The affordability gap auto finance can’t ignore
By: Bob Johnson [Executive VP, Auto Finance at Odessa] | May 25, 2026
For years, the auto finance industry absorbed one disruption after another – a supply shock, a rate cycle or a policy shift. But what’s happening now is different. Rising vehicle prices, stubborn inflation, higher interest rates, and tariffs on imported vehicles and parts are hitting simultaneously. Together, they’re creating an affordability challenge that cuts across every segment of the market, from the showroom floor to the loan servicer’s books.
That’s the story worth telling. Tariffs are part of it, but they’re not the whole picture.
The cost pressures are stacking up
Vehicle prices have climbed steadily over the past few years, and they haven’t come back down. The average price of a new vehicle crossed $50,000 for the first time in late 2025[1] and reached $51,440 in February 2026.[2] Add financing costs that are still elevated by historical standards, and monthly payments are genuinely out of reach for a significant share of buyers. More than one in five new-car buyers committed to a monthly payment above $1,000 in Q4 2025.[2] That number tells you a lot about where the market stands.
Tariffs – whether on finished vehicles or the components that go into them – add another layer to an already tight equation. Automakers absorbed much of the initial tariff cost rather than passing it directly to consumers, but that buffer has limits. As model-year changeovers arrive, more of those costs are trickling into sticker prices.[3] For consumers who were already stretching to afford a car, every incremental increase matters.
This is different from a single-variable problem. Lenders can’t simply adjust one underwriting parameter and move on. The affordability pressure is broad, persistent, and affecting buyer behavior in real ways – from longer loan terms to a growing preference for used vehicles to outright purchase delays.
The used market will absorb some of this demand – but not all
When new vehicles become less accessible, buyers shift to used vehicles. We saw this clearly during the pandemic, and there are signs of a similar dynamic playing out now. For lenders with strong used vehicle programs, this represents a real opportunity. Used vehicle inventory has tightened in early 2026, with average listing prices around $25,500[4] – elevated but showing early signs of modest stabilization. But the opportunity comes with its own complexity: used vehicle values are harder to predict, risk profiles vary, and the inventory picture remains uncertain.
Lenders whose auto lending software lets them move quickly – adjusting credit criteria, updating residual assumptions, recalibrating risk models – will be better positioned to capture this demand without taking on undue exposure.
The delinquency signal deserves attention
The affordability squeeze is showing up in the data. Auto loan delinquency rates have been climbing, and the strain is sharpest among lower-credit borrowers. Subprime 60-day delinquencies have reached record highs, and vehicle repossessions recently hit their highest level since 2009[5]. While the most recent data showed a modest improvement month-over-month[6], the underlying pressure hasn’t gone away – particularly for loans originated during the high-price years of 2022 and 2023, which continue to age poorly.
This isn’t a crisis-level signal, but it is a meaningful one. Lenders with heavy subprime exposure are navigating a more difficult environment than those weighted toward prime and super-prime borrowers. The divide between tiers is widening, and portfolio performance increasingly depends on how precisely a lender can segment, price, and manage risk across that spectrum.
Captives and banks face different headwinds
It’s worth being specific here, because the affordability challenge doesn’t look the same for everyone. Captive finance arms – those tied to an OEM – are in a unique position. Their fortunes are closely linked to their parent brand’s strategy, and that includes how OEMs deploy incentives. When an OEM decides to stimulate demand through subvented rates or cashback programs, a captive can move quickly in that direction. But they’re also constrained by it – if incentive programs shift, pull back, or focus on specific models, the captive has to follow.
That dependency creates real inflexibility when the market moves in unexpected directions. We’re already seeing this play out: some manufacturers are raising prices on select models while using incentives on others to manage the tariff impact[3], and captives have to adapt their financing strategy in step.
Banks operate differently. They’re not tethered to a single brand’s inventory or incentive strategy, which gives them more room to maneuver. In an environment where consumers are shopping broadly across makes and models – or pivoting to used vehicles entirely – that breadth can be an advantage. But banks also must compete against captive rates when OEMs are actively subsidizing purchases, which means their pricing and product strategy needs to be just as dynamic.[8]
The point isn’t that one model is better than the other. It’s that each requires a different kind of responsiveness, and both require the operational agility to adjust quickly when conditions shift.
Agility isn't a nice-to-have anymore
What connects all of this is speed. The market is moving too fast for annual planning cycles and multi-month implementation timelines. When affordability tightens, consumers change behavior quickly. When OEM incentive programs shift, captives need to respond. When used vehicle demand spikes, lenders need to reposition – fast. When delinquency trends start to diverge by credit tier, a lender needs to be able to adjust pricing and underwriting at that level of precision, not just across the whole portfolio.[7]
That kind of responsiveness depends heavily on the systems running underneath the business. Lenders with modern, configurable auto finance software can adjust lending criteria, model new scenarios, launch new products, and respond to partner or market changes without waiting on IT queues. Those still running on legacy auto lease management software often can’t – and the gap between the two is widening.
The road ahead
The underlying demand for vehicles isn’t going away. Outside of a handful of major cities, a car isn’t a luxury – it’s how people get to work, run errands, and manage their daily lives. Public transportation simply isn’t a realistic alternative for most Americans, and that’s unlikely to change anytime soon. People will keep buying cars, and they’ll find ways to finance it. The lenders who stay close to that reality – who understand what their customers can truly afford and structure products accordingly – will continue to do well.
The tools to enable that are ready and waiting for you. Odessa Auto is optimized for not just processing transactions but giving lenders the ability to adapt to market conditions, consumer behavior, regulatory shifts, and whatever comes next. Whether it’s an affordability crunch, an OEM incentive change, or a shift in delinquency trends, the lenders who respond well will be the ones who built that capability before they needed it.
[2] https://www.kbb.com/car-news/new-cars-got-more-expensive-in-february/
[3] https://www.cbtnews.com/tariffs-could-raise-car-prices-2026/
[4] https://www.coxautoinc.com/insights/used-vehicle-inventory-February-2026/
[7] https://www.transunion.com/blog/q3-2025-super-prime-subprime-fueling-growth
[8] https://www.nerdwallet.com/auto-loans/learn/captive-auto-lender