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Credit Acceptance Corporation (NASDAQ:CACC)

Q1 2014 Earnings Conference Call

April 29, 2014 5:00 p.m. ET

Executives

Douglas Busk - SVP & Treasurer

Brett Roberts - CEO

Kenneth Booth - CFO

Analysts

Moshe Orenbuch - Credit Suisse

Robert Dodd - Raymond James

Eric Jaschke - Stephens

Operator

Good day, everyone, and welcome to the Credit Acceptance Corporation First Quarter 2014 Earnings Conference Call. Today’s call is being recorded. A webcast and transcript of today’s earnings call will be made available on Credit Acceptance webcast.

At this time, I’d now to like the turn the call over to Credit Acceptance’s Senior Vice President and Treasurer, Doug Busk.

Douglas Busk

Thank you, Charlotte. Good afternoon and welcome to the Credit Acceptance Corporation first quarter 2014 earnings call. As you read our news release posted on the Investor Relations section of our website at creditacceptance.com, and as you listen to this conference call, please recognize that both contain forward-looking statements within the meaning of Federal Securities law. These forward-looking statements are subject to a number of risks and uncertainties, many of which are beyond our control, which could cause actual results to differ materially from such statements.

These risks and uncertainties include those spelled out in the cautionary statement regarding forward-looking information included in the news release. Consider all forward-looking statements in light of those and other risks and uncertainties.

Additionally, I should mention that to comply with the SEC's Regulation G, please refer to the adjusted financial results section of our news release, which provides tables showing how non-GAAP measures reconcile to GAAP measures.

At this time, Brett Roberts, our Chief Executive Officer, Ken Booth, our Chief Financial Officer, and I will take your questions.

Question-and-Answer Session

Operator

(Operator Instructions) Our first question will be coming from the line of Moshe Orenbuch with Credit Suisse. Your line is open.

Moshe Orenbuch - Credit Suisse

Great, thanks very much. I was hoping you could give us a little bit of an assessment of the competitive environment, has been the trend for some time, the advance rate has been increasing and your spread relative to your forecast collections kind of coming down. So, maybe we should talk a little bit about that [for starters] (ph).

Brett Roberts

Sure. The competitive environment continues to be challenging. We probably won’t see a change there until the sources of capital dry up for the sub-prime auto finance industry. I think the best measure of the competitive environment is our volume, and more specifically, our loan volume per dealer. And that continues to decline, but it’s declining at a slower rate, which is allowing us to grow originations little bit faster than we had in prior quarters.

In terms of the spread, we haven’t made any material pricing changes since the third quarter of 2012. So, any change you see in the spread is a result of probably a couple of things, one, it would just be a change in the mix of loans, and the second thing, you have to be aware of is historically at least for the most recent periods we have seen an increase in forecasted collections after the loans were originally booked for the actual performance of loan has exceeded our expectation when we wrote the loan. So if that continues to be the case, the spread that we reported for 2014 originations would climb in future periods. That’s something to keep an eye on as you’re comparing the more recent loans with more season loans.

Moshe Orenbuch - Credit Suisse

Got it. As you think about the effect or the likelihood of that, is that you said kind of just as likely in a competitive environment, or is it less likely? How should we think about that?

Brett Roberts

For the forecasted increase?

Moshe Orenbuch - Credit Suisse

Yeah.

Brett Roberts

The more competitive the environment is, the less likely there is the forecast for increase. The primary reason for that is this adverse selection that the more competitors you have for a given loan, typically that depresses loan performance versus an empirical scorecard.

Moshe Orenbuch - Credit Suisse

Did you see anyone trying to emulate your approach or is it just kind of more traditional lenders that are -- just bring that capital to there?

Brett Roberts

Most of the capitation is just a traditional discount model. The big players all use a traditional discount model. There is a few players out there that have a program that looks something like ours, but most of the big players are traditional discount lenders.

Moshe Orenbuch - Credit Suisse

Just the last one from me is, Brett, just over a year ago, the CFPB had started talking about the discreet impact and made some noises about the auto finance industry. They’ve had one action I guess, and it’s been quiet, any thoughts that you could update us on the regulatory environment?

Brett Roberts

What respect to that specific issue, obviously that is the number one issue on the auto finance space as it relates to CFPB. It has got everyone’s attention, and like everybody else we are working through those issues. Charlie Pearce, who is our Chief Legal Officer on the board of the industry association, he has dialed into the latest update in terms of the CFPB’s position on that issue. So we are working through that issue like everybody else.

Operator

Thank you. (Operator Instructions) Our next question will be coming from the line of Robert Dodd from Raymond James. Your line is open.

Robert Dodd - Raymond James

Hi, guys. Could you give us any color on what you’re seeing on credit in terms of delinquencies or anything like that? Obviously your allowance is very stable right now, in fact slightly better on the owned loans, but is there any indication you’re seeing in terms of delinquencies’ early signs on one way or the other and things getting better because obviously as you said, if –- with adverse selection etcetera, I’d expect maybe there could be a shift, somewhere in the allowance or the potential of the delinquencies, but we’re not seeing that right now, anymore color there would be helpful?

Brett Roberts

I would just refer you to the table that’s in our earnings release, and then we provide you our expectation at the time we originate the loan, and then continue to update you each quarter on how the actual performance compares to our original expectation. As you said, I agree what you typically as it gets more competitive. Our loan performance comes under some pressure. We’re not seeing that in the numbers so far, but it’s up in that. Certainly we’re aware of and it has our attention.

Robert Dodd - Raymond James

Okay, thank you.

Operator

Thank you. Our next question will be coming from the line of Eric Jaschke from Stephens Inc.

Eric Jaschke - Stephens

Hey, guys, thanks for taking my -- actually I just had my last question answered, but I just want to say congrats on a good quarter. Thanks, guys.

Operator

Thank you. With no further questions in the queue, I’d now like to turn the conference back over to Mr. Busk for any additional or closing remarks.

Douglas Busk

We’d like to thank everyone for their support, and for joining us on our conference call today. If you have any additional follow-up questions, please direct them to our Investor Relations mailbox at ir@creditacceptance.com. We look forward to talking to you again next quarter. Thank you.

Operator

Once again, this does conclude today’s conference. We thank you for your participation.

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