Iran war widens auto ABS spreads, driving funding costs higher

The Iran war has sent shockwaves through the automotive market, prompting increased funding costs, investor uncertainty and additional affordability concerns as gas prices continue to climb. While auto market and economic experts say predicting the long-term effects of the conflict is difficult, investors can look to past events to gauge how the funding markets may respond. Spreads on assets, such as auto asset-backed securitization (ABS) notes, began to widen after the war started Feb. 28, signifying an uptick in funding costs for issuers. In fact, through March 19, prime spreads widened as much as 17 basis points (bps) over Treasuries, while subprime spreads widened as much as 15 bps during the same period, JPMorgan Securities data shows. [caption id="attachment_58360055" align="alignnone" width="616"] Source: JPMorgan Securities[/caption] Crude oil also rose to as much as $108 a barrel in March. Prices began to fluctuate, however, as President Donald Trump floated the possibility of peace talks with Iran. Brent Crude Oil Last Day Financial Futures, an international benchmark for oil prices, rose to $101.26 at 5 p.m. ET, UP 4% from market open on March 26. [caption id="attachment_58360133" align="alignnone" width="842"] (Courtesy/Yahoo Finance)[/caption] Comparing to past events History can provide a roadmap of what auto market participants can expect and strategies they can take to shield themselves. The difference between how the financial markets are responding to the Iran war and past geopolitical events is that while some investors are exhibiting the typical behavior of flocking toward safe investments such as Treasuries, others are pulling out of Treasuries due to the uncertainty, Brock Wolf , head of the securitized products group at Truist Securities , told Auto Finance News . “Will this conflict end soon? Will it not end soon? Will it expand? These are questions none of us have an answer to, and they're sort of unanswerable,” he said, noting that financial markets are not designed to price uncertainties around war. “Will this conflict end soon? Will it not end soon? Will it expand? These are questions none of us have an answer to, and they're sort of unanswerable.” -- Brock Wolf, head of the securitized products group, Truist Securities Concerns over benchmarks, such as Treasuries, shifting, and the growing uncertainty around the conflict, continue to drive spreads wider, Wolf said. “That's really the two main drivers, in terms of looking at historical precedents,” he said. “But what we're in right now is its own event. We don't know how it is going to play out. From an investor and an issuer perspective, the question is day by day: How much certainty and conviction can I have about where the markets are, based on what we know right now?” The market in past conflicts Many noteworthy geopolitical events have affected financial markets and spreads, Theresa O'Neill , managing director and head of ABS research at Bank of America Securities , told AFN . These events can provide a base for investors to understand how markets shift in times of turmoil, O’Neill said, specifying the following: The Russia-Ukraine war, which began in 2014 and is ongoing; The pandemic, which lasted from March 2020 through May 2023; “Liberation Day,” when Trump imposed significant tariffs against countries worldwide on April 2, 2025; and The regional banking crisis of 2024 in the wake of the collapse of Silicon Valley Bank. Concerns related to those events contributed to inflation, and prompted similar shifts in spreads and investor behaviors as the Iran war. “Wider spreads [and] higher yields are going to increase the overall funding costs for lenders, and that will ultimately get passed through to a consumer, which would weigh on affordability issues,” O’Neill said. “Wider spreads [and] higher yields are going to increase the overall funding costs for lenders, and that will ultimately get passed through to a consumer, which would weigh on affordability issues.” -- Theresa O'Neill, managing director and head of ABS research, Bank of America Securities Adding to affordability woes The effect rising oil prices will have on consumers depends on how long the Iran conflict lasts, Michael Brisson , auto economist at Moody's Analytics , told AFN . He added that a prolonged conflict will heighten affordability pressures, especially on struggling segments of the population. In fact, brent crude traded from as much as $120 per barrel from March to June 2022 following the onset of the Russia-Ukraine war. Gas prices will also weigh on household budgets, he said. “Higher fuel costs act like a tax on households, squeezing discretionary