Douglas Busk – SVP & Treasurer Brett Roberts – CEO Kenneth Booth – CFO.

John Hecht – Jefferies David Henle – DLH Capital Robert Dodd – Raymond James John Rowan – Sidoti & Company Amy DeBone – Compass Point Research Vincent Caintic – Macquarie David Scharf – JMP Securities Kevin Paul – SG Capital.

Good day, everyone, and welcome to the Credit Acceptance Corporations Third Quarter 2014 Earnings Call. Today’s call is being recorded. A webcast and transcript of today’s earnings call will be made available on Credit Acceptance’s website.

At this time, I would like to turn the call over to Credit Acceptance’s Senior Vice President and Treasurer, Doug Busk..

Thank you, Cantos. . Good afternoon and welcome to the Credit Acceptance Corporation third quarter 2014 earnings call.

As you read our news release posted on the Investor Relations section of our website at creditacceptance.com, and as you listen to this conference call, please recognize that both contain forward-looking statements within the meaning of Federal Securities law.

These forward-looking statements are subject to a number of risks and uncertainties, many of which are beyond our control, and which could cause actual result to differ materially from such statements.

These risks and uncertainties include those spelled out in the cautionary statement regarding forward-looking information included in the news release. Consider all forward-looking statements in light of those and other risks and uncertainties.

Additionally, I should mention that to comply with the SEC's Regulation G, please refer to the adjusted financial results section of our news release, which provides tables showing how non-GAAP measures reconcile to GAAP measures.

At this time, Brett Roberts, our Chief Executive Officer, Ken Booth, our Chief Financial Officer, and I will take your questions.

(Operator Instructions). And our first question will be coming from the line of John Hecht of Jefferies. Your line is now open..

Afternoon guys, thanks for taking my question. It seems like old hat, but you did give an update with the CID and you talked about some dealership arbitration.

Number one, is there anything new with the CID that you announced and is there anything new with this dealership arbitration that you’re announcing?.

Really isn’t anything new on either matter. We’ve submitted the requested information to the FTC and are basically waiting. Nothing new on the arbitration front..

Okay.

And then, new dealership growth kind of resumed after a little bit of disruption in the last quarter, I think the couple of years you been focusing on hiring reps to get new dealers, I’m wondering if you could just talk about the efforts there and kind of the willingness of new dealers to sign up new lenders at this point in time?.

Probably the same story as last quarter, we grew dealers at roughly 10% about the same as in Q2. The salesforce grew slightly, I think, year-over-year, but not a significant amount. We’re still looking at – focused on filling the salesforce that we have.

We ramped it up pretty quickly and we’re just trying to get the existing salesforce more productive at this point. The numbers are what they are. We’d like to be drawing dealers little bit faster than what we are, but 10% is what it was for the quarter..

Okay. And then last question, can you comment on the end markets, I mean, it looks like I guess the discount rate trends are stabilizing maybe you still able to show dealership and portfolio growth, I know you’d like it more.

We heard from Allied this morning that suggested that maybe pricing pressure were normalizing or coming down and if you have a lot of regulatory pressure on the banks to maybe have them pull back.

Are you seeing any of those, I guess, the normalization of credit trends or is it still hypercompetitive out there?.

I think it’s still very competitive. I think the best thing to look at for us is volume per dealer which at the low end of the historical range and if you want to look at revenue yield or the spreads in our table those are also were pricing about as aggressively as we ever had.

So the combinations of those two things leads us to the conclusion, it’s still very competitive out there..

Still competitive, but getting worst or stable competitiveness, any kind of color there?.

I would say the number speak for themselves. The unit volume growth is roughly the same as last quarter. So we didn’t change pricing on the portfolio program which is 90% of the business. We did get more aggressive on the purchase program, but that represents pretty small part of the business at this point..

Great. Really appreciate the color, guys..

Thank you. And our next question comes from the line of David Henle of DLH Capital. Your line is now open..

Yes.

Could you just spend a second talking about what impact, if any, gasoline prices to the extent they stay down here will have a beneficial effect to your business either on a credit loss side or in terms of loan demand?.

Probably not a material impact either way, gas prices are something intuitively might think would impact our business, but over a long period of time, when we look at it, we haven’t found a significant impact..

Okay. Thanks..

Thank you. And our next question comes from the line of Robert Dodd of Raymond James. Your line is now open..

