[CACC – Credit Acceptance Corp] Value in subprime auto

Most auto lenders won’t finance cash strapped buyers with deeply tainted or limited credit histories. Credit Acceptance Corp, founded in 1972 by Chairman and 11% owner Donald Foss[1] to collect loans originated by his own dealerships, steps into the breach with an unorthodox lending scheme that goes like this: the used car dealer originates a loan[2] to the deep subprime borrower and immediately assigns that loan to CACC. CACC pays the used car dealer ~45% of the contractually due payments up-front (“advance”). CACC then tries to collect from the borrower as much of the contractually owed amount possible (typically amounts to the company collecting 65%-75% of the contractual amount due), sharing 80% of collected payments with the dealer (the dealer “holdback”), with holdback payments diverted to CACC until the advance is fully recouped.  

Below is an illustration of the IRR that CACC might realize on a typical loan[3]:

[While the contractual maturity of

a loan is closer to 5 years, because CACC first recoups its advance from dealer

holdbacks and borrowers are more likely to meet their loan obligations early on

in a loan’s life, 85% of expected cash flows recognized within the first 3

years[4].]

This model works for the dealer because: 1/ by lending to borrowers that others won’t finance, CACC expands the pool of car buyers for the dealer and 2/ with the advance from CACC plus the down payment from the borrower, the dealer recognizes an immediate gross profit of ~10%-20% of the wholesale cost. It’s a good deal for CACC because back-end profits incent the dealer to sell the borrower a car she can afford, improving the chances that the loan is repaid. Furthermore, dealers enrolled in this “Portfolio Program” (as management calls it) are rated according to the performance of their loans, and these ratings factor into the upfront advance that CACC is willing to pay. And so, CACC and used car dealers are essentially lending partners with aligned interests. CACC collects as much as it can from borrowers – typically 60%-70% of contractually due principal + interest, plus sales on repossessed vehicles, which constitute a minor ~mid-single digit % of collections – and keeps whatever’s left over after dealer holdbacks. 

Now obviously, a dealer would prefer to assign the loan to someone like Nicholas Financial, Santander, Consumer Portfolio Services, and other subprime-y auto lenders who are okay underwriting to mid/high-single digit returns on capital and so pay 90c to 100c on the dollar upfront. But even those guys won’t underwrite the shakiest of credits most days. So dealers end up funneling the lowest rated borrowers to CACC, who says “yes” to every valid loan request and manages the risk from this ostensibly reckless practice by toggling the advance rate it pays to the dealer (the riskier the pool of borrowers, the lower the advance rate).

Starting in 2005, as it became clear that some large dealer networks had corporate processes that couldn’t accommodate novel contingent payment structures, CACC also began offering more traditional loans under its Purchase program, where it pays the originating dealer a higher one-time upfront payment for the loan and keeps all loan repayments (no dealer holdbacks). According to management, Purchase loans generate returns that are comparable to Dealer loans (“Program” loans) but are also riskier because the dealer’s incentive to underwrite diligently goes away; the loan is typically underwritten at longer maturities; and requires somewhat more capital upfront (48% of the contractual amount owed vs. 44%), raising the consequences of the loan being crappier than expected. Management would prefer to do Purchase loans. But in the 14 years that CACC has been underwriting them, Purchase loans have been very profitable and now account for 1/3 of the company’s total loan book.   

When the dealer assigns a loan pool, Credit Acceptance takes an initial guess of what percent of the contractually owed amount it will ultimately collect. As the loan pool ages, the company revises its original collectability estimate based on the how the pool is performing. Because there are no take backs on the advance rate, the initial forecast for collections is critically important. If CACC offers the dealer 45% of the contractual repayments as an advance because it expects to collect 65% of the contractual amount from borrowers but actually ends up collecting only 50%, the company can’t go back to the dealer and ask him to return part of the advance so that it can hit its return bogey. Assuming CACC is doing its job well, updated estimates should hew closely to the original forecast of loan collections, which is exactly what we see:

The

“most recent” column is management’s estimate of the collection rate

for each vintage year 10 years after the original forecast, assuming, of

course, that 10 years has passed…if not, we’re looking at the estimate as of

the most recent quarter (4q19). Since

the initial term on a CACC loan is around 4-5 years, after 10 years, the

company’s “most recent” estimate for older assignment years should very

accurately reflect the true performance of that vintage year. 

