Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: Paul Senior who wrote (36410)	2/27/2010 12:30:02 PM
From: Paul Senior	Read Replies (1) \| Respond to of 78753

CACC. Fwiw, these long-time followers of the company provide a pretty decent description of CACC's business model: "Wanted: "Great Business Models, Smart People"" Bradley Purcell and Randall Heck, General Partners, Goodnow Investment Group " What's to recommend them? Most investors head for the hills when the word subprime is mentioned. Heck: Unlike most other lenders in the auto market and certainly in the subprime arena, Credit Acceptance has a truly unique and successful business model. They partner with used-car dealerships. Under this partnership, the dealer is willing to accept an advance payment from Credit Acceptance that is less than 50 cents on the dollar of the total loan. So Credit Acceptance gets the advance paid back in its entirety from the car buyer, at which point both the dealer and Credit Acceptance share the remaining payments on an 80/20 split. The model gives Credit Acceptance a large margin of error. But it also gives the dealer an opportunity to profitably sell a car that they would not otherwise sell."... "The company generates exceptional returns; right now, the return on invested capital is about 16%, which gives them a return on equity of over 30%. Add to that an extremely conservative balance sheet for a finance company; their debt-to-equity ratio is only one-to-one. Finally, Credit Acceptance is working with just over 2,000 independent used-car dealers, out of an addressable market of 35,000. So there is plenty of room to grow and, based on all the field work we've done, the dealer partners think very highly of the company. We've been involved with this stock for over 10 years. The management team has delivered phenomenal returns, and yet [the stock] trades at just over eight times our estimated earnings of $4.80 a share for this year." "What's the potential downside for the company? Heck: The critical issues are collections, competition and funding. With collections they have demonstrated over the last couple of years that their model really works. As for competition, it's faded or gone away over the last two years. That won't always be the case because competition will return, to some extent. But there is no way, in the foreseeable future, that it is going to get anywhere close to where it was before the crisis. Funding is a risk, but all of their bank lines have been renewed, and they recently raised over $350 million in additional funding." ========== Still holding my few shares. My intent is to add to them. There just can't be that many people around like you guys who'll drive around with old, high-mileage things that were fully-paid for years ago. -g-