Two Markets Wearing One Headline

August 15, 2026

Vehicle sales returned to growth on both sides of the border in July. The collateral, the credit and the cost of ownership all moved the other way, and not for the same customer.

<aside class="nl-callout"><h2>THE MONTH IN ONE SENTENCE</h2>

<p><em>Sales recovered, wholesale values fell for a seventh straight week, and the borrowers who benefited from July are not the borrowers carrying the risk.</em></p></aside>

<h2>OPENING</h2>

<p>July produced the kind of month that reads well in a headline and badly in a credit file. Canadian light-vehicle sales rose 0.5% against July last year. That was the second straight month of growth after eight months of decline, and the strongest July since 2019. The United States held a selling pace of 16.3 million vehicles a year. Both numbers invite the word recovery.</p>

<p>Look underneath and the picture separates into two markets. New-vehicle affordability improved. The average financed payment on a new vehicle in Canada fell 2.2% from a year ago, to $935 a month. Used-vehicle affordability did not improve. The average used payment rose 0.9%, to $640, while used transaction prices fell 2.6%. A payment that rises while the price falls is arithmetic only the interest rate, the loan term or the loan-to-value ratio can explain. Used is where non-prime borrowers live.</p>

<p>That split runs through everything below. Prime buyers are trading down into used vehicles on better terms. Non-prime buyers are financing a falling asset at a rising payment, in a month when Canadian consumer bankruptcies rose 13.5% from the previous quarter and American repair costs inflated at 6.6%. The relief is landing on one balance sheet, the risk on another. The OCAL Signal exists to describe that gap precisely, because most industry reporting averages it away.</p>

<h2>THE JULY DASHBOARD</h2>

<th>WHAT WE WATCH</th>

<th>WHERE IT STOOD IN JULY</th>

<th>SOURCE AND PERIOD</th>

</tr></thead>

<tbody>

<tr>

<td>Bank of Canada policy interest rate</td>

<td>Bank of Canada, decision of 15 July</td>

</tr>

<tr>

<td>Canadian new light-vehicle sales</td>

<td><strong>About 173,000 units, up 0.5% on a year ago</strong></td>

<td>DesRosiers Automotive Consultants, July</td>

</tr>

<tr>

<td>Canadian wholesale used-vehicle values</td>

<td><strong>Down 0.42% on the week, a seventh straight decline</strong></td>

<td>Canadian Black Book, week ending 18 July</td>

</tr>

<tr>

<td>Canadian consumer insolvencies</td>

<td><strong>37,523 filings, up 6.9% on a year ago</strong></td>

<td>Superintendent of Bankruptcy, second quarter</td>

</tr>

<tr>

<td>American new light-vehicle selling pace</td>

<td><strong>16.3 million vehicles a year, roughly 1.5% below last July</strong></td>

<td>National Automobile Dealers Association, July</td>

</tr>

<tr>

<td>American auto-credit availability</td>

<td><strong>Index at 105, the loosest since November 2015</strong></td>

<td>Cox Automotive Dealertrack, July</td>

</tr>

</tbody>

</table></div>

<p><em>Canadian figures are in Canadian dollars, American figures in United States dollars, and the two are never combined. "Selling pace" is the seasonally adjusted annual rate: the number of vehicles that would sell in a year if the month repeated.</em></p>

<h2>01 Canada’s sales recovery is arriving on top of a depreciating asset</h2>

<p>Canadian light-vehicle sales reached roughly 173,000 units in July, up 0.5% against a tariff-depressed July 2025, a selling pace of 1.90 million vehicles a year. DesRosiers Automotive Consultants called it the strongest July since 2019. Andrew King, the firm’s managing partner, was appropriately dry: “In normal times a gain of 0.5% would perhaps not be worthy of mention, but these are not normal times.”</p>

<p>In the same weeks, Canadian Black Book recorded a seventh consecutive weekly decline in wholesale used-vehicle values. Values fell 0.42% in the week ending 18 July. Trucks and sport utility vehicles fell 0.62% against 0.17% for cars. The declines eased in early August, to 0.16% and then 0.19%, without reversing.</p>

