The average vehicle installment contract term Credit Acceptance originated during the fourth quarter ticked up to 48.5 months. The loosening of terms helped the company generate almost 20 percent more contract volume during Q4 as Credit Acceptance’s active dealer network also jumped above 7,200 during the year.

Chief executive officer Brett Roberts gave a simple answer as to why Credit Acceptance opted to climb about the four-year threshold for its contracts.

“The term in the fourth quarter, it’s just a function of our policy so we got more generous on the term policy,” Roberts said during a conference call after Credit Acceptance shared its Q4 and full-year financial statement. “That's something that really continues a trend that started when I joined the company back in 1991. We did a 24-month term that was the max term that we would do and we've gradually inched that up over the past 25 years so now we will do a longer term and in the fourth quarter we rolled out a policy which we had experimented with which resulted in longer terms.

“We probably wouldn't lengthen the term if we were growing 20 or 30 percent and competition was light,” he continued. “It’s something that you do when the environment is more difficult, and so we did it. It’s calculated. It’s something that we’ve done many times before, and we’re comfortable we can price it.”

All told, Credit Acceptance originated 55,716 contracts during the fourth quarter and 223,998 contract for the year; figures that represented increases of 19.4 percent and 10.8 percent respectively. The company closed the year with 7,247 active dealers, an amount 13.3 percent higher year-over-year.

Credit Acceptance considers an active dealer to be one who has received funding for at least one dealer loan or purchased loan during the period.

Roberts was hesitant to say whether the fourth-quarter origination performance would create a deluge of paper filling Credit Acceptance’s portfolio.

“I think it's hard to say if it's a continuing trend. I mean it is a nice data point,” Roberts said. “It was a good quarter from a volume perspective but I think it’s too early to conclude whether it’s just an aberration or whether it’s something that will continue in the future.”

Top-Line Performance

Credit Acceptance reported consolidated net income of $73.0 million, or $3.45 per diluted share, for the three months that ended Dec. 31 compared to consolidated net income of $65.9 million, or $2.80 per diluted share, for the same period in 2013.

For the year, the company indicated its consolidated net income came in at $266.2 million, or $11.92 per diluted share, compared to $253.1 million, or $10.54 per diluted share, in 2013.

The company’s Q4 adjusted net income, a non-GAAP financial measure, totaled $69.4 million, or $3.28 per diluted share. A year earlier it was $64.3 million, or $2.73 per diluted share.  For all of 2014, adjusted net income rose to $271.7 million, or $12.17 per diluted share, compared to $248.3 million, or $10.34 per diluted share, a year earlier.

During the fourth quarter, Credit Acceptance explained that it enhanced methodologies for forecasting the timing of future collections and future dealer holdback payments on loans through the utilization of more recent data, different segmentations and new forecast variables.

Officials indicated implementation of the enhanced forecasting methodologies increased consolidated net income and adjusted net income by $2.2 million and $0.6 million, respectively, for both the quarter and year end.

Completion of $300.6 Million in Asset-Backed Financing

In other company news, Credit Acceptance completed $300.6 million in asset-backed non-recourse secured financing. 

Pursuant to this transaction, the company contributed loans having a net book value of approximately $375.9 million to a wholly-owned special purpose entity, which will transfer the loans to a trust. Credit Acceptance will issue three classes of notes:

Company officials explained the financing will accomplish three objectives, including:

— Have an expected annualized cost of approximately 2.6 percent including the initial purchaser's fees and other costs

— Revolve for 24 months after which it will amortize based upon the cash flows on the contributed loans

— Be used by Credit Acceptance to repay outstanding indebtedness

“We will receive 6.0 percent of the cash flows related to the underlying consumer loans to cover servicing expenses,” Credit Acceptance officials said. “The remaining 94.0 percent, less amounts due to dealers for payments of dealer holdback, will be used to pay principal and interest on the notes as well as the ongoing costs of the financing. 

“The financing is structured so as not to affect our contractual relationships with our dealers and to preserve the dealers' rights to future payments of dealer holdback,” they added.

Credit Acceptance pointed out the notes have not been and will not be registered under the Securities Act of 1933 and may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements.

“This news release does not and will not constitute an offer to sell or the solicitation of an offer to buy the notes.  This news release is being issued pursuant to and in accordance with Rule 135c under the Securities Act of 1933,” officials said.