Hey, guys. On the purchase program, which you said is relatively small part of business, but it has been growing and you’ve been getting more aggressive on that front.

When I look at the table and these are very small changes I understand, but there’s five vintages where the forecast collection was revise down by 0.1%, I mean, very small number, and obviously that so far it looks like that deteriorates a little bit in the third quarter versus the first two quarters of 2014.

So can you give us any more color on way you think the capital return is in terms of appropriate enough on continuing to expand that purchase program given the split has been ticking down the last few quarters?.

Can you help me out with the premise of your question? Which periods did you see where the collection [indiscernible]?.

2014, 2013, 2011, 2009 or 2008 or forecast collections tick down on the purchase program by a tens of a percent, small, but they all moved down versus what was in the queue for the second quarter for example?.

I got you. Again, a pretty small numbers there. We’re happy with the performance of the purchase business, happy with the performance of the portfolio business at this point. With the portfolio business a big part of that program is the alignment of interest with the dealer. So the dealer makes money if the customer pays.

And the amount they make is proportionate to the success and the collection part of the process. So, we’d like to keep the integrity of that program by making sure we have – if we’re selling dealers a program that pays out money over time then we make sure that there is money over time to pay out.

So we can over advance on that program or really compete on price at least that been our philosophy. The purchase program doesn’t have that same constraint and so we price to achieve the best mix of unit volume and profit per unit which is what we’re doing there.

So we continuously run different challengers at different price point and we pick the one that we think is optimal, and that’s what we’ve done with the purchase program. So we’ve executed that strategy and results are ones that we’re happy with at this point..

Okay. Perfect. Again on follow-up if I can, you mentioned you’re trying to improve kind of productivity per sales person, but also productivity per dealer.

I mean, are you doing any new initiatives you’re doing to try and boost that? Obviously, volume per active dealer as you said follow into the historic range, is there anything new on the [cards] to try and move that number higher?.

I don’t think any game changers. We think that volume per dealer reflects – it reflects the competitive environment, but it also reflects everything we do as a company. So the quality of our product includes the origination function, the sales function, the servicing functions of the dealers benefit if we get better servicing the loans.

So volume per dealer reflects everything we do and we’re always trying to get better at everything we do. But I – in terms of strategy change or game changer there’s nothing that we’re prepared to announce today..

Okay. Thank you..

Thank you. And our next question comes from the line of John Rowan of Sidoti & Company. Your line is now open..

Good afternoon, guys.

Can you just talk to how you see the world going forward if the CFPB or any regulatory agency decides to come in and set a flat dealer mark-up system? I know your system is little different in the way that the mark -up is done, but I want to know, does it help or hurt you in the long run if there’s some type of flat pricing system?.

Yes, as you mentioned our program works little bit differently. We don’t use the buy rate, sell rate mechanism that’s very common in the industry. So the impact might less direct on us. But I think for the most part regulatory changes that effect everybody probably we have a neutral impact..

Okay. Thank you very much..

Thank you. And our next question comes from the line of Amy DeBone of Compass Point. Your line is now open..

Hi. Thanks for taking my question.

Actually most of them already been answered, but can you provide breakdown of income direct, and third-party products that goes to in the finance and income line versus other income? I understand that a portion of it feeds into both?.

I’ll try.

The major components of other income would be income that we earn from one of the third-party warranty products from the GAAP product, from the sales of GPS-SID unit, dealer enrollment fees, that would be probably the four largest components of other income, premiums earned is the second relationship we have with a vehicle service contract provider in term of finance charges, Ken, is there any ancillary product income that goes through finance charges?.

There’s the commission that we earned on vehicle service contracting and get products. So there’s two components to the ancillary product income, one component goes through the finance charge line and the other component basically the underwriting gain or loss goes through either other income or premiums or independent program..

Okay. And then the commissions in terms of size relative to on the fees that go into other income.

Is it relatively equal or significantly smaller than the profit share that goes into the other income lines?.

I don’t have that number on my finger tips..

Okay. That was great. Very helpful. Thank you..

Thank you. (Operator Instructions) And our next question comes from the line of Vincent Caintic of Macquarie. Your line is now open..

Hey, thanks. I’ve two housekeeping and then broader one.

First, I notice that the salary and wages decline meaningfully quarter-to-quarter and I was like wondering if that was seasonality if there is some ongoing expense savings there?.