To home in a specific case, the company originally thought it could collect 69.7% of the amounts it was contractually due from the 2008 vintage of borrowers; the most recent estimate of that vintage’s collection rate is 70.4%. The “Var” column shows the most recent estimate minus the initial forecast, so a negative number means that CACC collected less than expected, while a positive number means that CACC collected more than expected. In its worst forecasting year (2009) the company was off by ~11% from its original estimate…and that was because it underestimated ultimate collections, a “good” mistake. The most management has ever overestimated collections for any vintage year was 4% (2001). Moreover, it appears that management has been more conservative in its initial forecast for Purchase loans vs. the Dealer loans[5], perhaps to account for the latter’s higher risk and the company’s relative lack of experience underwriting it. 

You’d

prefer that the initial forecast be lower rather than higher than most recent

estimate, but ideally there should be no difference between the two at all

because the key metric that CACC is trying to maximize is economic

profits, which is a function of both unit profits and volumes:

Economic

profits = $ profit per loan pool – [cost of capital % x $ average invested

capital],

with

$

Profit per loan pool = [collections rate – advance rate] x contractual payments

owed – $opex – $dealer holdback

Note

that the advance rate is not just an input to spread – with “spread” defined as

the difference between the collection rate (the percent of total contractually

owed payments that the company collects) and the advance rate (the percent of

contractually owed payments that the company advances to the dealer up front) –

but also a driver of volume: the more money you advance dealers, the more loans

they are willing to assign to you. 

So if your initial collections expectation is too low, the advance rate you initially set in order to hit your target spread will also be too low. While the positive collections surprise from conservatively setting initial collections forecast will deliver a wider than intended spread, by setting the advance rate lower than you otherwise would have, you sacrifice loan volumes. On the flip side, setting the initial collections forecast too high (and thus, the advance rate too high), may not drive enough loan volume to compensate for the lower than forecast unit profits…and in fact, if the advance rate is set to a high enough point, the realized spread becomes so low that every additional car loan results in negative incremental economic profits. 

CACC’s holistic emphasis on economic profits uniquely captures the trade-offs between responsible underwriting and unit growth. It is both relevant and simple. But sometimes it’s easier to peg what is right to what is familiar rather than to what makes sense. That CACC doesn’t disclose standard industry metrics like delinquency rates, net-charge off rates, and volume by FICO scores provokes consternation among analysts and some gleeful mustache twisting among short sellers, who see this a big red flag (“omg, what are they hiding?!”). Of course, what the shorts conveniently fail to mention is that CACC discloses other, far more relevant metrics that other subprime lenders do not: forecasted cash collection rates, advances by vintage, dealer churn, and loan volume per dealer.

I think

it’s important to sometimes ask what it is we really care about? We may think we want to know net charge-offs

and delinquency rates because everyone else in the industry discloses that data,

but in fact what we really want to know is how expected cash flows compared to

initial expectations from period to period (which implicitly reflects the credit

deterioration that a delinquency plot captures anyways). No other subprime lender does this. If given a choice between knowing CACC’s 60+

day delinquency rate or changes in expected cash flows by vintage, who would

honestly pick the former?

What’s odd is that while skeptics furrow their brows at CACC not disclosing charge-off rates and FICO/LTV strata, you won’t hear them complain about NICK or CPSS failing to disclose dealer churn or cash flow expectations by vintage because the latter metrics, while highly relevant to a business owner, are unorthodox. That said, sometimes I think that management should just disclose the standard stuff, even if it is of limited importance, just to mollify investors and put this issue to rest.

“But, but, but….CACC doesn’t break out FICO bands”. Honestly, does it really matter? How would knowing that 20% of the CACC’s loans were to borrowers with FICO scores between 501 and 520, another 20% was between 521 and 540, etc., augment your understanding of this company and what it is worth? I think what skeptics are trying to suggest is that CACC is deliberately hiding this and other common stats because its loan book is way crappier than that of peers. Let me spare you the suspense. It is. 96% of the company’s borrowers either don’t have FICO scores or have FICO scores below 650. CACC approves every loan, so it’s very likely that a disproportionate amount of its book is concentrated among borrowers at the very bottom of the ratings stack. But this isn’t a bear case. It is precisely the point of CACC’s existence. The company is a deep subprime lender that gets paid to intelligently price this niche risk. CACC underwrites far lower quality credit risks than its peers, yes, but it also only pays 40c-50c on the dollar for them. There is no such thing as bad bets; just mispriced ones.

