Credit Acceptance sees more loans from dealers as Q3 earnings plunge

Credit Acceptance Corp. reported double-digit increases in auto loan volume and value during the third quarter as the subprime auto lender did business with significantly more dealerships, but net income plunged.

The company acquired 71,937 new loans during the third quarter, up 29 percent from a year earlier, representing $924.9 million in new business, a 32 percent increase from the third quarter of 2021. The third-quarter loans came from 8,547 dealerships, a pool 13 percent larger from a year earlier.

But some loans from recent years have been less lucrative than Credit Acceptance expected. The lender lowered its forecast for anticipated collection rates from its loan portfolio for debts assigned in 2019 through 2022. This means Credit Acceptance expects to miss out on $85.4 million in expected cash flow, a 0.9 percent decline, the company said.

Credit Suisse analyst Moshe Orenbuch observed during an earnings call Nov. 1 this decrease occurred during a time of stable employment, and he asked what would happen under improved or worsened jobless rates. Credit Acceptance Chief Treasury Officer Doug Busk pointed to the economic woes of the late 2000s, when his company's forecasts were off by 2.5 to 3 percentage points.

"During the great credit crisis, our loans performed pretty close to our expectations," he said.

Credit Acceptance said net income fell 65 percent to $86.8 million. The decline was due to reduced finance income and new accounting rules requiring the company to set aside funds against the risk of loss.

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

Q3 revenue: $460.3 million, down 2.1 percent from a year earlier.

Q3 adjusted net income: $178.5 million, down 19 percent from a year earlier.

Shares in Credit Acceptance fell 4.6 percent to $449.99 in premarket trading on Wednesday.