Continued concerns around the Iran war and an increase in fraud schemes are placing more stress on auto lenders, dealers and consumers while driving shifts in risk management and strategy. 

The war has pushed oil prices above $100 per barrel, fueling inflation and widening auto asset-backed securities (ABS) spreads. Prime spreads have widened by up to 17 basis points, increasing funding costs and tightening credit conditions. Higher fuel costs are also squeezing consumers, especially subprime borrowers, reducing disposable income and raising delinquency risks.  

Those increased risks for subprime borrowers contributed to a 130% year-over-year jump in refinance activity in February as borrowers seek lower payments amid the market strain. Lenders also continue to tighten underwriting amid rising defaults, with early payment defaults reaching decade highs. 

To compound the pressure on the auto sector, fraud risks continue to rise, with AI-driven “dealership cloning” scams, in which fake websites impersonate dealers, leading to millions in losses, damaging consumer trust and dealer reputations. Meanwhile, TD Bank is educating its customers and employees how to combat rising fraud on the lending side. 

In response to the macroeconomic uncertainty and increased fraud, lenders and dealers continue to adjust operations as higher gas prices shift demand toward more fuel-efficient vehicles. Meanwhile, firms are adopting AI tools to improve operations but are emphasizing responsible use, including regulatory alignment and bias mitigation. 

In this episode of “Weekly Wrap,” Auto Finance News Editor Amanda Harris, Deputy Editor Johnnie Martinez II, Senior Associate Editor Truth Headlam and Associate Editor Aidan Bush discuss top trends across macroeconomic dynamics, affordability, funding and powersports lending for the week ended March 27.