Last fall, news of credit problems so frightened investors that they ran for the exits, dumping shares of consumer finance companies with few questions asked.

"Stocks plunged 50% across the board," recalled Smith Barney analyst William H. Ryan. "There wasn't any distinguishing between the 24 or 25 players who make up the market."

Among those stung by this stereotyping was Union Acceptance Corp., a prime-quality financer of loans for used-car buyers. Analysts rate it as one of the industry's best-run companies, but its shares dove to $12 from their peak of $20.563.

Finally, a year after the credit-quality fright - which turned out to be overblown - the stock of the Indianapolis company has regained nearly all the ground it had lost. It closed at $17.75 a share Thursday, a sharp decline from its 52-week high of $19.25 reached on Wednesday.

Union Acceptance mostly backs the buyers of higher-quality, often previously leased used vehicles from established dealers. It loans about $13,000 per vehicle on average. It is not a player in the subprime arena focused on buyers with riskier credit histories.

Financing used autos is a rapidly growing segment of consumer finance - increasing nearly twice as fast as lending on new cars, according to Mr. Ryan.

The high cost of new cars, the increased quality of cars, and the advent of widespread auto leasing have combined to create a boom in the sector. In response, a number of auto finance companies went public, many of them spinoffs of bank auto loan departments.

But continuing credit-quality concerns have made this a volatile market for investors. Many companies in the sector have seen their shares fall below the initial public offering price during the past year.

The cream of the auto finance business has not been spared the roller coaster ride on Wall Street.

In addition to Union Acceptance, shares of Minneapolis-based Olympic Financial Ltd., another prime lender, rose to a 52-week high of $26.25 Aug. 27, shortly after hitting a 52-week low of $16 Aug. 1. The shares are now valued at about $24.25.

Meanwhile, the shares of Irvine, Calif.-based Onyx Acceptance Corp., also a prime-quality auto lender, have fallen to $11.375 from a high of $19 May 1.

Union Acceptance was one of those that this year found their shares trading below the initial offering price. The company entered the market at $16 a share in August 1995 as a spinoff by Union Federal Savings Bank, Indianapolis.

During the past month, a 10% price rally has given the shares a healthier valuation.

"This is a fearful market for investors," Mr. Ryan said. "But Union Acceptance has never missed an earnings estimate."

Of course, the company hasn't been reporting earnings publicly for very long. But its reported earnings growth of 36% understandably excites Wall Street analysts.

Mr. Ryan has just initiated coverage of Union Acceptance. He rated it "buy, high risk" and forecast earnings of $1.85 per share this year and $2.15 in 1997. His 12-month price target is $23.

"What distinguishes them from the rest is that credit quality matters to them," said John Heffern, analyst at Natwest Securities Corp., who rates the company "aggressive buy" and posts a 12-month target price of $21-$22.

"While competitors were growing fast, they put the brakes on growth last year because they had concerns about credit problems," he said. "It takes a lot of nerve and considerable amount of maturity to do that." Mr. Heffern cited Mercury Finance Co., Northbrook, Ill., for exhibiting similar restraint.

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