The US subprime auto lending sector is currently experiencing an acute performance degradation. Consumers are in crisis, with the cost of living increasing and salaries stagnating for most of the population. Data through 2024 and 2025 confirms that borrowers are struggling with record delinquency and repossession figures that rival the housing market in 2008. These trends have many concerned, raising questions of whether the subprime auto lending industry could potentially collapse and lead to a similar, catastrophic result as the subprime mortgage meltdown that led to the Global Financial Crisis (GFC).
Deterioration in consumer fundamentals
Delinquency rates in the auto sector have reached historic highs, contrasting sharply with trends in other consumer credit products. The overall 60-day+ delinquency rate in Q1 2025 reached 1.38%, exceeding the 1.33% peak recorded during the 2009 GFC. This upward trend is occurring even as delinquency rates for categories such as credit card loans, personal loans, and home equity loans have generally declined or remained stable.
The negative trends in loan performance are a consequence of escalating vehicle costs, high interest rates, and widespread inflationary pressures that strain household budgets.
The most vulnerable segment, subprime borrowers with a credit score below 600, is bearing the brunt of the trend. Subprime 60-day+ delinquency rates reached a high of ~6.6% in January 2025, the highest recorded since Fitch Ratings commenced tracking this metric in 1993. This places auto loans as the riskiest consumer credit product in the market today, after student loans, marking a striking reversal from 2010 when they were deemed the least risky credit product. TransUnion data is also showing that auto loan delinquency transition rates remain elevated across all credit scores and income levels, suggesting that financial pressure is widespread.
The rise in defaults has translated directly into accelerated recovery actions by lenders. Approximately 1.73 million vehicles were repossessed in 2024, the highest since 2009.
The elevated delinquency rates indicate the profound financial hardship among lower and middle-income families. For most Americans, an auto loan is not a luxury but a critical component of economic success, necessary for commuting and essential services. Therefore, the combination of high principal, long terms, and high interest rates has pushed the minimum required monthly payments beyond the financial capacity of many.
Why auto loans are not mortgages
While the distress is comparable to periods leading up to the 2009 GFC, the US auto loan market lacks the structural characteristics necessary to precipitate a systemic financial crisis.
The most important mitigating factor is the disparity in size between the two markets. The outstanding US auto loan market is estimated to be $1.1 trillion. This is ten times smaller than the US mortgage market at the GFC peak in Q3 2008, which was valued at $11 trillion.
This size differential inherently limits the system’s aggregate exposure. Auto loans account for approximately 9% of total household loans. By contrast, mortgages represented 76% of household loans at the time of the 2008 crisis.
Even if the auto market suffered a total failure, the absolute dollar losses would be contained relative to the global financial system. Furthermore, the rapid growth in securitisation that fuelled the mortgage credit bubble in 2008 dwarfed automotive lending at its peak, limiting the scale of high-risk asset distribution across institutions.
The resilience and transformation of the South African auto sector
While the US market is struggling with loan defaults, the South African auto market has a very different dynamic. It is seeing robust growth, a resilient used vehicle sector, and a profound shift toward affordable new alternatives.
South Africa’s new vehicle market recorded its highest monthly sales figures in a decade in September 2025, reaching 54,700 units. This strong momentum is supported by several positive macroeconomic trends:
- Easing Inflation: Consumer inflation slowed to 3.3% in August 2025.
- Monetary Policy: Interest rate cuts by the South African Reserve Bank improved financing conditions and consumer sentiment.
- Regulatory Soundness: South African regulations typically include more protections than those in most other markets, resulting in less questionable lending practices.
The easing of interest rates since 2024 triggered substantial growth in 2025, both in sales and loan performance. Q2 2025 saw Vehicle Asset Finance originations record robust 21.0% YoY growth. This renewed activity was driven substantially by younger demographics, with Gen Z and Millennials collectively accounting for more than two-thirds of the loans originated during this period.
Delinquencies have continued to improve since 2023, with account-level performance improving by 24 basis points year-on-year to 5.1%. Auto loan repayment behaviour on an industry-wide basis remains stable, with a positive outlook, and further performance improvements are possible.
This positive sentiment extends to the used vehicle market, where confidence and demand remain strong. The largest used vehicle retailer in the country has successfully maintained stable profit margins, driven by demand and volume growth. The average number of vehicles sold per month has risen consistently from 2022 to 2025. Although vehicle price inflation has been generally subdued, the market’s overall resilience indicates a healthy consumer appetite for both new and used vehicles, with the latter often absorbing demand driven by affordability constraints.
A major structural change in the South African market is the rapid uptake of new, cost-effective models. This is mainly driven by Chinese manufacturers, who have challenged traditional pricing models in South Africa. This trend is driven by consumers actively seeking better value and affordability, in contrast to the expensive, long-term financing that characterises the strained US subprime market.
- Sales Growth: Sales of Chinese vehicles jumped 89% in the first half of 2025, based on local industry data.
- Record Market Share: Chinese brands like GWM and Chery recorded their highest-ever monthly sales figures in September 2025, reflecting a growing consumer appetite for affordable, tech-equipped vehicles.
- High-Volume Models: Growth is concentrated in affordable segments. One key Chinese auto group reported a 26% increase in sales for 2025, driven significantly by its most affordable model.
In South Africa, affordability is the dominant consumer concern, but the market appears to be accommodating this pressure through diversification toward cheaper new and used alternatives, rather than through a reliance on highly leveraged, deep subprime debt for expensive legacy vehicles, as is the case in the United States.
Watch for regulatory response to Dealer Incentive Commissions
We believe that emerging risks in vehicle asset finance may flow from regulatory intervention by the UK’s Financial Conduct Authority (FCA). The FCS banned dealer discretionary commissions in 2021 and is now consulting on an industry-wide redress scheme for historic car-finance commissions, with potential compensation of up to £11 billion.
Despite an August 2025 Supreme Court ruling that limited dealers’ fiduciary duties, banks like Lloyds have already provisioned nearly £2bn for potential pay-outs, and locally, First Rand has provisions of R5.8bn for offshore exposure with their MotoNovo operations in the UK.
If South Africa follows suit, we should expect a shift from rate-linked dealer incentive commissions (DIC) to flat-fee and transparent pricing models with tighter disclosures. This will result in margin pressure for dealers as rate uplifts tied to commission disappear. Operationally, lenders would need stronger audit trails, commission governance, and repriced products to protect economics while meeting Treating Customers Fairly (TCF) regulatory expectations.
Conclusion
The US subprime auto wobble is serious for those exposed, but it is a credit cycle story and unlikely to become systemic.
South Africa’s market structure, policy posture, and affordability-driven mix are strong fundamentals that will enable resilience in the local sector. For SA lenders, we recommended they stay disciplined on terms, residuals, and early warning indicators rather than reacting to the broader market
More importantly, the UK’s move away from discretionary, rate-linked dealer commissions and the push for redress signal where oversight is heading. If SA follows, expect a shift to transparent fees, potential back-book reviews and provisioning, some rate compression, and tighter disclosures.