CREDIT ACCEPTANCE CORP

Credit Acceptance Corporation operates in the automobile finance market for consumers who do not qualify for conventional financing, a market that is large and highly competitive and served by 'buy here, pay here' dealerships, banks, captive finance affiliates of automobile manufacturers, credit unions, and independent finance companies both publicly and privately owned ¹. The company's target market is approximately 60,000 independent and franchised automobile dealers in the United States ². The company's business is seasonal with peak Consumer Loan assignments and collections occurring during the first quarter of the year ³.

The company competes on the basis of the level of service provided by its Dealer Service Center and sales personnel, and by offering a profitable and efficient method for Dealers to finance consumers who would be more difficult or less profitable to finance through other methods ⁴. Many of the competitors are much larger and have greater resources than Credit Acceptance ⁵. The company's business model allows it to share the risk and reward of collecting on Consumer Loans with the Dealers, more so with the Portfolio Program than the Purchase Program, which is intended to motivate the Dealer to assign better quality Consumer Loans and follow underwriting guidelines ⁶.

Credit Acceptance generates revenue by providing innovative financing solutions that enable automobile dealers to sell vehicles to consumers, regardless of their credit history ⁷. The company derives its revenues from finance charges, which include interest income on Loans, administrative fees from ancillary products, program fees charged to Dealers under the Portfolio Program, Consumer Loan assignment fees, and direct origination costs on Dealer Loans; premiums earned on the reinsurance of vehicle service contracts; and other income, which primarily consists of ancillary product profit sharing, remarketing fees, and interest ⁸. For the year ended December 31, 2025, finance charges represented 92.4% of total revenue, premiums earned represented 4.1%, and other income represented 3.5% ⁹.

The company operates two financing programs: the Portfolio Program and the Purchase Program. Under the Portfolio Program, Credit Acceptance advances money to Dealers (a Dealer Loan) in exchange for the right to service the underlying Consumer Loans, and the Dealer receives Dealer Holdback after the advance balance has been recovered ¹⁰. Under the Purchase Program, the company buys the Consumer Loans from the Dealers (a Purchased Loan) and keeps all amounts collected from the consumer ¹¹. For the year ended December 31, 2025, 74.2% of unit volume and 71.7% of dollar volume were under the Portfolio Program, while 25.8% of unit volume and 28.3% of dollar volume were under the Purchase Program ¹². The company also provides Dealers the ability to offer vehicle service contracts and Guaranteed Asset Protection (GAP) to consumers through relationships with Third-Party Providers (TPPs), and its wholly owned subsidiary VSC Re Company is engaged in the business of reinsuring coverage under vehicle service contracts ¹³.

During the year ended December 31, 2025, the company enrolled 5,752 new Dealers and had 15,745 active Dealers, which is its highest ever number of active Dealers in a calendar year ¹⁴. The company repurchased approximately 1,514,000 shares for $725.4 million, or 12.6% of the shares outstanding at the beginning of the year ¹⁵. On February 28, 2025, the company issued $500.0 million of 6.625% senior notes due 2030 and used a portion of the net proceeds to redeem all of the $400.0 million outstanding principal amount of its 6.625% senior notes due 2026 ¹⁶. On March 27, 2025, the company completed a $400.0 million Term ABS financing, and on November 13, 2025, it completed a $500.0 million Term ABS financing ¹⁷. The company also recognized a $74.2 million contingent loss related to previously disclosed legal matters ¹⁸.

For the year ended December 31, 2025, consolidated net income was $423.9 million, or $36.38 per diluted share, compared to $247.9 million, or $19.88 per diluted share, for the same period in 2024 ¹⁹. Total revenue was $2,317.2 million, an increase of 7.2% from $2,162.4 million in the prior year ²⁰. The increase in net income was primarily due to a decrease in provision for credit losses and an increase in finance charges, partially offset by an increase in operating expenses ²¹. The average balance of the Loan portfolio was $8.0 billion, which represented a 5.7% increase from 2024 ²².

A key growth vector is the continued enrollment and support of new Dealers. During 2025, the company enrolled 5,752 new Dealers and had 15,745 active Dealers, its highest ever number in a calendar year ²³. The company has market area managers located throughout the United States that market programs to prospective Dealers, enroll new Dealers, and support active Dealers ²⁴. The company is also investing in its Engineering, Analytics, Marketing, and Product Management function, which increased to 542 team members as of December 31, 2025, from 512 at the end of 2024, with the goal of increasing the speed at which it enhances its product for Dealers and consumers ²⁵.

