The US auto loan ABS market closed Q4 2025 at a record $48 billion in issuance, the highest fourth-quarter level ever recorded. Yet strong headline volumes tell only part of the story. Year-over-year growth of 34% signals structural demand for the asset class, but a closer look at credit performance, investor behavior, and sponsor dynamics reveals a market navigating real and growing pressure points
Credit performance under pressure
Beneath robust issuance figures, credit stress is building across the board, and most acutely in subprime. Prime 60+ delinquencies climbed to 0.72% by December 2025, up 9 bps year-over-year, while subprime 60+ delinquencies reached 7.38%, a 105 bps increase over the same period. Default trends followed suit, with subprime annualized net losses rising to 11.06% from 9.4% in Q3. Recovery rates weakened into year-end as well, with subprime recoveries falling to 33.95%, down nearly 200 bps year-over-year. While prime performance remains broadly contained, subprime credit stress continues to build, adding complexity to portfolio construction and risk assessment.
Investors stay disciplined
Investor positioning reflects this nuance. Prime rated notes continue to anchor demand, accounting for approximately 71% of total Q4 issuance, while less than 7% of tranches were issued below investment grade, consistent with recent quarters and indicative of a persistently conservative investor base. Average spreads remained broadly stable quarter-over-quarter and widened only slightly year-over-year (+4 bps), suggesting that investors have not broadly repriced the asset class despite deteriorating credit metrics. The picture that emerges is one of disciplined, quality-focused confidence, investors remain engaged, but increasingly selective about where they take risk.
Where the opportunity lies
Sponsor-level analysis adds another layer of differentiation, revealing distinct yield-risk profiles across the market. High-yield, high-risk sponsors such as Bridgecrest, Santander, and Exeter operate with APRs above 20% and losses exceeding 2.5%, while lower-risk profiles like World Omni Financial offer APRs of 5–7% with minimal loss rates. Cardo AI’s enhanced risk-reward framework cuts through this complexity, identifying CarMax, Bridgecrest, and World Omni Financial as consistent outperformers that deliver statistically superior risk-adjusted returns, making them the strongest candidates for buy-side allocation in a market where sponsor selection has never mattered more.