SOUTHFIELD, Mich. — Stabilizing returns greatly aided Credit Acceptance Corp. in making significant gains in both consolidated and adjusted net income during the second quarter.

The company reported earlier this week that its consolidated net income for the quarter that ended June 30 totaled $49.0 million, or $1.55 per diluted share. This marked quite a rise from the same period a year ago when the company posted $36.2 million, or $1.15 per diluted share.

Looking at consolidated net income for the six-month span that ended on the same date, Credit Acceptance generated $81.1 million, or $2.56 per diluted share. For the same period in 2009, the company compiled $65.2 million, or $2.08 per diluted share.

Turning to a view of adjusted net income, executives highlighted similar gains when comparing results to the same time period in 2009.

During the most recent three-month span, the company totaled $41.7 million, or $1.32 per diluted share, in adjusted net income. A year ago, the figure was $30.1 million, or $0.96 per diluted share.

Extending the view to the first six months of 2010, Credit Acceptance's adjusted net income was $77.2 million, or $2.44 per diluted share. In the same time frame last year, the amount was $54.8 million, or $1.75 per diluted share.

Management believes the increases in economic profit for the three- and six-month spans that ended June 30 were primarily the result of improvements in adjusted returns on capital. Executives pinpointed these increased 470 basis points for the three-month period and 480 basis points for the six-month span.

Credit Acceptance elaborated about the reasons why.

First, officials said finance charges increased adjusted returns on capital by 300 basis points for the three-month span and 350 basis points for the six-month period as compared to the same periods in 2009. They indicated this was primarily due to higher yields on more recent consumer loan assignments.

Next, the company found operating expenses grew adjusted returns on capital by just 90 basis points for the three-month period and 70 basis points for the six-month span. Executives determined these mild increases came about because of reduced expenses related to information technology, stock compensation and legal costs.

Furthermore, Credit Acceptance learned other income increased adjusted returns on capital by 90 basis points for the three-month time frame and 60 basis points for the six-month span. It was determined these gains were as a result of $2.1 million (after-tax) of income recognized during the second quarter of this year related to an arrangement with one of the company's third-party vehicle service contract providers. Officials said this arrangement was discontinued in 2008 and no additional income is expected beyond the amount recognized to date.

"While we continue to generate income from vehicle service contracts such amounts are captured through VSC and recorded over the life of the contracts," officials explained.

Delving deeper into analysis of its consumer loan performance, Credit Acceptance reiterated that the company forecasts future expected cash flows from the consumer loans. Based on the forecast, an advance or one-time payment is made to the related dealer-partner at a price designed to achieve an acceptable return on capital.

If consumer loan performance equals or exceeds the original expectation, management stressed that the target return on capital can be achieved.

As a result, Credit Acceptance determined consumer loans assigned in 2002 through 2004 and 2008 through 2010 have performed better than initial expectations. However, consumer loans assigned in 2001 and 2005 through 2007 have performed worse.

"During the second quarter of 2010, forecasted collection rates increased for consumer loans assigned during 2009 and 2010 and were consistent with expectations at the start of the period for other assignment years," Credit Acceptance executives pointed out.

"During the first six months of 2010, forecasted collection rates increased for consumer loans assigned in 2009 and 2010, and decreased modestly for 2007 and 2008 consumer loan assignments," they continued.

"As a result of current economic conditions and uncertainty about future conditions, our forecasts of future collection rates are subject to a greater than normal degree of risk," the company cautioned. "Our pricing strategy considers this in that we have established advance rates that are intended to allow us to achieve acceptable levels of profitability, even if collection rates are less than we currently forecast."

Finally touching on loan and dollar volume, Credit Acceptance indicated both increased by large margins in the second quarter. Loan volume jumped 22.7 percent while dollar volume climbed 42.2 percent.

Executives attributed the increases in both categories 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.

"With the amount of capital available to us, we are in position to grow year over year unit volumes," company officials pointed out.

"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," they went on to say.

"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 concluded.