Credit Acceptance Q2 net income plunges 79%

Credit Acceptance Corp.'s net income fell to $22.2 million, down 79 percent from a year earlier as the major non-prime auto lender collected less than it expected from borrowers and saw "below-average" loan prepayment rates cut into its cash flow.

Net income also was impacted by Credit Acceptance revamping its forecasting to take into account more recent loans with weaker performance, the lender said in announcing earnings Aug. 1. The revised projections were among the factors leading Credit Acceptance to increase the amount it set aside for possible credit losses by 70 percent to $250.5 million.

However, the second quarter also saw Credit Acceptance grow its volume 13 percent to 82,727 loans and increase the initial spread — the difference between what it pays dealerships sending it loans and what it expects to earn on the debt — by 1.2 percentage points from a year earlier to 21.2 percent. The lender worked with 9,860 dealerships, up 16 percent.

Chief Treasury Officer Douglas Busk on an Aug. 1 earnings call attributed the increased business with dealerships to a more favorable competitive environment than a year earlier and Credit Acceptance's launch of a initiative "targeted at a little higher credit-quality borrower." Busk said the concept was to grow volume, even if the profit margin would be thinner.

Credit Acceptance said its average second-quarter loan financed $27,260, paid the dealership $12,726, not counting "holdback" payments and had a 61-month term.

Credit Acceptance released earnings after the market had closed at $553.10. Shares were down 4.2 percent in after-hours trading as of early evening Aug. 1.