But paying 45c on the dollar for a loan can give rise to accounting treatment that seems more dubious than it really is. 

For instance, consider that despite underwriting far shakier credits than peers, CACC reports provisions for credit losses of less than 10% of its revenue compared to 40% for CPSS, 33% for Santander, and 45% for Consumer Portfolio Services. 

With that data in hand, consider a provocative statement like:

“I

mean, the provision is something we do for our GAAP statements and we don’t

really focus on that internally, because we don’t believe it’s a real

expense.” (3Q15 CACC earnings call)

You can see how a casual observer (or a motivated short seller) might sound the alarm.

But CACC’s discrepant income statement is just an accounting artifact that has no bearing on its underlying economics. 

Let’s say I lend you $70 and that you are “obligated” to repay me $140 by the terms of our agreement. If I know full well at the time I lend to you that you will only pay me $90 of the $140 contractually owed to me, then it seems odd to account for the difference between the contractual payments and the actual payments as a “loss” since I never expected to collect the full contractual amount in the first place. Because we are dealing with deep subprime customers, the payments that CACC is contracted to receive are not a good approximation for the payments that it will receive. The key thing to recognize is that the difference between the contractual amount and the expected amount does not really represent an economic loss because CACC has already accounted for this delta in the price it paid for the loans (i.e. the advance rate it pays for the dealer, i.e. the receivable reported on the balance sheet). In other words, the 45c on the dollar that CACC pays implicitly bakes in the shortfalls of what is contractually due.   

The $1.4bn of finance income that CACC

runs through the income statement is simply computed as a yield of ~22%

multiplied by its $6.3bn of net receivables, which receivables basically reflect

the ~45c/$1 that CACC paid for them, not the full contractual amount owed. Consumer Portfolio Services, on the other

hand, pays around par for its dealer loans and recognizes revenue based on the

18% it charges on that contractually owed amount[6]. Its receivables balance doesn’t implicitly

subtract the difference between what is contractually due and what is expected

the way CACC’s does, which means that the revenue the company recognizes must

be offset by a boatload of provisions further down the income statement. So, the relatively meager provisions that

CACC reports on its income statement isn’t funny business. It’s just an accounting convention, and one

that reflects the economic reality of CACC’s lending. 

But no matter. Beginning this year, to abide by FASB

standards, CACC will adopt the Current Expected Credit Loss (CECL) model, which

basically forces the company to report receivables at par (even though it is

paying 45c on the dollar for them) and then set a heavy allowance against the

latter. In other words, the gross loan

receivables and their related allowances will be “grossed-up”, but neither the net

carrying amount of the loans nor go-forward net income changes. And of course, economically everything

remains the same.   

Maybe a more pressing and valid concern raised by shorts relates to industry and macro headwinds. Over the last 7 years, a surfeit of capital from return-starved investors reaching for yield has given rise to sloppy underwriting, resulting in escalating charge-off rates and delinquencies[7].

Source:

Federal Reserve Bank of New York via The Financial Times

In a

previous post on Chubb, I noted that the hardening or softening phases of the

rate “cycle” in insurance were not evenly spaced, with 21 of the last

33 years marked by falling rates:

“…when

you tune out the saliency bias stoked by media coverage of disastrous storm

events, the transitory nature of rate inflation makes sense. The industry is characterized by low entry

barriers and marginal differentiation among a large number of operators, any

one of whom stand poised to on-board recklessly priced risk at any given

time”

We

observe a similarly uneven distribution in subprime auto, with CACC’s

collection rates rising in only 6 of the last 21 years. Given the industry’s low entry barriers, periods

of disciplined pricing and lofty returns are rapidly absorbed by fresh capital

and competed away.

The steady compression in CACC’s portfolio yields since the post-crash glory years of 2010/2011…

…is mirrored by the descending collections rate expected from every new underwriting vintage since 2009:

Advance

rates – in part, a reflection of the competitive environment: the more subprime

lenders there are competing for loans, the greater the advances that CACC must

offer the dealer – haven’t budged much at all, driving ever narrower spreads.

But notwithstanding

spread compression, management’s initial estimate of collection rates – the

proportion of contractual P&I it expected to collect at the time it

purchased the loan – have remained remarkably accurate, which speaks to the

company’s ability to forecast its gross revenue and thereby toggle the advance

rates it is willing to offer to hit return hurdles. In a sense, armed with historical collections

data, management can manufacture the returns it wants….though it might not get

the volume it wants at those returns! 

