Credit Acceptance (CACC, Financial) had a solid year despite the pandemic. Total revenues rose 12% and adjusted net earnings rose 4%. Due in part to a hefty share repurchase, earnings per share grew 10%. Unit loan volume declined 8% during the year, driven by dealer closures, inventory challenges, a more discerning underwriting approach and a decision to deploy more capital towards repurchasing shares at attractive prices rather than making loans at lower returns.
Credit Acceptance falls under the purview of a number of regulatory bodies, including attorneys general offices in all states in which it operates, the Consumer Financial Protection Bureau, and the Department of Justice. Late in the summer, the Massachusetts attorney general announced a lawsuit alleging that Credit Acceptance violated consumer lending laws. Our research on these claims has led us to believe that they are overstated, and while we believe the resolution of Credit Acceptance's regulatory issues could involve material costs, the current valuation discounts a conservative estimation of these risks. We feel the company is likely to perform well in the coming years, and we have opportunistically added to our holdings.
From Ruane Cunniff (Trades, Portfolio)'s Sequoia Fund 2020 annual report.