<p>That 1.90 million pace is not a recovery reading. It sits precisely on top of two forecasts made months ago. TD Economics called 1.9 million for 2026 back in February, and AutoCanada guided to roughly the same figure in August, down about 4% on the year. Two positive months have not moved the annual run-rate off the bearish number at all. What July actually shows is arrival at the forecast floor, on a year-ago comparison that gets easier through the fourth quarter.</p></aside>

<p>The second-order problem is directional. Origination volume is rising into collateral that is falling, and the fall is concentrated where Canada finances most. Light trucks, a category that covers pickups, sport utility vehicles, crossovers and vans, were 87.8% of new Canadian sales in the first half of 2026. They are also the consistent wholesale underperformer, falling roughly three and a half times as fast as cars in the week ending 18 July, with the pattern holding into August.</p>

<p>Lease and long-term retail paper on those trucks is exposed at both ends. Soft new pricing compresses the equity in contracts already on the books, while wholesale erosion undercuts the residual value those contracts were written against. At terms of six to eight years, that compounds quietly for a long time before anyone books a loss.</p>

<h2>02 The dealer front end has gone. Finance income is holding the profit line up.</h2>

<p>AutoCanada’s second quarter reported same-store used volume up 10.0% and gross profit per used vehicle down 66.9%, from $1,774 to $587. Wholesale values moved roughly two percent over the quarter. A two percent market cannot produce a sixty-seven percent margin collapse.</p>

<p>The large American dealer groups showed the same compression in gentler form. Gross profit per new vehicle fell at every one of them: Penske down $527, Group 1 Automotive down $404, Lithia Motors down $288. The Presidio Group and NCM Associates, who track average dealership performance, recorded new-vehicle gross profit down 13.5% and pretax profit down 11.8% on the year.</p>

<p>Finance and insurance income, meaning the profit a dealer earns on arranging financing and selling warranties and protection products, split the field. AutoNation was up 3.2% and Asbury up 5.3%. Penske fell 3.8%, Sonic 4% and Lithia 0.2%.</p>

<p>The groups holding their finance and insurance income are the ones building loan books. AutoNation Finance earned $10.7 million in the quarter against $2.0 million a year ago, on a portfolio more than 50% larger. Lithia’s Driveway Finance posted record originations of $884 million and financing income up 81.6%. Retailers losing vehicle gross profit are replacing it with interest income, which means they are increasingly earning through credit risk they now hold themselves. That is happening at the precise moment 29.6% of American new-vehicle trade-ins are underwater by an average of $6,884, and buyers carrying negative equity pay $16,270 in interest over a lifetime of ownership against $9,811 for a typical borrower. The margin recovery and the credit exposure are the same decision. It looks like diversification on an income statement and like concentration on a balance sheet.</p></aside>

<p>A model that earns on transaction economics and finance placement without holding consumer loans or credit-default risk, which is OCAL’s structure, sits on the other side of that trade by construction rather than by forecast. That is not a claim about outcomes. It is a statement about where the risk is parked.</p>

<h2>03 American lenders loosened into a central bank that dissented the other way</h2>

<p>Cox Automotive’s Dealertrack Credit Availability Index, which measures how easy it is to get an auto loan approved, reached 105 in July. That is the loosest auto credit has been since November 2015. Approval rates hit 74%. The subprime share of loans rose 2.67 percentage points from a year ago, to 16.4%. Loans running beyond 72 months rose 4.84 percentage points, to 31.1%. The yield spread, which is the gap between what lenders charge borrowers and what their own funding costs, narrowed by 0.32 percentage points to 6.57%.</p>

<p>On 29 July the Federal Reserve’s rate-setting committee held its benchmark at 3.50% to 3.75% on a nine-to-three vote. All three dissenters, Beth Hammack, Neel Kashkari and Lorie Logan, wanted a quarter-point increase. The statement carried no guidance toward cuts.</p>

<p>Compressed spreads and lengthening loan terms are a bet on falling funding costs. Three voting members of the committee are arguing the opposite case in public. The 2026 lending vintage is being underwritten against a rate path the Federal Reserve has declined to endorse.</p></aside>

