In this transcribed episode of the Used Car Dealer Podcast, Zach interviews Andrew Rostami, Chief Product Officer and CMO at Credit Acceptance. They discuss Credit Acceptance’s strategies for dealer growth and support for the subprime ecosystem. The conversation also highlights the latest financing tech innovations and upcoming initiatives from Credit Acceptance.

Zach: Zach here, and we have a very special guest on the podcast today, Andrew Rostami, the chief product officer and CMO at Credit Acceptance, which is a publicly traded auto finance company providing auto loans and other financial related products. Andrew, thanks so much for joining me on the podcast today.

Andrew: It's, it's great to be on the show. Thanks, Zach.

Zach: So let's get into it. Andrew, could you tell me a little bit about your background and your role at credit acceptance today?

Andrew: Sure, I really started as I was mentioning earlier as, as a tech, I was programming as a kid in my parents' basement. And then I became a software engineer out of college. I ultimately got into financial services with stints in consumer products and retail. I've been in the financial services industry now for over 20 years in areas from investment management to consumer and obviously business oriented financing. In the last two years, I've served as credit acceptance as Chief product and marketing officer. In that role, I oversee teams that identify ways to identify and meet the needs of our customers. In our case, our primary customer is the dealer. So how we can incorporate dealer needs, learnings and insights into innovative products and marketing journeys for them.

Zach: Credit acceptance has seen an increase in new active dealers in the past year, particularly with used independent dealerships. What factors attribute to this amazing growth?

Andrew: Yeah, I mean, so, you know, really to start at the beginning, credit acceptance has been focused on really our mission of providing innovative financial solutions that enable auto dealers to sell vehicles to consumers regardless of their credit history, which makes vehicle ownership possible. Our recent growth can be attributed to a couple of factors. First, the shifting macro environment including changes in the economic conditions and lending practices has created opportunities for alternative financing solutions. As lenders really exercise more caution, dealers have turned to places like credit acceptance for reliable financing. Second, we have a very robust business model which has played a crucial role. We have a couple of differentiating features that cause our dealers to be loyal to us. First is we help dealers grow their business more broadly. In our model, we dedicate what we call a market area manager or what we call the MAMs for short, which provide critical support to dealers. We also get high marks on our dealer support center which is available to our dealers whenever they run into a problem. Our product is very powerful for our dealers. They can use it at any time and get callbacks and information. We have a portfolio program that aligns the interests of the consumer, the dealer and the lender. So the dealer is incentivized to have a happy customer and a reliable vehicle, and the dealer is able to earn additional cash flow as a result of that. Lastly, we just actively listen to dealers needs and concerns and evolve when needed. In response, we've implemented strategic enhancements to better serve those dealers. A couple of examples are building or offering out for near prime and above consumers and improving how we onboard dealers onto our program. So they're best educated in how to use our product and grow their business.

Zach: So with many lenders pulling back from auto lending, how has credit acceptance adapted its approach to support dealers?

Andrew: Sure. Yeah, we've been in the business for 52 years. So the benefit you get with credit acceptance is quite literally, you get what you see and we're there to support our dealers in all types of economic situations. We run our business to create long-term value for our dealers and our shareholders, obviously, instead of trying to optimize just for the short term. So for us, it's a little less about how we've adapted our approach over the short term to how our business model continues to thrive over the long term as other lenders are having some more difficulty. That said, we continue to listen to dealers, as I mentioned earlier, find ways to better solve their problems. So we have a pilot program going on right now, for example, enrolling dealers to make it completely frictionless on how a prospective dealer can sign up. We call that a test drive of the system, that's a prospective dealer using real inventory, real consumer information. We've also been building out more systematic go-to-market routines across sales, marketing, analytics, and products that allow us to disseminate best practices more effectively and harness the value of each of those functions for the benefit of our dealer. We're always in the market testing new potential solutions and adding new enhancements. We rolled out a digital remote signing experience which helps dealers assist consumers wherever they're shopping. We're also continuing to build out great digital experience for the consumer so that they're educated, onboarded, and set up for success. We found the more successful the consumer is, the better experience they're obviously going to have with the dealer, and so the more likely they're going to go back and shop with that dealer and drive referrals back to them.

