Credit Acceptance's Q1 Earnings Show Growth Amid Profit Pressures

Credit Acceptance Corporation’s first-quarter 2025 results present a paradox: robust revenue growth and record loan portfolio levels clash with shrinking profit margins and weakening consumer loan demand. The subprime auto finance provider reported an adjusted EPS increase of just 0.8% year-over-year, while its economic profit plummeted 31%, underscoring a company navigating a tightrope between expansion and profitability.

Revenue Rises, but at a Cost
The quarter’s standout performance came from total revenue, which surged 12.4% to $571.1 million, driven by a 12.3% jump in finance charges. The average loan portfolio hit a record $7.9 billion, up 11% from Q1 2024, reflecting strong retention of existing borrowers. However, this growth came with trade-offs. Adjusted revenue rose only 8% to $400.5 million, and operating expenses climbed 7.5% to $106.8 million due to higher staffing and equity compensation costs.

The Profitability Dilemma
The real story lies in the metrics that matter most to investors: profitability. Economic profit—a key gauge of CACC’s ability to generate returns above its cost of capital—dropped to $35.3 million in Q1 2025, a 31% decline from $51.4 million a year earlier. This was accompanied by a 9.3% adjusted return on capital, down from 10.1% in 2024. The culprit? Slower-than-expected loan collections and higher cost of capital (now 7.6%, up from 7.3%).

Meanwhile, consumer loan assignment volumes slumped, with unit volume falling 10% and dollar volume dropping 15.5% to $1.11 billion. These declines, attributed to smaller loan sizes and lower advance rates, signal a challenging environment for attracting new borrowers—a critical issue for a company reliant on origination growth.

Liquidity and Strategy
Credit Acceptance’s balance sheet remains a bright spot. It holds $2.2 billion in unrestricted cash and credit facilities, and it repurchased 2.7% of its shares in Q1. This financial flexibility allows the company to weather short-term headwinds, but investors must ask: Can management reverse the profit slide?

The spread between forecasted collection rates and advance rates narrowed to 12.6%–24.0%, with newer loans (2024–2025) showing the slimmest margins. This suggests that underwriting standards may have eased, or economic conditions are squeezing borrowers’ ability to repay—a risk in a rising-interest-rate environment.

Conclusion: A Mixed Outlook for Investors
Credit Acceptance’s Q1 results are a cautionary tale of growth without proportionate profit. While its record loan portfolio and strong liquidity position are positives, the 31% plunge in economic profit and shrinking margins highlight vulnerabilities. The 0.8% EPS increase—barely perceptible—is a stark reminder that revenue growth alone cannot sustain this business model if costs and collection challenges persist.

Investors should scrutinize two key factors: the trajectory of forecasted collection rates and the cost of capital. If CACC can stabilize or improve its spread metrics and reduce expense growth, its shares could rebound. However, with dealer loan unit volume attrition at 16% and new dealer activity stagnant, the path to sustained profitability is narrow.

For now, Credit Acceptance appears to be a company in transition—a story of financial resilience but one that requires patience to see whether its strengths can outweigh its mounting pressures. The data leaves little room for optimism unless management delivers a sharper turnaround in the quarters ahead.