The headline is 6.90 percent. That is the highest subprime auto 60+ DPD reading on record in Fitch's series, which goes back to 1994. The number alone does not tell the full story. The trajectory does. This rate did not spike from an external shock. It climbed quarter after quarter from the post stimulus low of 3.2 percent in Q3 2021 without a single quarter of reversal in between. Eighteen consecutive quarters of deterioration is not a cycle. It is a structural shift.
Why the aggregate hides the actual problem.
The 6.90 percent figure masks significant distribution within it. A portfolio average can look manageable while specific dealer channels, geographic concentrations, or FICO tiers are running at 10 to 12 percent 60+ DPD. Aggregate reporting gives you the average. Vintage level reporting tells you which part of your book is driving it.
The vintage level data is more concerning than the aggregate. Cohorts originated in 2022 and early 2023 are seasoning into their worst performance at exactly the wrong time. Vehicle values fell 20 to 30 percent from pandemic peaks, which compresses recovery rates on repossessions. When charge off frequency rises and recovery rates fall simultaneously, net loss acceleration follows. The cohorts written in that window are the ones currently driving the headline number higher.
What the underlying story is.
Unemployment remains low. Wage growth has decelerated meaningfully since 2022. The borrowers most exposed to subprime auto stress are those for whom cost of living increases have already exhausted the cushion built during the stimulus era. Their disposable income did not keep pace with auto payments structured at peak vehicle values and elevated post pandemic interest rates.
The macro question is not whether unemployment rises. It is whether wage growth at the bottom of the income distribution recovers faster than inflation continues to compress household budgets. Until that gap closes, the borrower base under most subprime auto books continues to deteriorate independent of broader labour market data.
What to do about it.
Stop reading the aggregate number first. Build a vintage cohort view of your own book. Group your active loans by origination quarter. Calculate cumulative net loss as a percentage of original balance for each quarter at the same months on book. Plot the curves. The cohorts where the curve at month 18 is meaningfully above the cohorts at month 12 are the ones telling you the story.
If your 2022 and 2023 cohorts are tracking 100 to 200 basis points above older vintages at the same seasoning point, you are observing the same deterioration the aggregate Fitch number is reporting, with the advantage of seeing it on your specific book rather than the industry composite. That visibility is the precondition for taking specific action on specific dealer channels rather than blunt portfolio wide retrenchment.
The 6.90 percent reading is what the market is. It is not what your book is. Knowing the difference, and acting on the difference at the cohort level rather than the portfolio level, is the entire job.