Zach: Wow, really impressive. What unique challenges do subprime customers face when seeking auto financing and how does credit acceptance address these challenges?

Andrew: At credit acceptance, we hear every day about consumers who have poor credit really through no fault of their own. It can be due to situations including a medical issue, temporary job loss, divorce, unfortunately, a death in the family, really any type of personal hardship or just having no credit or even being new to the country altogether. Many lenders don't give these consumers a chance. Consumers have to turn to either not having access to a car, using ride sharing, renting a car, or using public transportation, which is not very widespread in the United States. This is why dealerships need an option like credit acceptance. These consumers deserve a financing option that provides access to car ownership and prioritizes their interests. Cars are really important for economic mobility, especially for those with challenged credit. Research shows that people without cars who then get cars have much better access to jobs and increase their earnings as a result. The best way to convey this is through a real-life example. Do you mind if I tell you an anecdote of one of our consumers?

Zach: Yeah, go ahead.

Andrew: There's a consumer of ours, and there are many stories, but I'm just picking one example. Her name is Tasha, she's in Toledo, Ohio, and she assists nurses in facilities, nursing homes, and hospitals. She provides transportation to patients in her community who don't have access to transit. She was using a sedan but wanted to upgrade to a larger vehicle to help more people and earn additional income. Like many Americans, she had impaired credit and couldn't get approved for financing. The reason was no fault of her own; she had co-signed for a friend to purchase a vehicle before the pandemic. When the pandemic hit, the friend ran into difficulty making payments, causing Tasha's credit score to decline. Although she was turned down at multiple dealerships, she didn't give up and ultimately found one that works with credit acceptance. She got approved to purchase the van, and with her new van, she was able to help more patients and earn additional income. Impressively, in just a year, she paid off her account, improved her credit, increased her income, and is now planning to finance a home. This is what providing ownership of one car can do. Over 52 years, we've helped millions of consumers. This is what we mean when we say we drive possibility.

Zach: Really impressive story. What are some of the latest financing options that credit acceptance offers to help dealers grow their business?

Andrew: The best place to start is to talk about how credit acceptance has a differentiated business model, which is as relevant today to dealers growing their business as it was when we launched the program. We have what we call CAPS, which is credit acceptance's proprietary tech platform, allowing dealers to approve financing for vehicles in their inventory in 30 seconds or less. Dealers can manage the process end to end, from applications to vehicle selection, deal structuring, contracting, and funding, all on the same platform, CAPS. Our support model, which I mentioned earlier, is very relevant to our dealers. Many dealers, particularly in the Indie space, face problems and need a sounding board on topics like inventory to buy, merchandising at the store level, and building their brand and reputation in the local community. Our market area managers are well-versed in these topics. We are constantly evolving to meet and serve dealer needs. We recently expanded our offering for near prime and above consumers, and in Q1, that was about 15% of our originations. This allows dealers to rely on us for competitive callbacks for virtually any consumer, which few other lenders can say. Our dealers can have confidence knowing that credit acceptance can help their customers regardless of their situation.

Zach: How does credit acceptance's lending model align with the interests of dealers, buyers, and consumers?

Andrew: That's a great question. We have a program that aligns the interests of the dealer, the consumer, and credit acceptance. We call it our portfolio program, and it sets us apart from the competitors. When dealers choose credit acceptance, they can get paid a piece of future collections, up to 80% of future collections, providing the dealer with additional revenue they wouldn't have access to otherwise. It's like making payments to a 401k plan; you might sacrifice a little today, but you get access to this cash flow stream over time. Our dealers benefit from this additional cash flow stream, which helps them fund their cost base and grow their dealership. The model is designed to support consumers completing payments, so the dealer is incentivized to get the consumer in the right car and on the right footing, and they benefit from that. Credit acceptance has been in the business for 52 years, and the company understands how to best support the consumer and the dealer to get the best possible outcome for all parties. The more successful the consumer is, the better experience they will have with the dealer, the more likely they will go back and shop with the dealer, and drive referrals back to them. Many of our experienced dealers talk about repeat and referral business becoming a large component of their growth.

