CAC originations rise 10.5%, outstandings reach record

Credit Acceptance Corp. ’s origination volume rose on a year-over-year basis in the third quarter, marking the sixth consecutive quarter of growth and a record portfolio size for the auto lender. Consumer loan assignments increased 13% YoY on a unit volume basis to 81,229 contracts and rose 10.5% YoY on a dollar basis, according to the lender’s Oct. 30 earnings release. Initial spreads on loans assigned during the quarter ticked up to 21.4%, up from 20.2% in Q3 2022. Additionally, through the first 28 days of October, Credit Acceptance Corp.’s (CACC) unit volume increased 27.5% compared with the corresponding period in 2022, Chief Executive Ken Booth told Auto Finance News . Southfield, Mich.-based CACC has seen greater demand for its product as other lenders have pulled back in the space, which has led to increased originations , he said. The lender has expanded its reach into the near-prime credit segment as originations have grown, Booth said. Of the total unit volume in the third quarter, 21.4% carried a FICO score above 650, up compared with 15.8% in Q3 2022. “We [originate] anywhere under the 700 range for the most part,” Booth said. “We have a small number of loans that are above 700, but mostly we're under 700.” The lender’s adjusted loans receivable — or outstandings — reached $7.5 billion at the end of Q3, an increase of 4.2% quarter over quarter and 11.9% YoY, marking a record high for the company, he said. During the quarter, CACC also grew its active dealer base and the number of new dealers it added compared with last year. The number of active dealers — dealerships that have received funding for at least one loan during the quarter — increased 14.9% YoY to 9,818, while new active dealers jumped 45.8% YoY to 983, according to the release. “The way we really grow our business is by enrolling more dealers on our program; that is a key driver,” Booth said. “The better we can make our product, the easier it is to sign up those dealers and the lower attrition rates go for dealers.” CACC has a broad mix of dealer sizes within its portfolio, Booth said. About 25% to 35% of the lender’s dealer base is made up of franchised and large independent dealer groups such as AutoNation. The remaining 65% to 75% are small and medium independents, he said. “Our sweet spot tends to be the small and medium independents, but we've got a strong presence in all facets,” Booth said. Looking ahead to the new year, Credit Acceptance expects to continue to grow its portfolio. “We're a growth company,” Booth said. “We've been successful over the last 20 years growing it, and that's what we want to do going forward.” Forecasted collection rates rise in 2023 but fall QoQ for three years prior CACC’s forecasted collection rates were mixed in movement based on the years in which the loans originated. Forecasted collection rates on the lender’s 2023 portfolio — which includes Q1 and Q2 — ticked up 10 basis points (bps) QoQ to 67.6%, matching the initial forecast set on the loan pools, according to the release. Loans originated in Q3 have an initial forecasted collection rate of 67.7%. The forecasted collection rate on the lender’s 2022 portfolio fell to 63.5% in Q3, down compared with a forecasted rate of 64.3% in Q2 and down from the initial rate of 66.3%. Collection rates for 2021 originations came in at 64.9%, a decline of 60 bps QoQ and 130 bps YoY, according to the release. Across the auto lending industry, credit score migration attributed to COVID-19 stimulus money that was injected into the economy and inflated consumer FICO scores has now led in part to softer performance on 2021 and 2022 vintages for many lenders. “We've got some slight softening in the 2021 and 2022 vintages, which is consistent with what others are seeing,” Booth said. “What I take as a positive from this quarter is our 2023 vintage, which are the loans that we're writing now, have stayed stable and they're starting to get sufficiently aged where if they were going to perform like the earlier vintages it would show, but they're not.” The collection rate on the company’s 2020 vintages ticked down 30 bps QoQ to 67.5% but is still above the initial forecast of 63.4%, according to the release. Credit loss provisions for the first nine months of 2023 jumped 63.1% YoY to $572.5 million. Shares of Credit Acceptance Corp. [ Nasdaq: CACC ] were trading at $430.06 at market close in New York today, down 3.2% from market open. CACC has a market capitalization of $5.4 billion .

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