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The Father of Subprime Auto Loans Is Cashing Out

by Justin Spittler, Casey Research:

Don Foss is walking away from his empire. You’ve probably never heard of Foss. But he’s likely the world’s richest used car salesman. He was also a pioneer of the subprime auto loan market.

These are car loans made to people with bad credit. Today, the subprime auto loan market is worth more than $175 billion. But this market didn’t even exist in the 1960s.

Back then, car companies like General Motors and Ford would only lend money to folks with good credit. It was simply too risky to lend money to people with bad credit.

But Foss saw opportunity where others saw only danger. He started selling cars on credit to people with shaky finances.

Was it risky? Sure. But Foss could charge these customers sky-high interest rates. No one else was lending money, after all.

Then, in 1972, Foss launched Credit Acceptance (CACC) to handle financing and debt collection for his growing used car empire.

Today, Credit Acceptance is a major player in the U.S. subprime auto loan market. It’s worth $4.2 billion. And business has never been better.

• Last year, Credit Acceptance did $872 million in sales…

That’s 16% more than it did in 2015, and quadruple what it did a decade ago.

And yet, Foss wants out.

In January, he stepped down as chairman of Credit Acceptance. A month later, he sold $128 million worth of shares in the company. According to Bloomberg Markets, Foss wouldn’t say why he sold his shares.

To be fair, Foss has been at the top of the subprime auto lending business for five decades. If anyone’s earned the right to hang up their boots and relax, it’s him.

Still, you have to wonder why Foss would step down now. After all, Credit Acceptance is coming off its best year ever.

In short, his departure raises serious questions about the health of Credit Acceptance. But that’s certainly not the only reason to be nervous about the company.

• Sharks are circling the company…

Right now, 48% of Credit Acceptance’s outstanding shares are “short.” This means a lot of people are betting that the stock will crash.

According to Bloomberg, Credit Acceptance is the third most shorted stock in the Russell 1000 Index, which tracks large and midsize companies.

Other major subprime auto lenders are also flashing danger…

Read More @ CaseyResearch.com

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