Credit Acceptance: Tech Stack Upgrade & Market-Area Manager Incentives

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And that's also Westlake territory too. My understanding is that there are some regional strengths and weaknesses for these big players, right?

Absolutely. This is one of the faux pas of Credit Acceptance many years ago, around 2006. CAPS (Credit Approval Processing System), if you think about it, was way ahead of its time. It was before LendingTree.com, scoring people in 90 seconds to approve them, essentially approving everyone. It scored out risk-based loans in 90 seconds. Unfortunately, they didn't keep the technology updated and didn't stay current with the times. One of the ideas back then was to create CAPS as a dealer management system (DMS). It was a great idea. We were already printing out odometer statements and other documents, so we could just add a buyer's order, buyer's guide, and not too many other documents. We could house all the dealer data, gaining more data. However, they didn't pursue it. Westlake did, creating DealerCenter. Tying a dealership to a lender is very powerful, especially on the West Coast. In those western states, the Midwest, DealerCenter is the predominant DMS. DealerCenter does not integrate with CAPS or Credit Acceptance, making it a struggle out there. Because of that, Westlake and Western Funding are the dominant players.

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Yes, but please explain why you thought it was unsuccessful.

This is where we started becoming diametrically opposed between the higher-ups and the sales team. The officers, vice presidents, and above are all paid based on return on capital, economic value added. That's how they get their bonuses and pay. From the director of sales level down, they're paid on growth contracts and the quantity of contracts generated. They came out with this third-party product program, which ended up being a negative-negative program. For example, they give a callback with their own warranty and gap insurance, advancing $20,000 on the deal, including the warranty and gap. They're only advancing the profit on those two products. Then the dealer says, "Let me switch it to mine." Dealerships make a lot of money with their reinsurance programs, service contracts, and gap insurance. That's how they buy other dealerships. When they have $2 million or $3 million, they can borrow against it at low interest rates, charging themselves 4.5% or 5.5%. Some companies will advance them even more money to buy other stores, guaranteeing they'll do a certain number of service contracts a month. There's a lot riding on that. They're putting $500, $600, or $800 per service contract into a reinsured reserve account, which adds up. The program became a negative-negative program. If the advance was $20,000 with their own gap and VSC, and they switch it to their service contract and gap, the advance drops to $16,000. Why? Because Credit Acceptance loses the profit on their VSC and gap, which are very profitable products for them. They have to maintain the same 18.2% or 18.6% profitability.

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