Another growth vector is the company's technology investments, including its Credit Approval Processing System (CAPS) and integrations with aggregators used by Dealers to submit credit application information ²⁶. These systems allow Dealers to receive quick approvals, interact with the proprietary credit scoring system to optimize transaction structure, and create and print legally compliant Consumer Loan documents ²⁷. The company's proprietary credit scoring system forecasts collection rates based on historical performance of Consumer Loans with similar characteristics, and its performance is evaluated monthly ²⁸.The company's operational outlook includes a remote-first work strategy, with the vast majority of team members working remotely from locations within the United States and more than half located outside of Michigan ²⁹. As of December 31, 2025, the company had 2,314 full- and part-time team members, a decrease from 2,431 at the end of 2024 ³⁰. The company continues to invest in technology, with the Engineering, Analytics, Marketing, and Product Management function growing to 542 team members ³¹.

The company's capital allocation strategy includes maintaining modest financial leverage and multiple funding sources ³². During 2025, the company repurchased approximately 1,514,000 shares for $725.4 million ³³. On September 29, 2025, the board of directors authorized the repurchase of up to two million additional shares of common stock (the September 2025 Authorization), which does not have a specified expiration date ³⁴. The company also issued $500.0 million of 6.625% senior notes due 2030 and completed two Term ABS financings totaling $900.0 million ³⁵.

A structural headwind management has flagged is the difficulty in accurately forecasting Consumer Loan performance, particularly in periods with changing economic conditions ³⁶. The company notes that actual cash flows from any individual Consumer Loan are often different from cash flows estimated at the time of assignment, and in periods with changing economic conditions, accurately forecasting performance is more difficult ³⁷. Additionally, adverse changes in economic conditions, the automobile or finance industries, or the non-prime consumer market could adversely affect the company's financial position, liquidity, and results of operations ³⁸.

The company faces execution risks related to competition, as the market for consumers who do not qualify for conventional automobile financing is large and highly competitive, served by many companies that are much larger and have greater resources ³⁹. The company also faces risks related to its reliance on Dealers to originate Consumer Loans, and high levels of Dealer attrition could materially adversely affect operations ⁴⁰. Furthermore, the company is subject to ongoing regulatory investigations and litigation, including a joint complaint filed by the Office of the New York State Attorney General and the Consumer Financial Protection Bureau, and a multi-state investigation, for which the company has recognized cumulative contingent losses of $82.6 million through 2025 ⁴¹.

The most material risk is the company's inability to accurately forecast and estimate the amount and timing of future collections on Consumer Loans, which are predominantly made to individuals with impaired or limited credit histories, as a 1% decline in forecasted future net cash flows as of December 31, 2025 would have reduced 2025 consolidated net income by approximately $56.4 million ⁴². A second critical risk is the company's substantial debt, which totaled $6,353.9 million as of December 31, 2025, and could negatively impact its ability to obtain additional financing, make it vulnerable to interest rate increases, and restrict its flexibility ⁴³. A third material risk is the ongoing litigation and regulatory investigations, including the joint complaint from the New York State Attorney General and the CFPB and a multi-state investigation, for which the company has recognized cumulative contingent losses of $82.6 million through 2025 and has reached preliminary alignment on a potential cash payment of $75.5 million ⁴⁴. A fourth risk is the intense competition in the automobile finance market from larger companies with greater resources, which could adversely affect the company's results of operations ⁴⁵.

Management's message emphasizes that the company makes vehicle ownership possible by providing innovative financing solutions that enable automobile dealers to sell vehicles to consumers, regardless of their credit history ⁴⁶. Key themes include the company's record number of active Dealers at 15,745, the repurchase of approximately 1,514,000 shares for $725.4 million, and the recognition of 12 workplace awards ⁴⁷. Management highlights that the increase in consolidated net income for 2025 was primarily due to a decrease in provision for credit losses and an increase in finance charges, partially offset by an increase in operating expenses ⁴⁸. The strategic priorities emphasized include maintaining a large margin of safety in Loan pricing, low leverage on the balance sheet, and significant unused availability on revolving credit facilities ⁴⁹. Management also notes that the company's business model is designed to produce acceptable returns even if Loan performance is worse than forecasted, and that recent forecasts incorporate underperformance of post-pandemic vintages ⁵⁰.