Back in February, the conference floor in Las Vegas felt like a room that knew something but wasn’t quite ready to express it aloud. Name tags swinging, executives gathered close to the coffee stations, and the conversation quickly veered toward AI-generated pay stubs and delinquency curves. Zeigler Automotive Group COO Sam D’Arc told a panel that one of the biggest threats to dealers is scammers using AI to falsify documents. He stated it in a tone that was almost casual. However, the room became quieter.
This tone, which is measured and a little dejected, has persisted into the second half of the year. The majority of the harm is being caused by three problems that are piled on top of each other like a pile of unpaid bills. The first is affordability, which is a problem that no one can solve fast. By year’s end, Edmunds recorded the average new-car payment at $772, up from $748 in the third quarter of 2025. Nowadays, over one in five buyers are willing to pay $1,000 a month for a car. Some of them might be able to absorb it. Many are unable to. It appears that the math finally caught up with the marketing, as evidenced by Fitch’s January subprime delinquency reading of 6.9%, which is higher than anything seen since 1994.
Due to its behavioral nature, the second problem is more difficult to identify. Conventional collections were designed for borrowers in need of encouragement. Today’s past-due borrowers frequently require a deep breath and something more akin to a payment plan. Making the same phone call twice a day won’t solve a budget where groceries, rent, and the auto loan are all vying for the same declining salary. Lenders who have figured this out are quietly reducing outbound call volume by 80% and witnessing self-cure rates rise above 26%. Rifco’s work with Symend is one example that is making the rounds in the industry. Instead, the lenders who are still using 2019 playbooks are keeping an eye on charge-offs.
The third problem is the one that executives discuss last but are most concerned about. Margins are simultaneously contracting in all directions. Part of the reason for the increase in component costs is that spring’s flare-up in the Middle East disrupted the Gulf’s supply of aluminum. Treasurers are being cautious because of tariff noise, even when it isn’t actively biting. In February, Ally Financial informed the market that it was aiming for mid-teen returns. However, that pitch required net interest margins in the upper threes and the behavior of retail auto credit losses, two conditions that have appeared more precarious throughout the spring. EV credits are no longer available. 2025’s pre-buy demand has diminished. In its April outlook, S&P described the year as a “hangover,” and it’s pretty accurate.
These three are connected by the perception that the industry’s expansion was predicated on false premises. Cheap money, willing borrowers, stable supply, and a regulatory environment that mostly stayed out of the way. These days, none of that is consistently true. Speaking with those in the industry, there is a sense that the second half of 2026 will distinguish the lenders and dealers who adjusted from those who continued to hope the curve would reverse itself.
It most likely won’t. The fact that delinquencies broke a 32-year record is not the biggest surprise when watching this develop. It’s the amount of time the industry took to acknowledge that the model needed to be rebuilt. Time is still on your side. However, it’s not as much as some seem to believe.