So while returns on capital and equity have declined significantly since 2010….

…they

haven’t dipped much below 12% over the last 15 years. Since 2011, CACC’s invested capital has grown

by $5bn while its NOPAT is up by $582mn, implying returns on incremental

invested capital of ~12% during a period of highly competitive underwriting. 

Credit Acceptance’s peers, on the other hand, have not fared nearly as well:

(and

these are pre-tax numbers)

There

are a few theories explaining CACC’s durably superior returns over the last 20

years. One theory is that Credit

Acceptance has been around since the 1970s and is assigned nearly 400k loans

every year, which provides a deep fount of consumer, dealer, and vehicle data

that can be used to predict collection rates with a high degree of accuracy. There’s something to this clearly – as amply

evidenced by the company’s enduring initial estimate of collection rates – but

does 40 years of underwriting history yield that much more of an advantage compared

to 30 years or 20 years? Does having

that extra decade in the 80s really help you underwrite loans that much more

effectively than peers today? I doubt

the data advantages are that strong. SC’s

loan book is at least 5x larger than CACC’s, generating plenty of

edge-begetting “experience”, and yet, its high-single digit returns on

capital are well below CACC’s. 

So then you might argue it is not underwriting experience, but rather CACC’s unique dealer holdback model, which aligns dealers with management in the underwriting process, that accounts for the company’s superior returns. But by itself, this is a bad explanation.

If you believe the dealer holdback model is central to the company’s success, then what you really need to answer is “why are peers unable to replicate it?” In November 2015, CPSS launched a dealer holdback program for deep subprime borrowers that it shut down just 3 years later after model failed to gain traction within the company’s ~10k dealer base. Many others have apparently tried to copy the holdback scheme, with limited success. There may be cultural or back-end IT barriers impeding adoption of the partnership arrangement, barriers that CACC has gradually surmounted after 30 years of evangelizing its benefits. But frankly, I think the bulls give the dealer holdback model way too much credit for CACC’s success. After all, 1/3 of CACC’s loan portfolio now comes from traditional indirect lending and the company’s returns don’t appear to have suffered over the 15 years that it has underwritten traditional loans. Also, let’s not forget that CACC pioneered the dealer holdback model in the mid-80s and the company still almost blew up in the mid-90s.

To me, the most compelling explanations underlying CACC’s peer-trouncing results are: first, the company underwrites credit risk that many other traditional subprime lenders do not dare, so it has a lot more experience underwriting this particular niche. The second, more enduring and potent explanation involves incentive structure and culture, quantitative (most of the CEO’s compensation is directly tied to economic profit growth over a decade) and qualitative (just compare CACC’s plainly articulated annual letters to the anodyne non-statements offered by CPSS, SC, and NICK).

Capital

allocation is everything in a business like this, where receivables turn over

every ~2.5 years. As important as experience

and data are, they can be rendered moot in the absence of a cultural framework

that consecrates economic profits. 

Warren

Buffett once analogized underwriting insurance policies to writing your own

report card: you can manage your reserves to show whatever profitability you’d

like in any given year. Extending credit works similarly. Because

provisions reflect your best guess about future loan losses, which can be

underestimated or gamed, you can show terrific profits even as your balance

sheet simultaneously rots. But process errors eventually come to bit you

in the ass.

During the mid-1990s, CACC made dumb, short-sighted decisions that nearly led to the company’s demise. In the 5 years following its 1992 IPO, the company, like many of its peers who would not survive the decade, rapidly and irresponsibly grew its loan book, expanding its invested capital by over 15x against the backdrop of an increasingly competitive lending environment, prompting a huge charge-off in 1997 that compromised the company’s access to external financing and precipitated a ~90% decline in its share price over 2 years. In 1999, even as lending capacity contracted and underwriting standards tightened, CACC suffered yet another round of write-downs from loans that were originated years earlier. 

Chastened

by the near-death experience, CACC implemented a system (Credit Approval

Processing System – CAPS) to better forecast collections and price risks,

culled unprofitable dealers, paid down debt, and most significantly, imbibed a

new corporate ethos…

“If we

couldn’t earn more than our cost of capital, we needed to give that capital

back to shareholders. This message got our attention, since at the time we

weren’t meeting his minimum requirement.” (Brett

Roberts, CEO, 2016 Annual Letter)

…that

would from then on guide its path to remarkable value creation. We now

have nearly 20 years of data demonstrating that management’s utterances are

more than mere blandishment. In fact, the largest part of Brett’s total

comp comes from shares that vest over 15 years based on the cumulative

improvement in economic

profits. CACC has among the best

incentive schemes I’ve seen for a financial company and the most shareholder

aligned design I’ve encountered in the subprime auto space. 