Zach: In what ways does credit acceptance support dealer growth beyond providing financing solutions?

Andrew: We do this primarily through the quality of our support model and helping dealers grow their business. Our dealer support center is available whenever they run into a problem. Our product is powerful and helps dealers grow their business. They get funded almost in real time, which helps them have confidence in growing their business and investing. We also bring dealers together to share best practices. I was at a roundtable the other day, facilitating it for dealers, and they were talking about business issues with their market area managers, such as the challenge of buying locally versus nationally to get access to a broader pool of vehicles. Another example is when I was in a dealership the other day, and they loved the ability to pick up the phone and call the MAM or the support center. Often, the agent on the other side of the phone is someone they already know, familiar with their business, consumers, and inventory. This makes it easier for the dealership to grow their business.We are centered on helping dealers solve problems that help them grow their business. Today, we help dealers structure and find the best possible deals, as well as helping them acquire consumers for their dealership through leads. These are areas that will continue to help dealers grow their business.

Zach: How do you see the landscape of auto financing evolving in the next few years, especially for subprime?

Andrew: It's hard to predict the exact future, but we're seeing a couple of trends emerge. One is affordability, which is a trend that will continue to persist. This is driven by the supply and demand of cars, but also everything from interest rates to rising insurance premiums, the rising cost of groceries, health care, and gas. It's an issue for everyone, but particularly for subprime consumers. Second, we're seeing more uncertainty in the industry landscape. Other lenders are pulling back, which is difficult for consumers who need more options, not less. We're seeing consumer shopping preferences continue to evolve, and we'll continue to see a migration to digital shopping. And even if that's just for researching cars that ultimately get fulfilled by the dealership physically, we believe more and more information can be provided to consumers, particularly subprime consumers upfront. And really, our business model positions us for growth across all that in the environment. So, you know, we feel pretty good about how we're navigating those challenges.

Zach: How important is technology in Credit Acceptance's strategy, and what tech innovations are you personally most excited about?

Andrew: Yeah, I mean, technology is a pivotal enabler. It's a core component of our strategy for dealers. Primarily, it's about continuing to advance our origination tech platform, which is CAPS, as I mentioned earlier, and it makes it easy for dealers to do everything from submitting applications to getting funded in as little as an hour. So really impressive technology we're continuing to invest in. On the consumer side, we're continuing to provide better technology around self-service options through our portal, our mobile application, and through better and more personalized marketing journeys as well. We're constantly using and advancing our analytical techniques, which allows us to provide the best deal to the best consumer based on the right vehicle. We're continuing to invest in marketing technologies so that we can reach the right consumer and dealer with the right messaging to educate them. Across all of that, our primary focus is on supporting dealers and their critical needs. Those are the focus areas that we look at and we're excited about for technical innovation. One of those is enabling dealers to more easily identify the right vehicle, right deal, and right consumer, simplifying the application process, and supporting business growth through high quality and relevant leads for the dealership. So, I won't dive into the intricate details. Our focus on the technical innovation side lies in enhancing our product to address those specific areas. For us, innovation is continuous testing, learning, and then using that continuous learning to invest in our technology as a result of what we've learned.

Zach: Has your team developed any new integrations to make it easier to fund a deal from an independent dealer's DMS or any DMS-focused integrations? The DMS is like the central nervous system for a dealership.

Andrew: Yeah, we found that a significant number of our dealers actually prefer working end-to-end within our platform, which they can handle everything from the consumer application, inventory information of the vehicle, fees, deal calculations, contracting, and real-time funding. They find it easier and more effective, particularly for the subprime consumer, but it can be used for all consumer types. This preference aligns with our expansion to other consumer segments, ensuring that dealers can rely on us for all of their consumer financing needs. That said, we do currently have integrations with several CRM lead providers, specific DMSs like RouteOne and DealerTrack. We continue to evaluate and enhance those experiences, and our focus is on easing dealer pain points in the moments that really matter to the dealer.

Zach: Can you share any success stories or case studies where Credit Acceptance has significantly impacted a used car dealer's business?

