Subprime lender Credit Acceptance says car loan volumes tumble

Amid its own internal tumult, coupled with unheard of external market conditions, Credit Acceptance Corp. has seen its loan volumes plunge.

The subprime auto lender disclosed in a regulatory filing last week that its May "Consumer Loan assignment unit volume" had declined 44.3 percent from the same month last year, but offered no explanation as for the reason.

The drastic decline in loan volume for the lender, which primarily finances those with low credit scores buying used cars, is likely tied to the ongoing microchip shortage that's halting production of new cars and laying waste to dealer inventories, according to industry analysts.

The cost of previously owned sedans, pickups and SUVs soared 10 percent in April, according to a Bloomberg report, citing data from the U.S. Bureau of Labor Statistics. It makes for the fastest climb ever in data that go back to 1953. It accounted for more than a third of the 0.8 percent increase in the consumer price index, which was four times the level economists estimated.

Simply put, dealers are not receiving new cars to sell, due to the lack of chips. That makes used cars king and accounting for the surging prices, said Michael Buckingham, the managing director of automotive finance at market research firm J.D. Power.

"Used pricing has gotten astronomically high, because inventory levels are so low," Buckingham told Crain's Detroit Business in an interview Friday. That means that would-be customers of Credit Acceptance are simply "priced out," Buckingham said. Crain's is an affiliate of Automotive News.

Moreover, he noted that subprime lenders such as Credit Acceptance are being more cautious on their lending given the uneven economic climate. Dealers, however, are interested in making sales and are going with those with better credit history, Buckingham said.

Credit Acceptance, based in suburban Detroit, did not respond to a message from Crain's seeking comment.

For the first quarter of this year, Credit Acceptance reported total loan volume of 93,874, a 7.5 percent decline from the first quarter of 2020, according to its most recent earnings report.

Credit Acceptance executives wrote in the quarterly report that the company saw a "significant decline" in loan volume early last year due to the onset of the pandemic.

"Starting in March 2021, unit volumes improved again as additional federal stimulus payments were distributed," reads the late April earnings report.

The current market dynamics that appear to be impacting Credit Acceptance — and likely other subprime lenders, according to Buckingham — are largely unprecedented.

The days of a customer buying a new car, driving it off the lot and the vehicle immediately losing a large chunk of its value are gone. Dealers are buying used vehicles at auction for eye-popping amounts — sometimes even more than the car's original sticker price — even as they scramble for other ways to obtain used-vehicle inventory.

While wholesale prices are expected to remain at this peak for another month or two, they also may have shifted upward for the foreseeable future, simply because there are fewer cars and trucks in the U.S. to sell, according to a report by Automotive News.

In its filing disclosing the decline in loan volumes, Credit Acceptance executives noted that the company, "in disclosing this information regarding monthly Consumer Loan assignment unit volume, is not acknowledging any obligation to have done so and is not undertaking any obligation to disclose monthly Consumer Loan assignment unit volume information in the future."

The external strife impacting the lender comes amid mounting issues that have had the company in the sights of regulators, politicians and activist investors for the last year or more.

In late April, the company simultaneously announced that longtime CEO Brett Roberts would retire, which he said he was doing for "personal reasons," and that the company had reached a $27 million settlement with the Massachusetts attorney general tied to alleged deceptive loan practices.

Over the last several months, notable short sellers such as Steve Eisman and Andrew Left have taken on positions betting against the company's stock price, citing expected regulatory crackdowns tied to the company's alleged business practices. Those include high interest rates, hidden fees and repossessing more than one-third of the vehicles it finances.

While acknowledging some of the issues that have plagued Credit Acceptance, Buckingham with J.D. Power said he sees them as separate from the declining loan volume disclosed Wednesday.

The analyst said his firm is still compiling total May auto loan data, but that based on recent trends, he expects the same dynamic to impact Credit Acceptance's competitors in the subprime space.

"I tend to think it's going to be a pattern," Buckingham said. "I don't think they're going to be an outlier."

— Automotive News contributed to this report