Credit Acceptance net income drops 54% in Q1, but loan volume up

Credit Acceptance Corp.'s net income dropped 54 percent in the first quarter to $99.5 million compared with a year earlier as the company set aside $114.1 million more as a hedge against future losses.

The subprime-focused auto lender said Monday it had experienced lower first-quarter profitability on loans from 2020 to 2022 than it had earlier forecast. Credit Acceptance attributed this result to lower forecasted collection rates for the last nine months of 2022 and reduced first-quarter cash flow from fewer auto loan prepayments.

"Historically ... prepayments have been lower in periods with less availability of consumer credit," Credit Acceptance said in a statement Monday.

Credit Acceptance also posted a $17.9 million increase in its interest expense, driven primarily by higher interest rates in new debt, and a $14.8 million increase in operating expense as the lender added engineering staff. It said the engineering spending was meant "to enhance our product and transform our technology systems to be more dealer- and customer-focused." Chief Treasury Officer Doug Busk said during an earnings call Monday that the engineering spending would likely continue.

Though Credit Acceptance grew its expenses during the quarter, it also grew its business. The company took on 89,821 loans during the first quarter, up 23 percent from a year earlier, with the average dealership sending it 9.2 loans during the quarter, up 4.5 percent. These tallies included business from 1,500 dealers it hadn't worked with during the first quarter of 2022.

The combined dollar value of these new loans was up 19 percent from a year earlier, the lender said. Credit Acceptance said the difference between the loan volume and dollar volume growth rates stemmed from having reduced the amount of advance money paid dealers who assign or sell it loans. The average dealership advance in the first quarter fell to $12,268, or 46 percent, from $12,924, or 47 percent of the loan's principal and interest.

Other results from Credit Acceptance's first-quarter earnings report include:

Q1 revenue: $453.8 million, down 0.4 percent from a year earlier.

Q1 net income: $99.5 million, down 54 percent from a year earlier.

Q1 adjusted net income: $127 million, down 36 percent from a year earlier.

Q1 loans: 89,821 loans, up 23 percent.

The first quarter also saw Credit Acceptance hit with a joint lawsuit from the New York Attorney General's Office and Consumer Financial Protection Bureau. The two agencies alleged in January the lender misled consumers about the affordability and cost of car loans and let dealerships deceive customers. Credit Acceptance filed a motion to dismiss the case in March.

"The Company intends to vigorously defend itself in this matter," Credit Acceptance wrote in its quarterly filing Monday.