA P shelf, increasing coverage by 12% while preserving subprime representativeness. More details are provided in the report.

What the Data Shows

• Seasonality Falls Short: January typically benefits from tax refund strength, but 30+ impairments declined just 30 bps MoM — roughly 3x weaker than seasonal norms.

• Severities Surge: Loss severity rose for a fourth consecutive month and is now ~1,300 bps above pre-COVID levels, with more than half of that increase occurring in the past five months.

• LTV Dispersion Widens: Performance gaps across LTV bands continue to expand. Loans above 115 LTV are now 500+ bps worse than pre-COVID levels, while sub-105 LTV remains comparatively stable.

What We’re Watching

• February & March seasonality: Q1 is off to a weaker-than-expected start. The next two months will determine whether January was a timing anomaly — or a broader shift.

• Underwriting improvements since 2023: Standards tightened meaningfully beginning in 2023. When will that translate into improved realized performance?

• Investor Response to Rising Severities: If severity crosses 60%, how will residual holders react — particularly with charge-offs still below prior-cycle peaks?