Auto debt meltdown? Car loan market suffers its worst hit since 2020

U.S. auto loans just posted their worst drop since the depths of the pandemic lockdowns in March 2020.

According to data from JPMorgan and Bloomberg, cited by economist Tracy Shuchart, auto sector leveraged loan total returns — which track the overall performance of loans made to heavily indebted auto companies — fell more than 4% in September.

Distress in the loan markets

US auto loan just had their biggest monthly loss since March 2020 pic.twitter.com/hU4t9GYcPs

undefined Tracy Shuchart (𝒞𝒽𝒾 ) (@chigrl) October 7, 2025

The data compares these returns with the broader JPMorgan Leveraged Loan Index and split B/CCC loans, the lowest-rated and riskiest type of corporate debt.

For investors, including collateralized loan obligation managers, insurance companies, and other institutions, the steep decline signals rising risks and potential losses in auto sector debt holdings.

Those risks may be driven by credit tightening, an economic slowdown, and weaker consumer demand.

Auto delinquency risks on the rise

The poor performance also comes amid growing signs of default risk among lower-rated borrowers and mixed auto sales data, underscoring deeper financial pressures across the sector.

The Federal Reserve has flagged rising auto loan delinquencies as a key concern since the pandemic. In a 2024 research paper, the Fed noted that the recent increase in missed payments has been driven largely by loans originated over the past two years.

“A potential driver of higher delinquencies among recently originated auto loans is higher monthly payments,” the paper said, pointing to a substantial rise in average payments beginning in January 2023.

Cracks in the auto credit markets emerge

Signs of stress in the auto loan sector come in the shadow of a major collapse at Tricolor Auto Group, a subprime auto lender that filed for Chapter 7 bankruptcy in September, exposing several major banks to potentially significant losses.

As Bloomberg reported, Tricolor’s sudden collapse was tied to alleged accounting fraud, which reportedly involved inflating loan values and misrepresenting the performance of its loan portfolio.

While Tricolor represents just one lender, some analysts warn it could serve as a canary in the coal mine for broader weaknesses in the auto finance market.

If, as Federal Reserve data suggests, a growing number of borrowers are struggling to make their car payments, then the asset-backed securities (ABS) tied to those loans could also come under pressure.

ABS investors “creating incredible demand for subprime auto loans, and this is resulting in loose, and sometimes even reckless, underwriting,” said Peter Cecchini, a director at Axonic Capital, who questioned whether Tricolor’s troubles could be an early warning sign for the broader subprime auto loan market.