income and weighing on big‑ticket purchases such as vehicles.” Lender strategies As the war in the Middle East plays out, lenders’ performance and financial strategies could be affected in multiple ways, experts say. Affordability pressure could translate to incremental stress on auto loan performance, Brisson said. The impact on immediate funding strategies, though, may be limited for auto lenders, with many financiers diversifying their funding sources beyond asset-backed finance to mitigate the influence of market shifts. AI-driven lender Pagaya Technologies , for one, has increased its pool of originators to diversify where applications are from and has leaned more into forward-flow programs, Robert McDonald , head of credit solutions, told AFN , noting that this can benefit investors. “An investor gets to have exposure to the auto finance consumer, and do it in a responsible fashion,” he said. “People still have to invest. People still have to put money to work, and so you're trying to do that in the most diversified, risk-free way.” Stellantis Financial Services (SFS) Chief Financial Officer Bennie Duck told AFN that diversified funding channels allow the captive to maintain originations goals during challenging market cycles. Funding channels the captive uses, he said, include: Auto ABS deals; Warehouse lending for short-term funding; Private amortizing term loans with banks; and Unsecured corporate loans. Pagaya and SFS have also issued auto ABS deals in 2026, according to CreditFlow , which monitors securities: SFS on Feb. 11 issued a $1.5 billion transaction backed by prime loans; Pagaya on Feb. 26, issued a $394 million subprime transaction; and Pagaya on March 16, issued a $419 million subprime transaction. From the start of the year to March 20, total auto ABS volume sat at $43.9 billion, down 10.8% from the same period in 2025, according to JPMorgan Securities. [caption id="attachment_58360137" align="alignnone" width="1653"] Source: JPMorgan Securities[/caption] Dealers raise capital Dealers are also diversifying funding strategies as market conditions prompt concerns, Cynthia Caine , head of Wells Fargo commercial auto, told AFN . “From a defensive standpoint, they are focused on ensuring adequate liquidity and unused capacity across existing facilities to navigate potential downside scenarios if conditions deteriorate,” she said. Some dealership groups are leaning into high-yield and syndicated loan markets to weather long- and near-term market challenges and to fund acquisitions as opportunities arise, Caine said. Dealers are also shoring up liquidity and keeping balance sheets open for possible M&A activity, she said. Rising oil prices also typically prompt a shift in consumer demand and a subsequent change in dealer inventory strategies, Caine said. “Historically, oil price disruptions have disproportionately pressured SUV and truck demand, so dealers are actively recalibrating inventory positions, managing carrying costs and staying aligned with end market demand,” she said. Conversely, rising oil prices may have a “positive long-term impact” on hybrid and EV demand , according to a March 20 note from Fitch Ratings . EV demand surged in the months leading up to Sept. 30, 2025 expiration of the EV tax credit as consumer rushed to dealerships to take advantage of the savings. OEMs, however, saw EV sales plummet in November after the credit expired and manufacturers rolled back identical discounts that lasted through October 2025 meant to sway demand. Following the uptick in gas prices, EV-listing aggregator EVQ has seen a spike in consumer interest for used-EVs , Chief Executive Matthew Metz previously told AFN . Silver lining Oil futures dropped during the fourth week of the Iran war, a sign that investors have positive hopes, based on reported talks between Trump and Iran that may end the war. Additionally, the impact to the U.S. economy may be muted compared with previous geopolitical events if the conflict is prolonged, Moody’s Analytics’ Brisson said. “From a more macro perspective, the U.S. is the largest oil-producing country in the world, and rising oil prices help other parts of the economy, making the overall U.S. macroeconomic impact significantly less than it was a generation ago,” he said. Auto Finance News will present multiple invaluable events for industry professionals in 2026, starting with Auto Finance Summit East and Auto Finance Capital Summit in May. Register by March 27 for early-bird savings. To see event agendas and register, visit autofinance.live .

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Iran war widens auto ABS spreads, driving funding costs higher

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