No. About [$1.6 million] of $2.4 million decline was just a reduction in stock compensation expense due to a change in the expected vesting period. The other $800,000 was just a reduction in lower incentive compensation on our servicing function. So I think its kind of normal quarter-to-quarter fluctuations, I don’t think there is any.

You should think that there’s any long term savings there just because of the change this quarter..

Got it. Okay. And then the tender offer had a good subscription rate and was successful.

So I was wondering if you could share what – how we should think about share repurchases going forward?.

We’re going to think about share repurchase the same way that we have in the past.

Our primary objective is to make sure that we have the capital that we need to fund anticipated levels of loan originations, to the extent or comfortable with that and we find ourselves with excess capital and we have an opportunity to buyback the stock at less than what we think the intrinsic value is, then we’ll continue to return capital to the shareholders.

So that’s a way we thought about it for years and don’t see that changing going forward..

Okay. Got it. And then, the last broader question. I wanted to get an update on your take on the sub prime lending competitive environment and as part notice the 50 basis point slight uptick in your forecasted collection percentage for 2014.

If you could describe what might be driving that or if that’s just typical volatility in your forecasting? Thanks very much..

With the competitive environment, I think we’ll just stick with what we said before, the unit volume or volume per dealers is probably the best number to look at in terms of where we are from a competitive perspective where pricing is aggressive as we ever have in volume per dealers at the low end of the historical range, so that leads us to the conclusion that it continues to be very competitive.

Over a long period of time it will go through periods where it’s like it is today or go through periods where it’s likely going to be a lot easier than it is today and we just happen to be in one of the more difficult periods today..

I mean, those 2014 collection, we try to put our best number forward at the time that we originate the loan. You can see that for 2011 through 2013 originations those loans as they have seasoned have performed a little bit better than expected which has caused our forecasted collection rate on those loans to increase over time.

2014, at this point we’re following the same pattern. So I think 2014 just reflects the continuing trend of the loans performing a little bit better than we expected when we originated them..

Okay, great. Thanks very much guys..

Thank you. And our next question comes from the line of David Scharf of JMP Securities. Your line is now open..

Thank you. Just two questions. One, I think it’s been maybe over two years now, I think September 2012 was a last time you put forth some price cuts to your dealers. I know you’re consistently unwilling to suggest there’s any easing in the competitive environment out there, but to the extent it’s not getting worst.

Is it at least a fair assumptions for us to assume that we shouldn’t be looking at any fee reduction in the near term given it’s been two years during the much more competitive environment which you had not to change it?.

I mean, looking forward, I think its difficult assess whether those will be required or not. I mentioned we’re little bit resistant to changing price on the portfolio program for the reasons I indicated. We have a little bit more flexibility to compete on price with the purchase program. We’ll continue the price using the same formula.

We’ll start to optimize unit volume times profit per unit. And so the competitive environment will dictate at least on the purchase where that price ends up. But predicting where might be next quarter or the quarter, I don’t have a guess there..

Got it. Thinking about dealer growth, it sounds like you’re pleased with about 10% year-over-year.

As you just look at kind of the seasoning of the more recent hires on salesperson side, is 10% a decent benchmark for us to think about you being able to sustain for the next year?.

I think it’s tough to say. I think we’d like to be growing our dealer base faster than 10%. There is a lot of dealers out there that could benefit from our program that don’t have it. There’s a big universe of dealers we operate in the large market. But 10% was a best we can do on the third quarter and what it is going forward we just have to see..

Got it. Thank you..

Thank you. And our next question comes from the line of John Rowan of Sidoti & Company. Your line is now open..

Hi, guys. Thanks for taking the follow-up. Just one quick follow-up on the comp question.

So the $1.6 million that was reflected because of a change in the vesting period of stock options, is that a reversal from a prior accrual or I’m just trying to get out whether or not that $1.6 million comes back into the comp line or if that’s a permanent reduction in the run rate?.

We don’t think you can say it’s a permanent reduction.

We forecast the rate of which our restricted stock and restricted stock units will vest every month or every quarter and based on your financial forecast you come with different results sometime, so it happened to be reduction expense, this time there been other periods one when its been an increased expense, so I don’t think it can conclude that it’s a permanent reduction..

But was it a reversal from a prior accrual?.

Yes..

Okay. Thank you..

I think the simplest way to think about that stock comp is $1.5 million to $4 million a quarter over the last couple of year and its closer to the low end of the range this time, and it fluctuate. So I think the thing to remember is the expense number in the third quarter reflects a stock comp number that’s at the low end of the range.