Andrew: Yeah, absolutely. One example is a dealership in the Detroit area that was started by a father who emigrated to the country. He started on a dirt lot, like many scrappy and entrepreneurial dealers do, and then they needed to build an office. During the construction process, they unfortunately ran out of money. The economic collapse of '08 happened, and his son was delivering pizza to make ends meet. So that's how dire it was for them. They turned to Credit Acceptance for help. This dealership uses an approach of really listening to customers and reinvesting in the merchandise and the business. They used a market area manager from Credit Acceptance who was a sounding board for them and helped them grow their business. That ultimately led them to today, where they have funded over 13,000 contracts with Credit Acceptance alone. Based on the business they've already booked, they've earned $11 million in what we call portfolio profit, which is in addition to the advance they get when they sell the car, and they have an additional $3.8 million in future portfolio profit to be made. The program has been so meaningful to them that in a single month alone, they earned over $300,000 in just portfolio profit. I met with this dealership the other month at a roundtable, and he told me, "Credit Acceptance really made us what we are today. They helped us grow to the next level." He talked about our approach being different because we're here to support the dealerships more broadly and over the long term. That really summarizes what we mean by driving possibilities for the dealer and taking a long-term view on how we can help dealers grow their business.

Zach: Really impressive story. On that same thought, what role do you think the auto industry plays in overall economic mobility, and how does Credit Acceptance contribute to this?

Andrew: Yeah, I mean, the impact is huge. Car ownership gives people the opportunity to improve their lives, yet nearly half of all people in America don't have access to traditional auto financing. As I mentioned earlier, cars are important to economic mobility, especially for those with challenged credit. Research shows that people without cars who have access to them get better jobs and increase their earnings. More than 90% of people who commute to work rely on cars to get there. This is driven by the fact that across this country, 45% of Americans have no access to public transportation at all. This has a significant impact on their daily life and economic livelihood. We feel good about our opportunity to help. Credit Acceptance makes it possible for anyone to buy a car from a dealership, get that economic mobility, and really enhance their life as a result.

Zach: How has the current economic climate impacted consumer behavior and the auto market? What trends are you observing from your side?

Andrew: Yeah, we've seen a couple of trends this year from the current climate. The first is around affordability. Wholesale prices remain high, so recent reports from Mannheim and Odessa show some steady cooling in pricing, which is good. But if you compare the pricing relative to March 2020 before the pandemic, it's still significantly higher. For some consumers, their real salaries and wages haven't kept up with the price of cars and inflation, making it difficult to fit all that into a monthly budget. We've continued to see a progression in digital adoption for consumer shopping online for vehicles. We've seen a bit of a slowdown in EV demand but a resurgence in hybrids. As I mentioned earlier, we've seen a continued pullback in the auto sector by many lenders, especially for subprime consumers. This last trend affects the health of the consumer and the dealer when they need the support the most. Consumers need a financing option that provides access to car ownership and prioritizes their interests. Dealers need financing options that help them grow their business in a sustainable way.

Zach: Are there any upcoming initiatives or products from Credit Acceptance that used car dealers should be excited about this year?

Andrew: Yeah, whenever I talk to dealers, they talk about finding new ways to bring in more customers and grow their business, and making it easier for them to serve their customers while they're in the dealership. That's what we're centered on and excited about. A couple of examples: we're continuing to expand our access to a broader range of consumers regardless of the consumer's situation, opening up new opportunities for dealers. We're enhancing the ease of structuring deals, which can be time-intensive with subprime consumers. Dealers can expect a smoother, more efficient, and optimal outcome as a result. We're also looking at integrations with systems to simplify data entry and back-office record keeping. We're focused on supporting dealers in acquiring high-quality leads through their own marketing efforts as well as our marketing efforts. Through Credit Acceptance, they can expect targeted opportunities that help directly grow their business. So, in summary, we're very excited about the opportunities to help dealers this year and beyond.

Zach: So exciting, and thanks so much for joining me on the podcast, Andrew. It's been an absolute pleasure. I've learned a lot, and I'm sure the audience has too.

Andrew: Likewise, Zach. I really appreciated and enjoyed it.