Stocks: Subprime Survivors Struggling to Shake Off Stigma

It's been nearly a month since problems surfaced at Mercury Finance Co. and Jayhawk Acceptance Corp., but shares of other auto finance companies are still shaky.

Credit Acceptance Corp.'s stock suffered another setback Tuesday when it slipped $1 to $22.75. The stock had staged a comeback of sorts, reaching predebacle levels Monday with the help of heavy insider trading as executives met a deadline to exercise options.

But generally it's been a struggle for the Southfield, Mich., company and other subprime lenders to shed the negative baggage created by the accounting scandal at Mercury and Jayhawk's bankruptcy.

"Investor sentiment varies greatly," said analyst William McGinnis of Robert W. Baird Securities. "Some potential buyers suspect that there's value out there and are looking at an opportunity to pick them (the stocks) off the bottom, while others think the whole industry is imploding."

Some observers contend that the bankruptcy filing by Jayhawk, one of Credit Acceptance's main competitors, will ultimately boost the stock.

"The stock has been volatile over the last few weeks, but it (Credit Acceptance) is going to be able to pick up more business from Jayhawk. I'm very bullish on what's going on in the management," said analyst Jerry Robinson of Stephens Inc., Atlanta.

Mr. Robinson recommends that investors buy the stock and has set a $30 price target.

National Auto Credit Inc., Solon, Ohio, another principal competitor in the subprime market, will also benefit but not as much as the more established Credit Acceptance, observers said.

Shares of National Auto Credit traded in the $12.75 range before Jayhawk's fall, but were at $9.75 on Tuesday.

"There is no clearer winner than Credit Acceptance," said analyst Reilly Tierney of Duff & Phelps Credit Rating agency. "Now that Jayhawk has been derailed, the competitive environment has been stabilized, and a lot of excess capacity has been freed up."

And the company won't just "win" by default.

Market sources endorse Credit Acceptance's conservative, "quality- driven" approach to the market and its centralized nonfranchise structure.

"They understand that getting repaid is job No. 1," said one observer. "They have an extensive collections effort with experienced people who know the business."

But even some insiders said it may be a while before the stock regains its momentum.

"Some recognize the benefit of Jayhawk's problems, and others are cautious of the sector," said Brett Roberts, the chief financial officer of Credit Acceptance. "Investors can't seem to make up their mind."

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