<p>The more interesting signal is where the stress actually sits. In December 2025 Fitch Ratings reported that subprime borrowers 60 or more days behind on their auto loans had reached a 32-year high, and the headline travelled everywhere. By June 2026 the same measure read 5.67%, down 0.64 percentage points on the year, and Ally Financial’s own book agrees: net charge-offs of 1.57% against 1.75%, with 30-day delinquencies flat. The subprime tail is healing.</p>

<p>What is deteriorating is the middle. The Federal Reserve Bank of New York put auto loans 90 or more days delinquent at 3.00% in the second quarter, up from 2.93%, measured across all credit tiers including prime. In the same quarter the median credit score on a new auto loan fell seven points. Stress is migrating up the credit spectrum while the tail improves. Lenders reading the subprime headline as the risk are watching the wrong end of the book.</p>

<h2>04 Repair costs are inflating at 6.6%. Insurance prices are falling 4.5%.</h2>

<p>The American Consumer Price Index released on 12 August contained the month’s most consequential pair of numbers. Vehicle maintenance and repair rose 6.6% over twelve months while motor vehicle insurance fell 4.5%. Overall inflation was 3.4%.</p>

<p>Insurers can afford the giveback. American property and casualty carriers paid out 92.4 cents in claims and expenses for every premium dollar in the first quarter, with personal auto driving most of that result, and returned $6.2 billion to policyholders. Meanwhile CCC Intelligent Solutions, which processes collision claims data, put total-loss frequency at a record 23.1% of claims and found 28.3% of repairable estimates now require recalibration of driver-assistance sensors. Roughly 44% of manufacturer collision parts sold in the United States are made overseas and carry a 25% tariff under Section 232 of the Trade Expansion Act, with the covered list still expanding through quarterly review windows.</p>

<p>Insurers are pricing off 2024 and 2025 loss experience while the 2026 severity curve keeps climbing. The rate relief consumers are seeing today is a lagging indicator being consumed as a leading one, and it does not survive the 2027 renewal cycle.</p></aside>

<p>There is a Canadian wrinkle that almost nobody has repriced. On 1 July Ontario made most statutory accident benefits optional, leaving only medical, rehabilitation and attendant care mandatory. That lowers the mandatory premium, and the buyers most likely to decline optional coverage in order to make a monthly payment work are the same non-prime buyers already stretched. When one of them writes off a financed vehicle with coverages declined, the shortfall lands on the lender. Guaranteed asset protection, the product covering the gap between an insurance settlement and the outstanding loan balance, changed economics in Ontario that day. The version priced for the old regime is now underpriced for the new one.</p>

<h2>05 Washington is withdrawing supervision from subprime auto lending</h2>

<p>The Federal Trade Commission’s Combating Auto Retail Scams rule, which set national standards for how dealers advertise and disclose vehicle pricing, was struck down by the Fifth Circuit Court of Appeals on procedural grounds and removed from the Code of Federal Regulations on 12 February. The court did not hold the underlying conduct lawful, and the exposure did not end. The Commission sent 97 warning letters to dealership groups on 13 March and is pursuing the same conduct under its general unfair-practices authority.</p>

<p>Separately, the Consumer Financial Protection Bureau has proposed raising the threshold at which it supervises non-bank auto lenders, from 10,000 loans a year to somewhere between 300,000 and 1,050,000. At the top of that range the number of supervised non-bank auto lenders would fall from roughly 63 to about five. A proposed rule is expected between August and September.</p>

<p>Striking down a national rule raised compliance cost rather than lowering it. One federal standard with one compliance build has been replaced by fifty state regimes plus case-by-case enforcement, with no safe harbour. California’s own version, Senate Bill 766, takes effect on 1 October and goes further than the federal rule ever did. It gives buyers a three-day right to cancel on used vehicles under $50,000, requires itemized disclosure of every finance and insurance add-on, prohibits products with no demonstrable benefit, and forces dealers to remit product payments within ten days. There is no federal equivalent to any of it.</p></aside>

