Auto ABS performance projected to weaken in 2026

Performance across securitized auto loans is expected to weaken further in 2026 as borrowers continue to face higher costs. Nonprime auto asset-backed securitization deals are especially at risk for worsening credit performance next year, according to a Dec. 2 Moody’s Ratings consumer ABS outlook. “We've generally seen weak performance in auto loan ABS across both prime and nonprime; we expect that to continue to be weak through the next year,” Nick Monzillo , vice president in structured finance at Moody’s, told Auto Finance News , noting that macroeconomic headwinds are a main driver of performance. “You have a weaker job market that we're projecting, affordability issues in the auto sector and general cost of living impacts on consumer health, particularly for lower-income households that would back nonprime auto ABS," Monzillo said. Overall, collateral quality across auto loan ABS deals will “remain generally weak” in 2026, according to Moody’s. Higher loan-to-value ratios, longer loan terms and rising costs of ownership, such as car insurance, have contributed to lower recoveries and higher losses across recent vintages. Private credit, though, is expected to support originations through whole loan sales or forward-flow receivable purchases. Prime and nonprime auto ABS cumulative losses Higher loan amounts and elevated interest rates will increase loan payments in 2026, but fewer incentives from captives will mean noncaptive lenders could tap borrowers with stronger credit, contributing to strength in their ABS transactions, according to Moody’s. “The nonprime demographic tends to be naturally more exposed to those affordability drivers from the economic side,” Joao Daher , vice president in structured finance at Moody’s, told AFN . “It's natural to see ... the deterioration be more pronounced for nonprime.” Prime and nonprime performance is diverging, in part due to lenders tightening underwriting standards for nonprime loans in 2023, which led to stabilized performance across 2024 and 2025 transactions, Monzillo said. “How nonprime and prime move relative to each other has been informed by underwriting trends in these sectors for the past few years,” he said. “You saw more pronounced underwriting in the nonprime sector in 2023. ... Prime, we hadn’t seen the extent of that tightening, so you’re seeing a bit of deterioration. One thing we're looking out for is how underwriting postures for these lenders change over the next year.” Eyeing servicer-related risks Increased market scrutiny of lenders, reduced profitability and servicer-related risks are also top of mind following recent challenges in the industry, Monzillo said. While he did not name specific issuers, Moody’s said servicer-related risks could include disruptions in servicing and increased expenses tied to servicing transfers, which could especially affect “smaller and inexperienced entities.” One prominent example is the Chapter 7 bankruptcy of buy here, pay here retailer Tricolor Auto in September, which prompted a servicing transfer to Vervent . Lenders that “might be more exposed to immigration policy changes ” or lend to undocumented immigrants also could face increased servicer-related risks , Monzillo said. Federal policy changes, including immigration shifts, are increasing the performance risk across all U.S. consumer ABS asset classes, the full effect of which is expected to materialize after 2026, according to Moody’s. “2025 was a year where policy changes were impactful to credit. We've seen portfolios impacted by policy changes, especially around immigration, and that's having a real impact on performance in certain cases,” he said. “That's something that we're keeping an eye on.” Lease, floorplan expectations Other 2026 auto ABS projections, according to Moody’s, include: Lease ABS deals will benefit from improved residual value performance overall as used-vehicle prices stabilize. However, EVs pose a higher residual value risk in collateral pools as declining demand and falling EV resale values are expected to contribute to lower recovery rates and higher net losses; and Floorplan ABS transactions will benefit from higher volumes due to auto tariffs and economic pressures driving up supply on dealer lots.

Auto ABS performance projected to weaken in 2026

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