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Analysis

Domestic Market a Mixed Bag of Success

Fri, 09/01/2017 - 16:47

Closing numbers from 2016 showed record-breaking sales growth of 18.6 percent, reaching a total of 1.6 million units sold. It was pretty much downhill from there. The industry plunged from those lofty heights to single-digit growth that in the first half of 2017 topped out at 8.9 percent in March. The accumulated figures for January-June show sales decelerating to just 2.9 percent. By the end of the year, most insiders expect moderate growth of no more than 5 percent.

The sales decline and conservative forecasts have not dampened financing, however. Overall, the financing market grew approximately 7 percent between January and June 2017, according to information from AMDA, even after two months with negative numbers in April and June of 5.3 and 3.7 percent, respectively. The 21 and 22.5 percent increases of January and March offset those missteps and the market’s average has it on an upward trajectory, with financing now representing 68.2 percent of all sales in Mexico.

OEM financing arms remain the biggest players in the domestic financing market with a 71.3 percent market share. A small hiccup in January made NR Finance lose its leading position to GM Financial when the company enjoyed a brief one-month reign. According to Rafael Portillo, Director General of NR Finance México, this was merely a result of the increased demand for NR Finance’ solutions in December 2016. The company regained its leadership position in February. AMDA reports that between January and June 2017, the company held 20.1 percent of the financing contracts in Mexico, with a total 101,918 units financed in the period.

From the perspective of financing companies, the evolution of the domestic market remains positive. But, there is some debate over what certain indicators regarding customer preferences and behavior could mean for companies. AMDA data shows an increased preference for longterm commitments of 36, 48, 60 and even 72 months. Approximately 30.9 percent of all contracts signed between January and June 2017 were financed with 60-month plans, which represents a 31.3 percent increase in preference for this modality when compared to 2016. Meanwhile, even though they only represent 12.3 percent of all loans, 72-month plans showed a 53.1 percent increase when compared to the previous year.

“Longer payment terms are becoming more attractive for clients and financing institutions, and both banks and multiple-purpose financial institutions (Sofomes) are promoting these terms as a sign of certainty in the development of the domestic market and in Mexico’s economic situation,” said Eduardo Solís, Executive President of AMIA. Gerardo San Román, Head of Latin America at JATO Dynamics, has a different view: “When the industry’s average for contracts was 48 months, companies could manage their development cycles accordingly and renew their platforms every two years. Now, sales cycles are elongating and eventually companies will lose the clarity needed to know how to design and develop processes.” Financing players must keep these changes in mind and understand how the market might fluctuate in order to maintain a healthy portfolio with minimal overdue contracts.

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Financing is not the only thing changing regarding customer preferences. The latest data from AMIA shows that between January and May 2017, 4,249 hybrid and electric vehicles were sold, which represents a 94.7 percent increase compared to the figures from 2016. At 0.7 percent, these cars are still far from impacting overall sales volumes in the country but their numbers are growing past the accumulated sales numbers of brands like Peugeot and MINI. Unless technology costs decrease, these will not represent a significant portion of Mexico’s vehicle park in the near future. “Research into battery technology will eventually lead to lower prices,” said Guillermo Rosales, Director General of AMDA. “In the meantime, the government must implement fiscal incentives to further cut prices of hybrid motors.”

Government regulations aside, sustainability has made its way to the automotive market, transforming the industry toward a mobility-oriented vision. Companies are starting to change their business model to address these demands, which are mostly fueled by younger generations. According to research on millennials and their mobility needs in Mexico, from Partner and Manufacturing Industry Leader at Deloitte Mexico Manuel Nieblas, cost of ownership has become an important purchasing decision for younger customers who favor sharing-economy solutions. According to Nieblas’ findings, 59 percent of all Mexican millennials enjoy driving but a third of them would get rid of their vehicles if maintenance and operations costs become too high. In terms of sustainability and alternative-fuel technologies, Nieblas says that in five years, 78 percent of millennial consumers will prefer alternative powertrain vehicles, 38 percent of them favoring hybrid models.

The millennial generation is also transforming the sales process, boosting the popularity of digital. Yamil Zarate, Commercial Director of SICOP, says that practically 100 percent of all potential clients start their search process online. He adds that priorities have changed and now dealerships and automakers must choose a digital marketing strategy as their preferred option to target potential customers. While that may be true, companies are still unfamiliar with the digital sales process and according to Ángel Torres, General Director of Grupo Torres Corzo, “no dealership group knows exactly how social media works.”

Dealerships and auto companies in general should figure it out quickly – their reputations might count on it. “Once clients post something online, it is impossible for brands to change the perception the post has generated,” said Juan Manuel Díaz de León, Automotive Practice Director of Overlap Consulting Mexico. “In this era, what a company’s webpage says is not what customers pay attention to.”

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