Investors are watching auto credit more closely as more borrowers edge toward the risk frontier. The recent stress signals—Tricolor and First Brands—are nudging risk models and reminding markets that cracks in lending structures can widen when the cycle slows. The key takeaway isn’t a repeat of 2008, but a warning that auto credit risk is bifurcating: prime borrowers stay largely current, while subprime delinquencies creep higher. Add Carvana’s latest move into the mix: a sharp stock drop that underscores how fragile sentiment about the auto market has become, even for growth names that rode the euphoria of used cars earlier in the year.

The data screams that the gap between prime and subprime borrowers is widening. Subprime delinquencies (credit scores below 670, 60+ days late) sit around 6.43%—more than double 2021 and higher than in the last three recessions. Delinquencies and repossessions among subprime borrowers are at the fastest pace since the Great Recession, signaling concentrated risk at the lower end of the market. This divergence has real implications for risk pricing, securitization spreads, and how collateral performs in credit markets. The Carvana story adds a real-time price signal: a sell-off as investors worry about the broader auto cycle, not just isolated borrower cohorts.

From a macro lens, higher car prices, steeper financing costs, and a tighter job market are squeezing households at the bottom end. Cars are essential, so auto debt remains unusually sensitive to employment shifts. If labor conditions worsen or refinancing becomes harder, more borrowers could default, with spillovers to lenders, insurers, and the broader consumer credit chain. Prime borrowers aren’t flashing distress yet, but the risk appears to be intensifying at the margin. Carvana’s struggles, along with bankruptcies like PrimaLend, remind us that even high-fliers can face pressure when the market reevaluates auto fundamentals and financing risk.

Bottom line: the prime–subprime split is widening. Investors should see bigger risk premiums on riskier loans and tougher pricing in related securitizations, with more watchfulness on the labor market. Keep to quality cash flows and broad diversification to weather potential swings. For investors, the play is to stay diversified across borrower levels, favor solid cash flows, and be ready for higher volatility as the data rolls in. Keep an eye on labor data and inflation—those drive auto affordability—and watch auto-market signals like Carvana’s results for early clues about consumer credit risk and asset pricing.