So as you’re modeling you probably want to take an average a few quarters and not just use the third quarter..

Thank you..

Thank you. And our next question comes from the line Kevin Paul of SG Capital. Your line is now open.

Hi, thanks for taking the question. You talk just about the dealer growth, if we kind of continue to see dealer growth kind of stay at this sequentially at this level which has been at last few quarters, as you look into the next year, we’re going to start to see kind of that dealer growth look like its in a flat on a year-over-year basis.

In that sort of environment with flat dealer growth year-over-year and volume per dealer, it looks like the competitive environment still soft.

How do we – would you guys expect to see revenue growth in that sort of – in that scenario or next year?.

In your scenario, if don’t grow dealer I think it will be difficult to grow revenue..

Okay. And just on the attrition, it looks like the attrition for dealers was little higher this quarter sequentially.

Is that a function of – it seems like when I talk to dealers and you talk competitors like Exeter and Westlake seem to be the primary competitors in this space, is it the upfront fee that you guys charge that the dealers -- is that the primary reason why they would choose one of the competitors, so that it mean the $10,000 upfront fee is that a big stopping point in the sale cycle in your opinion?.

I think there is two things there. One is attrition, which means they’ve joined the program and they’ve left. That’s one variable. And other is like success in signing up new dealers. If we look at the new actives per quarter, sort of per sales rep, that’s remained pretty steady over a long period of time.

Now we always say we can do better, but the numbers are what they are and that’s been pretty steady. So there’s different aspects of our program that the dealer would evaluate and I think we win our share and certainly those other company would win their share as well..

Okay. Got you. And there was an article today came out I guess from the OCC. They cited some concerns around just overall delinquencies in the industry are up about 12% year-over-year and bank charge-offs.

Is that – it seems like we’re seeing some sort of uptick in delinquencies, I know, that’s more on the dealers books, is that also part of the reason why you think you’re starting to dealer growth slow here little bit, because in your model, right, its my understanding on your model that the dealers holds 80% of the credit risk.

In theory if you’re going to an environment with low credit delinquencies, the CACC is the model that the dealer will choose, and if we’re going to a period of higher delinquencies, you’d think they will choose like the other models out there where they don’t have the backend credit risk.

Is that a fair assumption for going through a cycle of kind of increasing delinquencies that, that sort of scenario may play out from a competitive standpoint that you maybe from market share standpoint?.

I think there’ll be a point delinquencies increased meaningfully, I think a lot of number you see today that are percentage changes over last year or some times they like to use two or three ago you’re talking about a cyclical pattern where delinquencies went down to historical lows and they’ve started to come out with the lows, but they’re still at the low end of historical range.

So, I don’t think there’s been any alarming changes in delinquencies. We would like to see industry delinquency rates increased, that would probably be an indicator that we’re sort of moving out of this part of the cycle. But I don’t think dealers are really making their decision based on those sorts of number.

If you look at our loan performance statistics that are in our release, you can see they’ve been pretty steady over time and I don’t think dealers would be weighing sort of macro delinquency trends in deciding which program to use..

Okay. Got you. And just last question on the funding environment, the cost of funds. It looks like some papers was written couple of weeks ago. The credit spread widened about 40 basis points.

Is that just function of the cost of funds or you think of going forward start to tick up sequentially or how do you sort of think about that?.

The cost of funds on the securitization that we did in September was about 30 basis points wider than the securitization we did in April of this year. The credit spreads were the same virtually all of the increase was due to an increase in base rates.

I don’t have a crystal ball relative to rates, but obviously rates are historic lows like I think its – they have no where to go but how quickly will occurs really anyone’s guess.

Based on the current mix of our debt and the forward LIBOR curve, we don’t see any material change in our effective interest rate for the remainder of the year and first part of next year. But again that assuming the LIBOR curve and the mix for debt remained relatively constant..

Right. Thank you..

Thank you and with no further question in the queue, I would like to turn the conference back over to Mr. Busk for any additional or closing remarks..

We’d like to thank everyone for their support for joining us on our conference today. If you have any additional follow-up questions, please direct them to our Investor Relations mailbox at ir@creditacceptance.com. We look forward to talking to you again next quarter. Thank you..

Once again, ladies and gentlemen, this does conclude today’s conference. Thank you for your participation. You may now disconnect..