<p>The withdrawal of supervision has a second-order effect that runs through funding rather than through consumers. Investors in auto-loan securitizations, and the banks providing warehouse credit lines, have used federal examination as a free diligence signal on non-bank lenders. Remove it and that cost migrates into the capital stack, as wider spreads on subordinate bonds and tighter advance rates for unsupervised issuers. That is a cost-of-capital increase landing on exactly the lenders who serve the borrowers already defaulting.</p>

<h2>06 Europe and Asia Radar</h2>

<h2>THE USED ELECTRIC RESIDUAL TROUGH IS A CYCLE, NOT AN IMPAIRMENT</h2>

<p>Used electric-vehicle prices in the United Kingdom rose 3.3% against a year ago in July. Auto Trader, which runs the country’s largest vehicle marketplace, called it record growth and the second consecutive positive month after a reversal that began in June. Cars three to five years old rose 10.2%. Used electric vehicles now sell in 25 days against 30 for petrol. In continental Europe, battery-electric residual values improved in most markets even as the overall market fell. German battery-electric residuals gained 0.5 percentage points while the market lost 2.3, though they still sit roughly 15 points below the all-powertrain average.</p>

<p><strong>How it travels.</strong> The United Kingdom ran the full sequence, from collapse through oversupply clearance and affordability crossover to demand recovery, roughly 18 to 24 months ahead of North America.</p>

<p><strong>What to watch.</strong> North American used battery-electric days-to-turn crossing below used petrol. That was the British leading signal, and it preceded the price turn.</p>

<h2>CHINA EXPORTED ITS OVERCAPACITY, AND THE VOLUME NOW MOVES GLOBAL PRICING</h2>

<p>The China Association of Automobile Manufacturers reported 1,043,000 vehicle exports in July, up 81.3% on a year ago and the second consecutive month above a million. Exports of new energy vehicles, China’s term covering battery-electric and plug-in hybrid models, reached 553,000, up 145.5%. The headline sales figure looks healthy: 9,007,000 new energy vehicles sold so far this year, up 9.9%. But the association’s own figures put exports over the same period at 2,909,000, up about 120%. Net the two and domestic volume is running below last year, by our calculation in the region of ten percent. Chinese manufacturers are not growing at home, they are relocating unsold volume abroad. The European Union’s minimum-price mechanism, introduced in January, replaced tariffs with a price floor that lets exporters keep the former duty margin as profit, which is why Chery is up 274% in Europe.</p>

<p><strong>What to watch.</strong> A third and fourth consecutive million-unit export month confirms this is structural rather than a pull-forward.</p>

<h2>CANADA IS THE SOFT POINT IN THE PERIMETER, AND SEPTEMBER IS THE TEST</h2>

<p>Under the preliminary arrangement Global Affairs Canada announced on 16 January, Canada replaced its 100% surtax on Chinese electric vehicles with a quota of 49,000 vehicles a year at the standard 6.1% tariff rate. That is under 3% of the Canadian new-vehicle market, and by 2030 half the quota is reserved for vehicles priced at $35,000 or less. Trade reporting puts first-window use at roughly 38% by mid-July, with the heaviest fortnight of arrivals since the quota opened. The importer so far is overwhelmingly Tesla, shipping the Shanghai-built Model 3 at $39,490.</p>

<p><strong>What to watch.</strong> Whether the window opening 1 September is filled by Tesla again, or by a genuine Chinese brand at the sub-$35,000 price point the policy reserves. If it is the latter, Canadian entry-level electric pricing resets downward and residual values compress across the existing sub-$45,000 electric book, including units already financed and on the road.</p>

<h2>ONE THING THAT DID NOT HAPPEN</h2>

<p>The European Automobile Manufacturers’ Association published no July registration data. Its 2026 calendar schedules a summer break, with August figures due on 24 September. Any July 2026 figure attributed to it is a national aggregation or an invention.</p>

<h2>07 What the market is missing</h2>

<p>Every affordability headline in July was true, and every one of them described the wrong borrower.</p>

