Giverny's CACC Sale: A Smart Money Exit Signal in Auto Finance

The headline news is a sale. The real signal is a strategic shift. Giverny Capital Asset Management, a fund that had previously highlighted Credit Acceptance Corporation (CACC) in its Q3 2025 investor letter, fully exited the stock on October 1. This isn't a random trade. It's a deliberate reallocation, and the fund's own words frame the rationale: "We believe Credit Acceptance has fallen behind other leading subprime lenders in both technology and underwriting sophistication". For a smart money investor, that's a clear warning sign that the competitive moat is eroding.

The exit aligns with a broader portfolio rotation. Giverny's top holdings now feature mega-cap tech and industrials like Berkshire Hathaway, Meta, Heico, AMETEK, and Alphabet. This is a sector shift away from consumer finance, a move that likely reflects a view on margin pressures and technological change. The fund's own performance lagging the market underscores the timing. In Q3, it returned 6.78% versus the S&P 500's 8.12%, and year-to-date, it trails with 12.57% versus 14.83%. When a fund's skin in the game is underperforming, it often means they are selling what they see as the laggard to chase better opportunities.

The bottom line is one of alignment. Giverny didn't just sell a stock; it sold a thesis. By exiting CACC on the very day it cited the company's technological shortcomings, the fund demonstrated that its capital is now aligned with different growth vectors. For other investors, this 13F filing is a data point in a larger trend: when smart money rotates out of a sector, it's often because they see the easy money already made.

CACC's Fundamentals: Growth vs. Margin Pressure

The numbers tell a story of strong top-line momentum, but the details reveal a battle for profitability. In the fourth quarter, Credit Acceptance posted a clear beat, with revenue surging 46.3% year on year to $579.9 million. That growth was driven by loan expansion and new technology rollouts, a narrative management is pushing hard. Yet, the profit story is more complicated. While adjusted earnings per share topped estimates, the bottom line was pressured by a sharp rise in costs. Operating expenses jumped 33.5% year over year, and the provision for credit losses rose 5%. This surge in expenses, coupled with the credit loss increase, squeezed margins and limited the profit upside despite the revenue fireworks.

This tension between growth and cost is the core fundamental issue. The company is clearly scaling its loan book and investing in its platform, but those investments are coming at a steep price. For a subprime lender, where thin margins are the norm, a 33%+ jump in operating costs is a major red flag. It suggests the company is spending heavily to catch up, possibly on the very technology Giverny Capital says it lags in. The smart money is watching this dynamic closely: strong revenue beats can be misleading if they are being funded by rising costs that eat into future earnings power.

The market's reaction to this mixed picture is telling. Despite the quarterly beat, the stock is down 6.95% over the last 52 weeks and trades around $453. That underperformance suggests investors are skeptical about the sustainability of the growth story when weighed against the rising expense wall. The smart money exit by Giverny Capital, which cited technological shortcomings, now looks like a preemptive move. They saw the cost pressures and the lag in innovation before the earnings report, and they chose to reallocate capital away from a business where growth appears to be buying its own margin compression.

The Competitive Landscape: Margin Erosion and Smart Money Signals

The smart money exit by Giverny Capital is a signal that resonates within a sector under structural pressure. The auto finance landscape is no longer a niche domain; it's a battleground where banks and fintechs are locked in by increasingly complex workflows and must invest heavily in technology to meet rising customer expectations. This competition is a direct threat to CACC's model, forcing a costly arms race in underwriting and digital experience that squeezes margins.

Giverny's sale aligns with a broader institutional trend of rotation away from traditional finance. The fund's current portfolio is a study in this shift, with top holdings dominated by mega-cap tech and industrials like Berkshire Hathaway, Meta, Heico, AMETEK, and Alphabet. This isn't a random allocation; it's a strategic bet on sectors with clearer technological moats and higher growth visibility. By exiting CACC, Giverny is selling a thesis of a traditional lender against this new competitive reality.

The market is pricing in these risks. Despite a strong quarterly beat on revenue, the stock's 6.95% underperformance over the last 52 weeks tells a different story than the headline numbers. This divergence is explained by the rising cost wall. While the company's operating expenses jumped 33.5% year over year, that surge is the tangible cost of trying to catch up in a sector where the smart money is already moving on. The institutional accumulation in tech and industrials, contrasted with the decline in hedge fund ownership of CACC, creates a clear signal: the alignment of interest is shifting. For now, the smart money is betting on innovation, not on a subprime lender's ability to play catch-up.

Catalysts and Risks: What to Watch for the Thesis

The smart money has spoken. Giverny Capital's exit is a data point, but the real test is what happens next. For investors, the thesis hinges on a few forward-looking signals. The first is the next earnings report. The company's ability to grow its loan book and revenue must outpace the rising wall of costs. As seen in the last quarter, operating expenses jumped 33.5% year over year and credit provisions rose 5%. If the next report shows this cost pressure accelerating without a corresponding surge in profit, it confirms the margin erosion that prompted the sell-off.

The second signal is insider behavior. When a fund like Giverny sells a stock it once touted, the alignment of interest shifts. The next move by CACC's own executives is a critical check. Any significant insider selling would be a stark warning that those with the closest view of the business see risks that the public market may not. While specific insider trading data for CACC isn't detailed here, the absence of major buying from executives would be a red flag against the stock's recent price action.

Finally, watch the broader institutional flow. Giverny's move is a vote of confidence in mega-cap tech and industrials, with its top holdings now Berkshire Hathaway, Meta, Heico, AMETEK, and Alphabet. If other institutional investors follow this lead and reduce exposure to auto finance, it would confirm a sector rotation. The trend is already visible in Giverny's own portfolio, where CACC's stake has been cut to a minimal 0.0876% of the fund. A wave of similar exits would validate the smart money's view that the easy money in traditional lending is gone, and the future is elsewhere.