By contrast, CPSS grants stock options over time with no fundamental criteria whatsoever and issues annual cash bonuses to executives for growing receivables, “causing” the stock to trade above levels escalating in 20% increments, and raising debt capital. In 2017, CPSS executives earned cash bonuses for attracting sell-side coverage and for promoting the company “by attending four equity or asset-backed securities conferences”. NICK’s plan is better, with significant stock ownership requirements, milestone bonuses pegged to operating margins, and long-term bonuses pegged to book value per share growth over 3 years, but it still isn’t explicitly moored to maximal value creation. For instance, you can always tighten underwriting standards to boost margins, but doing so may sacrifice economically profitable loan volume. Santander Consumer USA’s incentive scheme has some bright spots, like annual bonuses in part tied to return on risk-weighted assets, but it also rewards management for table stake responsibilities like meeting regulatory milestones and maintaining general financial stability, and is overall utterly generic in its needless complexity. All three companies have failed to meet their cost of capital for long stretches of time.

Whereas most subprime lenders underwrite for volume and seem okay levering up mid-single digit returns on capital, CACC, with an incentive structure that prioritizes economic profits, solves for a low double-digit rate of return and lets volumes fall as they may. Its volumes per dealer spike higher when capacity is tight and incremental returns are robust and vice-versa when competition is fierce and underwriting standards are loose:

But during periods of fallow incremental returns, CACC ramps up its sales force to sign up new dealers, widening the opportunity set from which to source attractive risks today and establishing a base from which loans can be harvested during a (hopefully) more lucrative tomorrow. 

Volume per dealer is cyclical and largely contingent on the competitive environment, but the dealer base has grown pretty consistently. The combination of dealer growth and loan volume per dealer have fueled ~11% annual loan volume growth over the last ~15 years, with returns on capital and equity average 14% and 30% during this period. In terms of value creation, no other publicly traded subprime auto lender comes close.

And yet more than any other subprime lender, CACC seems to get the most attention from the shorts. This baffles me. Why short a company that delivers good returns in mediocre lending environments like today and great returns in the inevitable dislocations that follow? Why short the subprime auto lender run by the most aligned and competent management team, with the longest history of operational excellence and capital allocation discipline? This makes little sense to me. Even if you suspected that something was very rotten in the subprime auto lending industry, is CACC really the best way to express that view?

CACC has ~$3 in net finance receivables on its balance sheet for every $1 in tangible equity, a ratio that has been remarkably consistent over the last decade, peaking at 3.6x in 2014 and troughing at 2.1x in 2009. Compare this to CPSS and Sandander Consumer, who have averaged ~12x and ~5x over the last 8 years. Nicholas Financial runs at lower leverage (~2.4x) but appears to be the worst underwriter of the group, its 18% peak ROE in 2011 diminishing to net losses in 2019.

Compared

to Santander and CPSS, CACC is also less reliant on securitizations, which may

run in stressful times, as it did in 2008/2009. 

CPSS, after tapping $1bn+ in funding from securitizations in each of

2006 and 2007, managed to source just $285mn in 2008 and $0 in 2009. Its net finance receivables plummeted from

nearly $2bn in 2007 to just $840mn in 2009 before troughing at $506mn in 2011.

CACC, on the other hand, continued to access the ABS markets through the

recession and has grown its loan book every year since 2007. 

But a company that grows its loan book by double-digits and generates 30%+ ROEs but trades at just 11x trailing earnings usually has some hair on it and CACC is no exception. Over the years, Credit Acceptance, like all other subprime lenders, has been the subject of civil investigations and subpoenas and what not from the state AGs, the DoJ, and various other regulatory bodies. Here is a sample:

Oof! One reasonable and obvious thing to do is to treat each regulatory inquiry as a nudge toward a dramatic existential denouement. But another thing you can do is treat these events as a regular, ongoing cost of doing business. A decade after the CFPB’s creation first caused the industry and its analysts to quake in fear, the latter seems to have been the more appropriate posture (I once worked as an analyst at a hedge fund that was short World Acceptance Corp, a subprime consumer installment lender who always seemed this close to being legislated away. We waited years for a regulatory hammer that never dropped).  

