Union Acceptance Corporation Announces Strategic Initiatives

    INDIANAPOLIS--Jan. 10, 2002--In line with its objectives of enhanced profitability and reduced volatility of earnings, Union Acceptance Corporation ("UAC") today announced several new strategic initiatives aimed at improving operating efficiencies, decreasing expenses, and increasing revenues.
    "We are eager to explain these strategic initiatives to our shareholders because they represent a significant change in business focus and overall corporate direction," stated Lee Ervin, President and Chief Operating Officer of UAC. "We are making significant progress in repositioning the Company and look forward to reporting on the business and the success of our initiatives on a regular basis."

    Risk-Based Pricing

    Management laid the foundation for the strategic initiatives through the implementation of an enhanced risk-based pricing model in June 2000. During 2001, management devoted considerable resources to the development and refinement of this model. It is designed to price new receivables on the basis of mathematical indicators derived from the Company's unique database, incorporating those parameters most predictive of loss and profitability in the Company's chosen credit grades. This model guides the pricing of new receivables with the objective of achieving a minimum 1.5% after-tax return on assets ("ROA") and is considered a key driver for enhanced revenues. Management is currently utilizing the fifth version of this model, and as of December 31, 2001, approximately 23% of the outstanding servicing portfolio has been priced at or above the 1.5% minimum target. The implementation of the risk-based pricing model also allowed management to deliberately focus on acquiring new receivables at the higher end of the credit quality spectrum, thereby improving the credit quality of the portfolio with a likelihood of reducing projected future delinquency and credit losses.

    Technology Initiatives

    After effectively aligning front-end receivable pricing with ROA objectives through successful enhancements to the pricing model, management launched several programs aimed at improving efficiencies on the back-end collection process. In early December 2001, UAC installed state of the art technology to help increase the frequency of collectors being connected to the appropriate party (known in the industry as "right party connects"). In less than 30 days, the Company has experienced an increase of over 30% in the connectivity rate. Based upon previous experience, it is management's expectation that the connectivity rate will more than double. "We believe we will continue to see a dramatic increase in outbound campaign effectiveness, primarily due to the improvement in technology," stated Mr. Ervin.
    In addition, management is in the process of installing two new behavioral scoring models which should directly enhance the efficiency of the Company's dialer and have a positive impact on delinquency rates. These models focus on the payment behavior of customers, identifying the higher risk accounts. By prioritizing these accounts, management expects to improve roll rates (the percentage of accounts that continue to be delinquent the following month) and, ultimately, reduce credit losses.
    As a result of improved efficiencies, management has been able to more than double the account to collector ratio. After thorough consideration of the impact of new technology in the collections area, management determined that a higher ratio was appropriate and necessary. This shift has largely been done through attrition; however, some reductions in staff did occur in January 2002, further improving this ratio.
    Other new technology initiatives in the collections area include the establishment of Internet and voice response telephonic payment programs aimed at reducing phone calls routed to customer service representatives. Management is very pleased with the initial success of these programs.

    Fee Income Initiatives

    Another critical step in enhancing profitability is the launching of fee income initiatives. During the December 2001 quarter, management performed an in-depth review of all customer-related expenses. These expenses are currently borne by the Company. As a result of this review, management outlined an extensive program for recouping these expenses where appropriate. This program began in December 2001 and includes charging for customer payments made over the phone. Management believes the revenue generated by this and other yet to be implemented fees can grow to become a primary revenue source for the Company. In conjunction with quarterly financial results, management intends to report revenue resulting directly from these initiatives.

    Expense Reduction Initiatives

    An expense reduction initiative was also recently implemented, initially focusing on expenses associated with repossessed vehicles. In the quarter ended December 31, 2001, the process for transporting out of state repossessions to Circle City Car Company, the Company's local used car sales facility, was altered to reduce shipping costs and better utilize local auctions throughout the country. In addition, the level of repairs authorized on repossessed vehicles was reduced significantly, with a view to enhancing recovery rates.
    During the quarter ended December 31, 2001, the Company recognized executive severance expense of approximately $0.6 million. Staffing reductions that have already taken place in January 2002 in both the origination and collection areas are expected to result in a material reduction in salary and benefit expenses beginning in the first quarter of 2002. Total staff reductions beginning in October 2001 represented approximately 11% of the workforce and are in line with the Company's volume expectations of $1.0 to $1.2 billion in 2002.
    Historically, the Company's operating expenses as a percentage of the average servicing portfolio have been approximately 1.75%. Building on the expense reduction initiatives already in place, management's goal is to materially reduce this ratio throughout 2002. "At this preliminary stage of our expense reduction initiatives, we are reluctant to predict how quickly we can impact this ratio, but we are convinced that there is significant room for improvement," stated Lee Ervin, President and Chief Operating Officer. "We certainly look forward to reporting our progress in this area."

    Circle City Car Company

    During November 2001, the Company replaced the management of Circle City Car Company and introduced a new sales and servicing philosophy which is now yielding improved returns. Management's goal is for Circle City Car Company to be a revenue producer for the Company in addition to a profitable alternative to auctions when appropriate.
    Additional information on Union Acceptance Corporation and its management team can be obtained at the Company's web site, www.unionacceptance.com.

    Corporate Description

    UAC is one of the nation's largest independent, indirect automobile finance companies. The Company's primary business is purchasing and servicing prime automobile retail installment sales contracts. These contracts are originated by dealerships affiliated with major domestic and foreign manufacturers, nationally recognized rental car outlets, and used car superstores. UAC focuses on acquiring receivables related to late model used and, to a lesser extent, new automobiles purchased by customers who exhibit favorable credit profiles. Union Acceptance Corporation commenced business in 1986 and currently acquires receivables from over 5,600 manufacturer-franchised dealerships in 40 states. By using state-of-the-art technology in a highly centralized underwriting and servicing environment, Union Acceptance Corporation enjoys one of the lowest cost operating structures in the independent prime automobile finance industry.

    Forward Looking Information

    This news release contains forward-looking statements regarding matters such as profitability, delinquency and credit loss trends and estimates, recoveries of repossessed vehicles, receivable acquisitions, the impact of new initiatives described on revenues and profits, and other issues. Readers are cautioned that actual results may differ materially from such forward-looking statements. Forward-looking statements involve risks and uncertainties including, but not limited to, the difficulty inherent in predicting changes in delinquency and credit loss rates, changes in acquisition volume, the ability of the Company to collect newly implemented fees, general economic conditions that affect consumer loan performance and consumer borrowing practices and other important factors detailed in the Company's annual report on Form 10-K for the fiscal year ended June 30, 2001 which was filed with the Securities and Exchange Commission.