Credit Acceptance Corp. grew its total portfolio outstanding to $4.4 billion in the first quarter — up 23.4% compared to the same period the year prior, the company disclosed in its latest earnings report.
The subprime lender’s program is different than its competitors in the space. Dealers in the Credit Acceptance program submit loans for assignment, the lender then uses historical data to predict the loan’s performance, and sends a one-time cash advance to purchase the contract from the dealer.
Credit Acceptance purchased 94,809 of those contracts in the first quarter down from 101,551 in 1Q 2016.
The number of active dealers in the program increased nearly 5% year over year, however average volume per active dealer was down 11%.
“We did grow the dealers, but we didn’t grow very rapidly — the growth rate was slower than last quarter,” Doug Busk, senior vice president and treasurer of Credit Acceptance, said on Monday’s earnings call. “We’d like to be growing a little bit faster than we are, but in the last two quarters that’s the best we have been able to do.”
An analyst on the call asked about used-car values, but the company feels this auto finance trend “doesn’t have a huge impact on our business,” Busk said.
“What we try to do instead of trying to put a perfect forecast on where vehicle values will be in the future, is we try to originate business within expected return well above our cost to capital,” he said. “Even if collection rates come in a little bit lower than we anticipated, the business we are writing is still very profitable.”
Because Credit Acceptance’s different business model lends itself to higher delinquencies than its competitors, it reports initial forecasts of how much it expects to collect on the pool of loans compared to the most up to date results.
For loans made in the first quarter, an initial forecast expected to collect 63.7% of the amount owed on the loan — principal plus interest. That’s the company’s lowest collection rate since at least 2008. However, by period end, collections had improved to 64.5%.
Net charge-offs totaled $2.9 million remaining flat, compared with the same period the year prior. Provisions for credit losses decreased 7.2% to $20.5 million.