<p>New-vehicle payments fell. Insurance prices fell 4.5%. Canadian passenger-vehicle inflation came in at a benign 1.9%. Used transaction prices fell on both sides of the border. Read those together and the affordability crisis looks like it is easing. Now read the other column. Canadian used monthly payments rose 0.9% while used prices fell 2.6%. Repair costs inflated 6.6%. Canadian consumer bankruptcies, not proposals but bankruptcies, rose 13.5% on the quarter and 10.3% on the year, while proposals fell 2.1%. American used inventory priced under $15,000 fell 20% on the year, to just 16.4% of stock. Household credit-market debt reached 179.6% of disposable income, a sixth consecutive quarterly increase.</p>

<p>Those are not two readings of one market. They are two markets. The relief is accruing to prime borrowers, who are trading down into used vehicles on better terms, paying lower insurance, and facing a mortgage renewal that now cuts their payment rather than raising it. TD Economics projects the median Canadian mortgage payment will fall 0.3% this year. The pressure is accruing to renters and to borrowers without mortgages, whom the Bank of Canada shows running 60-day delinquency at 2.5% against 1.3% for mortgage holders. No home equity, no renewal relief, and disproportionately the non-prime used-vehicle customer.</p>

<p>The tell is in the insolvency mix. Filing a bankruptcy rather than a consumer proposal means the borrower has too little surplus income to fund a proposal at all, so the vehicle is more likely to be surrendered than restructured. That is happening in a quarter when Canadian unemployment fell to 6.4% and employment rose by 75,000. Rising insolvency into a tightening labour market means the driver is accumulated debt, not job loss. Stock, not flow. It will not be fixed by an employment report, and it will not show up in an average.</p>

<h2>08 The OCAL Watchlist</h2>

<p>■ <strong>Statistics Canada.</strong> July inflation on 17 August and June retail trade on 21 August. The first Canadian confirmation of whether the slowdown in vehicle prices held.</p>

<p>■ <strong>Bank of Canada, 2 September.</strong> Core inflation measures at 1.8% and 1.9% sit below target while the headline sits at 2.8% on gasoline alone. If oil rolls over, this decision is live in a way the July language does not telegraph.</p>

<p>■ <strong>The Chinese electric-vehicle quota.</strong> Canada’s second import window opens 1 September. Watch who fills it.</p>

<p>■ <strong>The Consumer Financial Protection Bureau.</strong> Its proposed supervision rule, expected between August and September. California’s Senate Bill 766 comes into force 1 October, the first real test of the fifty-state compliance patchwork.</p>

<p>■ <strong>The 2027 insurance renewal cycle.</strong> The gap between 6.6% repair inflation and insurance prices falling 4.5% has to close somewhere.</p>

<p>■ <strong>The British motor-finance redress scheme.</strong> The Financial Conduct Authority has 12.1 million agreements in scope at about £830 each, partially suspended since 2 July and next heard in December 2026 or February 2027. The precedent is what matters: a regulator has established undisclosed dealer commission as a systemic harm that can be remedied retrospectively.</p>

<h2>Where these numbers come from</h2>

<p>Bank of Canada. Interest rate decision and Monetary Policy Report, 15 July 2026; Governing Council deliberations, 29 July 2026; Financial Stability Report, 28 May 2026 (<a href="https://www.bankofcanada.ca/2026/07/fad-press-release-2026-07-15/"><u>bankofcanada.ca</u></a>). Statistics Canada. June inflation, 20 July 2026; July Labour Force Survey, 7 August 2026; May retail trade, 23 July 2026; first-quarter national balance sheet accounts, 12 June 2026.</p>

<p>Office of the Superintendent of Bankruptcy. <a href="https://ised-isde.canada.ca/site/office-superintendent-bankruptcy/en/statistics-and-research/insolvency-statistics-canada-second-quarter-2026"><u>Insolvency statistics, second quarter 2026</u></a>, 10 August 2026. DesRosiers Automotive Consultants, July sales, reported by Canadian Auto Dealer, 7 August 2026. AutoTrader.ca Price Index, second quarter 2026, measuring through 30 June. AutoCanada Inc. second-quarter results, 12 August 2026. <a href="https://www.canadianblackbook.com/market-insights/"><u>Canadian Black Book Market Insights</u></a>, weeks ending 18 July, 1 August and 8 August 2026.</p>

