Many factors, both internally and externally, propelled American Credit Acceptance (ACA) forward through the pandemic and beyond. Business success was aided by external tailwinds such as record-low interest rates, rising used car prices, and multiple government stimulus packages for Americans during the pandemic. As a result of these tailwinds, ACA saw a dramatic increase in Return on Assets (ROA), which is how we measure business performance.
In 2022, those tailwinds began to shift. Post-pandemic government stimulus payments ceased, interest rates dramatically increased, and used car prices began to decline. These external factors that once aided in ACA’s success have now become headwinds in a challenging economic environment.
These headwinds are outside of ACA’s control, so we prepare for and welcome these challenges by focusing on what we can control. First, ACA applies discipline at the time of loan origination. Margins are tightening, so we continue to make responsible lending decisions based on solid analytics to determine the loans that will produce solid margins.
Second, ACA must utilize best-in-class collection strategies for customers who are battling the impact of inflation on their personal finances. This aligns with our vision statement and is important as we strive to empower our customers to be successful in their loan.
“Our customers are smart, resourceful individuals who, when given the opportunity, understand how to be successful in their loans, despite the economic conditions. Our role in that process is to provide accurate, transparent information so they can make the best decision for their situation,” says Greg Tigani, Chief Servicing Officer.
Third, operationally, the focus is on another controllable piece of ROA, operational expense. Continuing to focus on the most important risks and eliminate wasteful spending will reduce the decline in ROA that these external headwinds have perpetuated. ACA will also continue to focus on continuous improvement and innovation to enhance organizational effectiveness.
Challenging economic conditions are not new to ACA. Traditionally, we have been aggressive when others have been cautious. During the pandemic, when competitors stopped originating loans, ACA continued to provide reliable and affordable transportation through its lending programs at a much higher margin than ever before. Customers were utilizing stimulus money to keep their loans current, and delinquency and charge-offs were very low. Now that the tailwinds have shifted, ACA is strategically more cautious where competitors continue to be aggressive.
“Growth for the sake of growth is unhealthy. We will not sacrifice ROA for the sake of saying that we grew our portfolio by some large percentage. We are building a company that will be here 50 years from now, and we are in a great position to become aggressive and grow when the time is right,” says Curt Sidden, Chief Executive Officer.
Looking ahead to 2023, ACA excitedly prepares to overcome difficult economic challenges. By remaining disciplined in originations, empowering our customers to be successful, and focusing on operational expenses by eliminating waste and investing wisely, ACA is positioning itself to be prepared to act when opportunities arise.