Credit Acceptance chief executive officer Brett Roberts acknowledged just how much the competitive landscape finance companies are finding to book subprime contracts impacted the company’s first-quarter performance.

While the company’s consumer loan unit volume and active dealer figures both jumped by double digits year-over-year, Credit Acceptance reported that its consolidated net income softened in Q1.

The first-quarter consolidated net income level settled at $49.8 million, or $2.12 per diluted share, for the period that ended March 31. During the previous year’s quarter, Credit Acceptance’s consolidated net income came in at $60.6 million, or $2.48 per diluted share.   

Officials indicated first-quarter adjusted net income, a non-GAAP financial measure, totaled $63.4 million, or $2.69 per diluted share, which ended up higher compared to $58.8 million, or $2.41 per diluted share, for the same period in 2013.

Credit Acceptance reported that Q1 consumer loan unit volume rose 14.3 percent year-over-year to 65,283 contracts, up from 57,105 deals a year earlier.

The company’s active dealer network climbed by 16.1 percent to 5,058. At the close of the first quarter of last year, the network level stood at 4,355.

During this week’s conference call with investment analysts, Roberts summarized Credit Acceptance’s current situation in light of what he thinks might happen going forward.

“The competitive environment continues to be challenging,” he said. “We probably won't see a change there until the sources of capital dry up for the subprime 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 a 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,” Roberts continued. One would just be a change in the mix of loans, and the second thing you have to be aware of is that historically, at least for the most recent periods, we have seen an increase in forecasted collections after the loans were originally booked so the actual performance of the loans has exceeded our expectations when we wrote the loans. So if that continues to be the case, the spread that we reported for 2014 originations would climb in future periods.

“That’s just something to keep an eye on as you’re comparing the more recent loans with more seasoned loans,” he went on to say.

Roberts also touched on where this industry competition is originating.

“Most of the competition is from the traditional discount model. The big players all use the traditional discount model. There are a few players out there that have a program that looks something like ours but most of the big players are your traditional discount lenders,” he said.

Beyond the industry competition Roberts discussed, Credit Acceptance also mentioned three other factors that resulted in its first-quarter decrease in economic profit.  Those negative impacts included:

• A decrease in its adjusted return on capital of 120 basis points primarily as a result of a decline in the yield on its loan portfolio due to higher advance rates on new consumer loan assignments.

• An increase in its cost of capital of 20 basis points primarily due to an increase in the average 30 year treasury rate, which is used in the average cost of equity calculation.

• An increase in adjusted average capital of 15.7 percent due to growth in our loan portfolio primarily as a result of growth in new consumer loan assignments in recent years, which resulted in the dollar volume of new consumer loan assignments exceeding the principal collected on our loan portfolio.  The growth in new consumer loan assignments in recent years was the result of an increase in active dealers, partially offset by a decline in volume per active dealer.

Wall Street observers also sought an update on how Credit Acceptance is handling regulatory issues, specifically in light of the Consumer Financial Protection Bureau connecting disparate impact to discrimination issues in the auto finance sector.

“With respect to that specific issue, obviously that is the No. 1 issue in the auto finance space as it relates to the CFPB,” Roberts said. “It’s got everyone’s attention and like everybody else we're working through those issues.

Charlie Pearce, who is our chief legal officer, is on the board of the industry association. He’s dialed into the latest updates, in terms of the CFPB’s position on that issue, so we’re working through that issue like everybody else,” Roberts went on to say.