When the Car-Loan Cylinder Coughs: Reading the Warning Lights Before Everyone Else Does
One of the cylinders in America’s consumer engine just coughed, and it wasn’t housing or credit cards, It was auto loans.
According to the Federal Reserve Bank of New York, household debt reached $18.6 trillion in Q3 2025, up modestly from the prior quarter. Most categories ticked up: mortgages, credit cards, student loans.
But auto loans, about $1.66 trillion worth, barely moved. And beneath that headline number, something else is happening: the system is taking on more stress to stay in motion.
Delinquencies are rising. Repossessions are accelerating. The affordability gap is widening.
This isn’t a collapse. It’s compression; and for dealers, compression is where opportunity hides.
The Pressure Building Under the Hood
The cost to own a vehicle has quietly outpaced wage growth for nearly four years. Sticker prices are up roughly 25% since 2019, incentives are down, and interest rates on new-car loans still hover near 8%. The math doesn’t stretch like it used to.
Consumers have stretched instead: taking out longer loans, trading down into used cars, or accepting higher monthly payments. And it’s showing up in the data.
• 14% of new-car buyers now have credit scores below 650, the highest share since 2016.
• 6.4% of subprime auto loans are 60+ days past due — a record, according to Fitch.
• The Fed reports 90-day delinquencies near 5%, the highest since 2011.
This isn’t panic territory, but it is pressure. And like any engine under strain, that pressure has to escape somewhere.
The Exhaust: Repos, Auctions, and the New Credit Map
For years, the repo industry was quiet - stimulus checks, forbearance, and pandemic-era protections kept defaults low. That pause is over. Roughly 1.73 million vehicles were repossessed last year, the most since 2009. At Manheim auctions, repossession volume is up another 12% year-to-date. Recovery companies describe a “target-rich environment,” with some chasing over a thousand active assignments at once.
If you want to understand how this pipeline works today, picture a hybrid of data science and street work:
Trucks sweep parking lots with license-plate readers that ping every passing tag. When a delinquent plate hits the database, the system alerts the driver instantly, like radar locking on a signal. Forwarders, middlemen who coordinate between lenders and recovery firms, handle the majority of assignments now. That means thinner margins for the people doing the work, but far greater speed and volume for the lenders who need cars back.
And once those cars are recovered, they move quickly through wholesale. Repos feed directly into auction supply. That’s the “exhaust”, and it’s already reshaping the used-car lanes.
The Knock-On for Dealers
For dealerships, rising repossession activity means two things:
1. A small, steady increase in available used inventory.
2. A quiet reset in consumer credit health that will influence who walks into your showroom next year.
Economists describe this as redistribution of stress. The strain starts with subprime borrowers but doesn’t stay there. Mid-tier customers, the ones with 680-710 credit who used to be “easy approvals”, are now closer to the edge. That matters because those buyers are often your repeat customers, your CPO targets, your upgrade prospects. If their budgets are tapped, your marketing and your follow-up need to adjust before they drift out of your ecosystem.
The Tune-Up: Five Moves That Matter
1. Tighten where you stretch.
Review your internal credit policies and F&I strategies. Extending term to make payment work is fine, until it becomes habit.
2. Watch the under-650 ratio.
Track what percentage of your deals are being written below 650. It’s an early indicator of where risk is accumulating.
3. Move up your trade-conversation window.
Equity evaporates quickly when rates rise and values normalize. Reach out while customers can still trade, not when they’re buried.
4. Adjust used-inventory sourcing.
Repo volume adds units to the lanes, but not necessarily quality. Buy condition and story, not just price.
5. Train for value-based dialogue.
Customers under financial pressure don’t respond to pressure tactics. They respond to clarity, confidence, and a path forward.
Confidence Over Collapse
The car-loan cylinder isn’t failing - it’s just working harder than it should. And when one part of the system compresses, the smartest operators use that signal to tune the rest of the machine.
This is that moment.
For the first time in years, the market isn’t just rewarding those who can sell cars. It’s rewarding those who can read the economy - one repo, one credit tier, one monthly payment at a time.