KBRA Releases Research – Tariffs May Offer a Temporary Boost to U.S. Auto ABS Recoveries

KBRA releases research that examines the potential impacts of tariffs on auto loan ABS credit fundamentals. Although the ultimate scope and breadth of changes in U.S. trade policy remains uncertain, the broad implementation of tariffs could pose headwinds to credit fundamentals across various securitized asset classes. However, auto loan ABS may enjoy some benefit—at least in the short term—as rising vehicle prices boost liquidation proceeds on repossessed vehicles, leading to higher recovery rates and lower net losses across outstanding securitized auto loan collateral pools.

Key Takeaways

• U.S. auto loan ABS recovery rates are at their lowest levels since the global financial crisis, with prime auto loan ABS recoveries averaging 52.6% and non-prime recoveries averaging 38.2% in 2024.
• Tariffs should result in higher used vehicle values and increased liquidation proceeds on repossessed vehicles, leading to a meaningful improvement in auto loan ABS recovery rates from current levels.
• Higher recovery rates will only lead to lower auto loan ABS net losses if default rates (i.e., gross losses) remain stable at the same time—an outcome we view as unlikely.

Click here to view the report.

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About KBRA

KBRA, one of the major credit rating agencies, is registered in the U.S., EU, and the UK. KBRA is recognized as a Qualified Rating Agency in Taiwan, and is also a Designated Rating Organization for structured finance ratings in Canada. As a full-service credit rating agency, investors can use KBRA ratings for regulatory capital purposes in multiple jurisdictions.

Doc ID: 1009169

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