Credit Acceptance, which is engaged in the nasty business that is subprime auto lending, issued a strange filing last week to the Securities and Exchange Commission. It disclosed, voluntarily, that Credit Acceptance’s loan volume was down 44.3 percent in May compared to last year, a startlingly high number.
It’s not clear why Credit Acceptance made the disclosure; it’s possible that it merely wanted to warn shareholders of some coming bumps in the road. But, as Crain’s Detroit Business teased out, the steep drop in auto loans is almost certainly tied to the global chip shortage, which has shut down car factories and made the used car market go haywire.
“Used pricing has gotten astronomically high, because inventory levels are so low,” [Michael Buckingham, the managing director of automotive finance at market research firm J.D. Power] told Crain’s Detroit Business in an interview Friday. That means that would-be customers of Credit Acceptance are simply “priced out,” Buckingham said.
[...]
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.
Which, fine, the auto industry is deeply interconnected, and when a butterfly flaps its wings sometimes that causes a typhoon, but what is an understandable dip in business has Credit Acceptance feeling a little salty. Take the following note it attached to last week’s volume disclosure despite doing this same disclosure in the past.
Credit Acceptance Corporation, 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.
I’m sorry you had a shit May, Credit Acceptance, really couldn’t have happened to a nicer company.
DISCUSSION
I hadn’t really thought about it, but the inventory of cheap but somewhat reliable older cars is probably really, really down.
Someone who drives a $3k ‘05 Altima might want to trade up to a $6k ‘12 Altima, but won’t do so when that same car is $10-12k. There’s also way fewer people letting go of their 2012 Altima’s because they can’t afford a newer car. This may mean throwing good money after bad on a series of repairs to keep an old vehicle on life support.
Meanwhile those with better credit are more likely to just give in to paying $25k for what should be a $20k CRV or whatever.
Predatory loans aside, once again the poor feel economic effects first and hardest.