Auto Loan Default Risk Analysis: Sector Exposure Assessment for KMX, CVNA, ALLY, COF and Financial Stocks

This analysis is based on a Reddit discussion [1] published on November 11, 2025, which raised concerns about stocks most exposed to rising auto loan defaults, specifically mentioning CarMax (KMX), Carvana (CVNA), Ally Financial (ALLY), Capital One (COF), Huntington Bancshares (HBAN), Fifth Third Bancorp (FITB), Credit Acceptance (CACC), Wells Fargo (WFC), BlackRock (BLK), and Upstart (UPST).

The auto loan market is exhibiting significant stress signals that warrant close attention. Recent data shows auto loan delinquency rates reaching 5.0% for 90+ day delinquencies in Q2 2025, representing a 12.6% increase from Q2 2024 [2]. More concerning, subprime auto loan delinquencies have climbed to 16% as of September 2025, while prime auto ABS remained relatively stable at 1.9% [3]. This divergence between prime and subprime segments suggests a bifurcated market where the most vulnerable borrowers face increasing financial pressure.

Total auto debt now stands at $1.655 trillion, having increased by 64.5% since 2015 [2]. The Consumer Federation of America reports that auto loan defaults are reaching levels comparable to the period immediately preceding the 2008 financial crisis [2]. Borrowers with credit scores between 620-679 are now twice as likely to fall behind as they were before the pandemic, indicating broad-based affordability challenges across the consumer credit spectrum [2].

Credit Acceptance Corporation (CACC) emerges as the company with the greatest risk exposure. The company focuses exclusively on subprime auto lending with average interest rates exceeding 13% [4]. Recent regulatory scrutiny from multiple state attorneys general targets its “deep subprime” business model, creating existential threats to its core operations [4]. CACC’s borrowers default on loans over twice as often as industry peers, with repossession rates significantly higher than competitors [4]. The company reported a $23.4 million contingent loss in Q2 2025 related to legal matters, and its market share in the core subprime segment declined from 6.5% to 5.1% [4].

Ally Financial (ALLY) presents significant risk with 86.8% of revenue derived from financing activities [0]. While the company maintains a strong capital position with a common equity tier 1 ratio of 10.1%, its historical focus on auto lending creates substantial exposure to deteriorating credit conditions [0]. Recent performance showed strong consumer auto originations, but management’s strategy of exiting lower-margin businesses suggests awareness of growing risks [0].

Carvana (CVNA) and CarMax (KMX) face elevated risk through their integrated financing operations. CarMax has experienced severe stock performance, declining 57.5% year-to-date and 54.99% over the past year, reflecting market concerns about the used car market [0]. Recent analyst downgrades from Morgan Stanley, Needham, and RBC Capital further indicate professional skepticism about near-term prospects [0]. Carvana, despite a 67.11% YTD stock increase, carries a high P/E ratio of 75.45x, suggesting elevated growth expectations that may be difficult to achieve in a stressed credit environment [0].

Traditional banks including Wells Fargo (WFC), Capital One (COF), Huntington Bancshares (HBAN), and Fifth Third Bancorp (FITB) maintain moderate risk exposure through diversified loan portfolios where auto loans represent a smaller portion of overall assets. These institutions benefit from stronger capital positions and comprehensive regulatory oversight, though they may still face earnings pressure from rising provisions [0].

BlackRock (BLK) maintains low direct exposure, primarily facing risk through diversified ABS holdings rather than direct auto lending [0]. Upstart (UPST), while having some auto loan exposure, maintains multiple lending verticals that provide diversification beyond the auto sector [0].

The most significant insight is the concentrated regulatory risk facing specialized subprime lenders. State attorneys general are specifically targeting companies like Credit Acceptance for what regulators describe as “uniquely poor consumer outcomes” [4]. This regulatory focus creates business model risk that extends beyond normal credit cycle concerns.

The stark divergence between prime (1.9% delinquency) and subprime (16% delinquency) segments [3] suggests that companies with credit quality diversification may weather the current environment better than specialized subprime lenders. This bifurcation creates opportunities for well-capitalized institutions to gain market share from distressed competitors.

Despite underlying credit stress, the auto loan ABS market has shown remarkable resilience with record issuance of $19.2 billion in one week during September 2025 [3]. Total auto loan ABS issuance reached $268 billion in 2025, up 7.2% annually, indicating continued investor appetite and providing funding options for lenders [3]. This market depth may mitigate some systemic risks but could also delay necessary credit tightening.

1. Regulatory Intervention:
   State AG investigations into subprime lending practices could lead to business model restrictions that fundamentally impact companies like Credit Acceptance [4]. The regulatory focus on “ability to repay” analysis could force operational changes that reduce profitability.

2. Credit Quality Deterioration:
   Subprime delinquency rates at 16% indicate significant stress in the most vulnerable segments [3]. Continued economic pressure could push these rates higher, triggering increased provisions and capital requirements.

3. Funding Market Disruption:
   While ABS markets remain resilient, any disruption could disproportionately affect specialized lenders who rely more heavily on securitization funding than diversified banks.

4. Vehicle Value Depreciation:
   Strong collateral values currently provide protection, but any significant decline in used car values could amplify losses across the sector.

1. Market Share Gains:
   Well-capitalized institutions may gain market share from distressed competitors, particularly in the prime and near-prime segments.

2. Technology-Driven Underwriting:
   Companies with advanced analytics and AI capabilities may better manage credit risk in challenging environments.

3. Consolidation Opportunities:
   Current stress may create acquisition opportunities for stronger players to gain scale and market position at attractive valuations.

• Credit Acceptance (CACC):
  Regulatory scrutiny, subprime concentration, poor portfolio performance [4]

• Ally Financial (ALLY):
  Auto financing concentration, though with strong capital position [0]

• CarMax (KMX):
  Used car market exposure, recent analyst downgrades [0]
• Carvana (CVNA):
  Integrated financing operations, high valuation expectations [0]

• Traditional Banks (WFC, COF, HBAN, FITB):
  Diversified portfolios, strong capital positions [0]
• Upstart (UPST):
  Technology platform with some auto exposure [0]

• BlackRock (BLK):
  Asset manager with minimal direct exposure [0]

1. Quarterly Credit Metrics:
   Changes in delinquency rates and provision levels across all companies
2. Regulatory Developments:
   State and federal actions targeting subprime lending practices
3. ABS Market Spreads:
   Auto ABS spreads as indicators of investor concern
4. Consumer Credit Trends:
   Broader consumer credit data as leading indicators of further stress

The analysis suggests that while auto loan default risks are elevated across the sector, the impact will be highly differentiated based on business models, credit quality focus, and regulatory positioning. Companies with diversified business models and strong capital positions are better positioned to weather the current credit cycle stress.