I get how naïve that sounds, but I have a hard time seeing a worst case scenario where regulators irrecoverably cripple subprime auto lenders given that 40% of Americans have either subprime credit scores or thin/no credit files, many of whom live outside major cities and rely on cars to get to work. A more likely regulatory scenario, in my opinion, is that CACC and other subprime players, rather than being nuked out of existence, incur recurring costs to stay compliant with one new batch of regulations after the next. On the one hand, this probably dampens reported profits and returns, at least in the near/medium term. On the other, it probably hurts CACC’s peers – who generate lower profit margins and have more precarious balance sheets – far more than it does CACC and raises the industry’s entry barriers. So, I think regulation is a bad reason to short this stock but a risk factor to consider if you’re long.

If your short thesis is in large part predicated on regulation (as many of the ones I’ve read over the years seem to be), you should probably ask why draconian regulation is more likely today than it was in any year since 2010 and when the day of reckoning will arrive…because shorting this stock isn’t free. Besides the borrowing cost (whatever that is), every year that passes without major regulatory action, CACC’s earnings and book value per share grow by 20%-25%/year. 

One

thing I wonder about with CACC is the size of its addressable market. This is important because, as I mentioned

earlier in this post, CACC has historically withstood loan contraction during

unfavorable times by expanding its dealer base, which is aggressively milked in

better times. According to management,

there are 60k used car dealerships in the US relative to CACC’s 13k active dealers,

indicating a significant growth opportunity. 

However, while it seems reasonable to think that every dealership will

have a lender like CACC in place to reach a deep subprime buyer base, I suspect

the true addressable dealer market is far smaller than that 60k figure. 

First, 15k of those dealerships are franchised dealerships that sell new and used cars for auto OEMs, leaving us with 45k independents.

Second, there seems to be quite a lot of churn in the dealer base. For instance, the number of new active CACC dealers – defined as dealers who got funding for at least one consumer loan during the period in question – from 2006 to 2019 sums to ~32k. However, the number of active dealers increased by only ~11k during that time, from 2k to 13k, raising the possibility that CACC has already churned through a significant chunk of addressable dealers. Some of the 32k active dealers that enrolled and subsequently dropped out have since been replaced by new dealers that haven’t been touched by CACC; and some of those 32k have diverted loan volumes to subprime lenders willing to outbid CACC, but will become active CACC dealers again when capacity inevitably tightens. But there are others who tried CACC, had a subpar experience, dropped out, and won’t ever consider re-enrolling and that’s the number we really need to deduct from the 45k independent dealers. If we subtract 20k as an upper bound (32k dealers enrolled at some point less ~11k incremental dealers who remain enrolled from 2006 to 2019), then the real addressable dealer opportunity might actually be conservatively more like 25k, far lower than the 60k number that is regularly bandied about. Adding to my concern is that the number of new active dealers in 4q19 declined by a stunning 27% (2.5% for the full year)….and this came after management waived the $10k one-time enrollment fee for new dealers in August 2019.

Footnotes

[1]

Donald and his family members together own 34% of the stock.

[2] this “loan” is technically a “retail installment contract” between the dealer and consumer that gets legally assigned to CACC…but for simplicity’s sake, let’s just calls this a loan. 

[3] technically, CACC pays the advance on pools containing at least 100 Consumer Loans, and those 100 Consumer Loans collectively secure future collections on that pool

[4]

Source: CACC

2019 10-K

[5] Collections

have surprised to the upside more consistently and with greater magnitude for

Purchase loans than with Dealer loans:

[6] For reasons I don’t understand,

CPSS’s gross allowances have very small allowances against them, so gross

receivables is about equal to net receivables. 

[7] a few years ago, the consensus belief seemed to be that used car recovery values would be further pressured by a supposed deluge of vehicles coming off lease and hitting the market, but this fear has not materialized so far. In its 4q19 earnings call, Santander Consumer USA commented that used car prices were up “across the board for us, whether it’s vehicle types, new or used, or by channel or vehicle age. It’s been a positive story throughout the year”.  

Source: Manheim Inc., as of December 31, 2019 & JP Power used-Vehicle Price Index, as of December 31, 2019 via Santander Consumer USA’s 2019 10-K

Disclaimer: At the time this report was posted, Forage Capital held a position in CACC. This may have changed at any time since.