CACC - Credit Acceptance Corp

[Edward]

I noticed about 3 years ago a few problematic trends in CACC that make me question their risk management going forward. These are continuing concerns today.

 

First, the loans got longer and longer, on higher and higher loan values per car. So that's not a good trend.

 

Second, their "good" part of the business which is investing in portfolios along with dealers is going nowhere fast, with mixed metrics.

 

On the other hand, most of the growth is coming from regular whole purchase of loans.

 

The problem with that is that in the former, CACC has the dealer taking the first loss on the loans so writeoffs can be minimal even in a stressed market, effectively a mezzanine position.

 

In the latter, CACC takes the loss first. That's bad business and effectively identical to the other lenders - hence no moat.

 

So thread carefully. Past performance is no indication of future results.

 

By the way, the founder smelled the rat a few years ago and quietly "retired", sold many of his shares in the company while building a new dealership business from scratch.

https://www.bloomberg.com/news/articles/2017-05-04/as-inventor-of-subprime-car-loans-exits-critics-smell-a-lemon

 

A ringing endorsement.

[abitofvalue]

to be fair - historically they have dealt with downturns by taking price and rapidly gaining share as other lenders pull back.  still could see some volatility near-term.

 

IIRC foss had started a business that was competing with CACC and it led to board disagreements.. so he left under a bit of cloud and suddenly.

 

the longer and lengthier loans are a concern and was in response to the market.. but yes it did lower returns on their business.