Auto Loan Volume Gains Aid Credit Acceptance’s 1Q Results
SOUTHFIELD, Mich. — A double-digit gain in consumer auto loan unit volume help to push Credit Acceptance Corp. to quarter-over-quarter advances in both net income and revenue.
Company executives shared their 2010 first-quarter financial report late last week and mentioned that loan unit volume climbed 11.2 percent. They noted that the average volume per active dealer partner also climbed by a healthy figure, too. That mark went up by 9.2 percent as compared to the first quarter of last year.
Furthermore, Credit Acceptance's amount of active dealers edged up slightly in the quarter, as well, climbing by 1.8 percent to 2,346.
Brett Roberts, Credit Acceptance's chief executive officer, explained how the combination of all those factors led to a favorable financial performance.
"Dollar and unit volume increased during the first quarter of 2010 as compared to the same period in 2009 due to pricing changes implemented during the last four months of 2009 and the first quarter of 2010 that reduced per unit profitability in exchange for increased unit volume," Roberts noted.
"As a result of our success in renewing our debt facilities during the third quarter of 2009, securing additional financing during the fourth quarter of 2009 and issuing our senior notes in the first quarter of 2010, we are in position to grow year over year unit volumes," he continued.
"We will continue to monitor unit volumes and will make additional pricing changes with an objective to maximize economic profit given the capital we have available," Roberts added, "Future growth rates will partially depend on how unit volumes respond to pricing changes, which will be influenced to a large degree by how quickly competition returns to our market."
Credit Acceptance revealed that its consolidated net income for the first quarter of 2010 came in at $32.0 million, or $1.01 per diluted share. That figure was up from what the company compiled in the first quarter of last year, which was a consolidated net income total of $29.0 million, or $0.93 per diluted share.
The company shared that its adjusted net income — a non-GAAP financial measure — for the quarter was $35.5 million, or $1.12 per diluted share, compared with $24.7 million, or $0.79 per diluted share, for the same period in 2009.
When looking at total revenue, Credit Acceptance indicated its total for the quarter was $103.2 million with $89.6 million deriving from finance charges. The total revenue figure from the recent quarter was up from $87.8 million the company posted in the opening quarter of 2009.
Consequently, company executives pointed out that their economic profit increased by 54.7 percent in the first quarter. They reiterated that economic profit is a function of the return on capital in excess of the cost of capital and the amount of capital invested in the business.
"The increase in economic profit for the three months that ended March 31 as compared to the same period in 2009 was primarily the result of a 500-basis-point increase in the adjusted return on capital, which reflects both higher yields on more recent consumer loan assignments and, to a lesser extent, lower operating expenses," Roberts highlighted.
"The increase in adjusted return on capital was partially offset by a 190-basis-point increase in our cost of capital for the quarter as compared to the same period in 2009," he continued.
"The increase in our cost of capital was primarily due to an increase in our average cost of debt and a reduction in our debt to equity ratio," Roberts went on to say. "The increase in our average cost of debt was primarily due to the issuance of our senior notes during the first quarter of 2010 and an increase in available and unused credit capacity."