<p>Cox Automotive. <a href="https://www.coxautoinc.com/insights/jul-2026-cai/"><u>Dealertrack Credit Availability Index</u></a>, 10 August 2026; <a href="https://www.coxautoinc.com/insights/manheim-used-vehicle-value-index-july-2026-trends/"><u>Manheim Used Vehicle Value Index</u></a>, 7 August 2026; <a href="https://www.coxautoinc.com/insights/used-vehicle-inventory-july-2026/"><u>used-vehicle inventory</u></a>, 14 August 2026; Kelley Blue Book transaction prices, 11 August 2026. National Automobile Dealers Association Market Beat, 31 July 2026.</p>

<p><a href="https://www.federalreserve.gov/newsevents/pressreleases/monetary20260729a.htm"><u>Federal Reserve rate decision, 29 July 2026</u></a>. Federal Reserve Bank of New York, Household Debt and Credit, 11 August 2026. <a href="https://www.bls.gov/news.release/archives/cpi_08122026.htm"><u>Bureau of Labor Statistics Consumer Price Index, July 2026</u></a>, 12 August 2026. Edmunds negative-equity report, 16 July 2026. Ally Financial second-quarter results. Verisk and the American Property Casualty Insurance Association, first quarter 2026. CCC Intelligent Solutions, Crash Course 2026. The Presidio Group and NCM Associates, second quarter 2026.</p>

<p><a href="https://www.fsrao.ca/industry/auto-insurance/changes-statutory-accident-benefits-coverage-ontario-july-1-2026"><u>Financial Services Regulatory Authority of Ontario, accident benefit changes effective 1 July 2026</u></a>. Federal Register 91 FR 6507, 12 February 2026. Federal Trade Commission, 13 March 2026. California Senate Bill 766. Consumer Financial Protection Bureau advance notice, 8 August 2025.</p>

<p>Auto Trader plc, 7 August 2026. J.D. Power and Autovista, 31 July 2026. Society of Motor Manufacturers and Traders, 5 August 2026. China Association of Automobile Manufacturers, 12 August 2026. <a href="https://www.international.gc.ca/news-nouvelles/2026/2026-01-16-china-chine.aspx?lang=eng"><u>Global Affairs Canada, Canada and China preliminary arrangement, 16 January 2026</u></a>. Financial Conduct Authority policy statement PS26/3 and scheme suspension notice, 2 July 2026. Kerrigan Advisors. TD Economics, 19 February and 4 March 2026.</p>

<h2>About OCAL Financial</h2>

<p>OCAL Financial Inc. is an asset-light, AI-native virtual automotive dealership and vehicle-finance platform. Operating remotely and licensed in British Columbia and Alberta, OCAL moves customers from application to approval, vehicle matching, digital contracting and delivery in a single workflow. Rather than carrying owned inventory, OCAL sources each vehicle only after a customer is approved, drawing on the OPENLANE auction network and select partners. OCAL earns revenue from vehicle sales and related finance and protection products, and does not hold consumer loans or assume credit-default risk. Its proprietary technology stack, comprising workflow orchestration, a lender-routing credit-intelligence system, voice AI, and a centralized business-intelligence system, is purpose-built for automotive transactions. OCAL Financial Inc. trades on the TSX Venture Exchange under the symbol OCAL.</p>

<p>The OCAL Signal is published by OCAL Financial Inc. for general informational purposes only. It is not investment, financial, legal, accounting or tax advice, and it is not an offer to sell or a solicitation of an offer to buy any security. Nothing in it should be relied upon in making an investment decision.</p>

<p>Statistics, forecasts and third-party analysis are attributed to their sources and reproduced as published. OCAL has not independently audited third-party data and makes no representation as to its accuracy or completeness. Analysis and opinion are those of the author as at the research closing date and subject to change without notice.</p>

<p>This publication may contain forward-looking information within the meaning of applicable Canadian securities laws, identified by words such as “expects,” “anticipates,” “may” or “will.” It is not a guarantee of future performance and involves risks that may cause actual results to differ materially. Readers should not place undue reliance on it, and OCAL assumes no obligation to update it except as required by law. Neither the TSX Venture Exchange nor its Regulation Services Provider accepts responsibility for the adequacy or accuracy of this publication.</p>