Credit Acceptance (CACC -8.72%), a major player in subprime auto lending, released its results on July 31, 2025, covering the period ending June 30. The most notable headline was a significant miss on adjusted (non-GAAP) earnings per share, which came in at $8.56 compared to analyst forecasts of $10.16. By contrast, GAAP revenue slightly exceeded expectations at $583.8 million versus an estimate of $581.12 million. The period saw modest revenue growth (GAAP) but also showcased continuing weakness in loan originations, rising expenses—especially legal—and worsening performance in recent loan vintages. Overall, the quarter demonstrated substantial challenges for both portfolio quality and profitability, despite some positives in overall loan book size and dealer network maintenance.
| Metric | Q2 2025 | Q2 Estimate | Q2 2024 | Y/Y Change |
|---|---|---|---|---|
| EPS (Non-GAAP) | $8.56 | $10.16 | $10.29 | (16.8 %) |
| Revenue (GAAP) | $583.8 million | $581.12 million | $538.2 million | 8.5 % |
| Adjusted Net Income | $100.8 million | $126.4 million | (20.3 %) | |
| Economic Profit | $24.4 million | $56.2 million | (56.6 %) | |
| Adjusted Return on Capital | 8.5 % | 10.3 % | (1.8) pp |
Source: Analyst estimates for the quarter provided by FactSet.
Business Overview and Strategic Priorities
Credit Acceptance specializes in providing auto financing to consumers with low or no credit scores, often referred to as subprime borrowers. It partners with over 10,000 auto dealers, enabling them to sell vehicles to this underserved segment while sharing credit risk with dealers. The company's business model centers on its loan portfolio performance, legal compliance, and the breadth of its dealer network.
Recent strategic attention has focused on preserving loan portfolio quality in an environment with rising borrower risk. Effective credit assessment, collection efficiency, and compliance with evolving regulations are crucial. Another priority is supporting and growing its dealer network, which remains key for continued origination flow and revenue diversification. Ancillary products, such as vehicle service contracts and Guaranteed Asset Protection (GAP), supplement core lending revenue.
Quarterly Developments and Key Metrics
The quarter highlighted a meaningful contraction in profitability. Adjusted earnings per share, which exclude certain legal and non-operating costs, dropped 16.8% year-over-year and fell well below analyst expectations for non-GAAP EPS. Adjusted net income, another core profitability measure, declined by 20.3%. Economic profit—a metric that represents value creation after accounting for the cost of capital—dropped 56.6% compared to Q2 2024, reflecting both lower earnings and a higher capital requirement in the current lending environment.
Loan origination volumes deteriorated sharply. The number of consumer loans assigned fell 14.6% compared to the prior year, and the total dollar volume assigned dropped 18.8%. This decline was driven by internal decision-making to tighten lending criteria, which led to lower advance rates (the upfront portion of a car loan that Credit Acceptance provides to dealers). The company’s management also noted a drop in its core market share, which declined from 6% in the first two months of 2024 to 5.2% in the first two months of 2025, with likely continued pressure given the ongoing weak origination figures.
Loan portfolio growth was achieved despite weak new loan volumes. Credit Acceptance’s total average loan portfolio reached $8.0 billion, its record high, up 6.8% year over year. However, underlying loan quality continued to weaken. The company revised its forecasted collection rates—an estimate of how much it expects to recover from borrowers—for its 2022, 2023, and 2024 vintages lower again. The 2022 vintage, for example, is now projected to realize just 59.7% of initial expectations, down from the original 67.5%. These model adjustments resulted in a $55.8 million decrease in predicted net cash flows for the portfolio.
Legal and administrative costs surged. General and administrative expenses nearly doubled year over year, up 94.8% to $45.2 million (GAAP), largely because of a $23.4 million contingent loss set aside for ongoing lawsuits. Credit Acceptance continues to face significant regulatory attention, especially in New York, though the Consumer Financial Protection Bureau dropped part of its own case during the period. In addition, the effective tax rate increased from 23% to 25% due to higher state and local taxes and reduced tax benefits, putting further strain on after-tax results. Salaries and wages rose 10.4% compared to the same period in 2024.
The dealer network saw mixed trends. While 1,560 new dealers enrolled in the quarter, the active dealer count slipped 0.8% to 10,655. More striking was the fall in productivity: average loans originated per dealer dropped 14% to 8.0. The composition of loan types continued to shift, with dealer loans representing 71.6% of unit originations (down from 78.5% in Q2 2024), showing a gradual increase in purchased loan programs that involve different risk and reward structures for both the company and dealers.
Ancillary product revenue, which mainly consists of premiums on extended service plans and GAP, came in steady at $24.1 million, nearly matching the prior year’s figure. There was no indication in the filing of expansion or a shift in strategy for these product lines this period. The company also repurchased approximately 530,000 shares, or 4.5% of its shares outstanding, demonstrating management's willingness to deploy capital for buybacks despite the pressure on core results.
Outlook and Areas to Watch
The company did not provide any formal financial guidance for the coming quarter or year. Management advised investors to expect ongoing volatility in loan collection forecast accuracy, citing the uncertainty in economic conditions and an unpredictable regulatory climate. No clarity on a potential reduction in elevated operating expense levels was offered, and ongoing challenges in loan originations and credit performance remain significant open questions for the period ahead.
Revenue and net income presented using U.S. generally accepted accounting principles (GAAP) unless otherwise noted.
