Auto financing company Credit Acceptance (NASDAQ: CACC) fell short of the markets revenue expectations in Q3 CY2025, with sales falling 17.9% year on year to $314.1 million. Its non-GAAP profit of $10.28 per share was 8.8% above analysts’ consensus estimates.

Is now the time to buy CACC? Find out in our full research report (it’s free for active Edge members).

StockStory’s Take

Credit Acceptance’s third quarter results were shaped by a notable decline in revenue and unit originations, driven largely by increased competition and lower advance rates stemming from a 2024 scorecard change. Management highlighted underperforming loan vintages from 2022 to 2024, which weighed on loan performance. CEO Kenneth Booth acknowledged these challenges, stating, “Loan performance declined this quarter with our 2022, 2023 and 2024 vintages underperforming our expectations." Despite these headwinds, the company’s loan portfolio remained at a record high, offering some stability amidst the difficult backdrop.

Looking forward, management is focused on maintaining portfolio quality and adapting to a persistently competitive environment in the subprime auto financing market. The company plans to remain disciplined in its pricing and origination strategy, with CEO Booth noting, "We'd rather do less volume at solid margins than chase volume." Ongoing investments in technology and a leadership transition are expected to support operational improvements, but management cautioned that affordability challenges for consumers and industry competition will continue to present headwinds into the next year.

Key Insights from Management’s Remarks

Management cited a mix of competitive market dynamics, regulatory and legal factors, and internal process changes as major influences on Q3 performance and the outlook.

• Competitive intensity elevated: Credit Acceptance experienced a highly competitive environment in subprime auto lending, which led to lower unit volumes and shrinking market share. CEO Kenneth Booth emphasized, “We're seeing a lot of competition out there… it's a competitive market." This competition impacted both originations and dealer activity.
• Scorecard changes reduced volume: The implementation of a stricter scorecard in 2024, designed to improve credit quality, resulted in lower advance rates and reduced the number of loans originated. Management noted that the change was a response to underperformance in recent loan vintages and is regularly reviewed based on market conditions.
• Loan performance mixed by vintage: While the 2025 vintage performed better than expected, loans originated in 2022, 2023, and 2024 lagged behind internal targets. This divergence contributed to a modest decline in forecasted net cash flows and highlighted ongoing credit risk challenges.
• Leadership transition underway: CEO Kenneth Booth announced his retirement after 22 years with the company, with board member Vinayak set to transition into a leadership role. Booth praised Vinayak’s background in technology and transformation, indicating a potential shift in strategic priorities.
• Technology modernization accelerated: The company’s engineering team made significant progress on upgrading the loan origination system. Booth reported that this initiative has increased the speed of delivering enhancements to dealers by almost 70% year over year, aiming to improve both dealer experience and business agility.

Drivers of Future Performance

Credit Acceptance’s forward outlook is influenced by disciplined loan origination, evolving consumer affordability, and ongoing technology investments.

• Margin over volume approach: Management reiterated that the company will prioritize economic profit and portfolio quality over chasing higher loan volumes, especially as competitive pressures persist. This strategy is expected to support operating margins but may constrain near-term growth.
• Consumer affordability remains a risk: CEO Booth highlighted that rising vehicle prices and tariffs continue to impact their core subprime customer base. Any further deterioration in affordability could weigh on origination volumes and loan performance.
• Operational modernization underway: Continued investment in technology modernization—including a revamped loan origination system—is intended to provide more frictionless dealer experiences and improve internal efficiency. Management believes these upgrades will position the company for faster adaptation as market conditions evolve.

Catalysts in Upcoming Quarters

In upcoming quarters, the StockStory team will be monitoring (1) any shifts in competitive intensity within subprime auto financing, (2) changes to the company’s loan origination scorecard and their effect on volumes and credit quality, and (3) the pace and impact of technology modernization initiatives. Developments in consumer affordability and regulatory or legal updates could also significantly influence future performance.

Credit Acceptance currently trades at $458.92, up from $453.61 just before the earnings. In the wake of this quarter, is it a buy or sell? Find out in our full research report (it’s free for active Edge members).

Now Could Be The Perfect Time To Invest In These Stocks

Donald Trump’s April 2025 "Liberation Day" tariffs sent markets into a tailspin, but stocks have since rebounded strongly, proving that knee-jerk reactions often create the best buying opportunities.

The smart money is already positioning for the next leg up. Don’t miss out on the recovery - check out our Top 5 Growth Stocks for this month. This is a curated list of our High Quality stocks that have generated a market-beating return of 183% over the last five years (as of March 31st 2025).

Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,545% between March 2020 and March 2025) as well as under-the-radar businesses like the once-small-cap company Exlservice (+354% five-year return). Find your next big winner with StockStory today.

StockStory is growing and hiring equity analyst and marketing roles. Are you a 0 to 1 builder passionate about the markets and AI? See the open roles here.