Guillermo Rosales Zarate
Executive President
Mexican Association of Automotive Dealers - AMDA
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Expert Contributor

How Is the Financing of New Vehicles Going in Mexico?

By Guillermo Rosales | Thu, 09/22/2022 - 15:00

Financing is the main way of acquiring a new vehicle in our country, hence its importance for strengthening the sector, even in complex environments like that we are currently facing in the domestic automotive market.

According to a recently released report prepared by AMDA, in alliance with Jato and Urban Science, in Mexico between January and July 2022, 59.1 percent of the total purchases of new vehicles were made using credit, either from a bank or  brand financing, also known as captive. This figure contrasted with last year's financing index for a similar period, at 58.4 percent, showing an advance of 0.7 percentage points, which, although moderate, reflects a positive performance.

Of the total placements of new vehicles carried out by banks and finance companies, 20 percent corresponds to banks and the remaining 80 percent to branded finance companies. This proportion has been maintained in recent years, with brand finance companies providing most of the automotive financing.

At the segment level, bank participation is equal to or greater than the national reference of 20 percent in the financing of SUVs, pickups, sports and luxury cars. They reach the highest proportions of financing in the high-end segments (sports and luxury) and in pickups, with percentage shares of 30 percent, 34 percent and 23 percent, respectively.

In the case of financial companies, their share by segment is concentrated in minivans and subcompacts, with percentage shares of 89 and 82 percent, respectively, and 81 percent for compacts.

Regarding the performance of each segment in the financing index, compacts, SUVs, minivans, pickups and luxury show annual progress in the accumulated indicator as of July 2022 but only three segments exceed the national financing index: compact, subcompact and SUVs.

In relation to financing terms by segment, the accumulated data shows that the most requested terms for subcompacts, compacts, SUVs and pickups are 60 months, while the least requested term is 12 months.

Also, 49.9 percent of placements are for terms of 60 and 72 months for subcompacts, while for compacts, 51.1 percent favor these terms, which are the main terms for these segments.

In the case of SUVs, the two main terms, 60 and 48 months, account for 47.1 percent of placements. For the pickup segment, the main term is 36 months with 21.6 percent of placements, followed by the 60-month term with 20.2 percent of credits granted by banks and branded finance companies.

As for the segments of minivans, luxury and sports cars, the highest percentages of placements are for 36 months in the first two cases and 60 months for  sports cars.

In reference to the financing index that reflects the participation of placements in total purchases by state, 10 states are positioned with an index below the national reference, which is 59.1 percent. Among these 10 states, the State of Mexico, Morelos, Mexico City, Nayarit, Baja California Sur, Yucatan, Tlaxcala, Zacatecas, Nuevo Leon and Quintana Roo stand out.

In contrast, nine states stand out with a participation greater than or equal to 70 percent, including Colima, Chiapas, Tamaulipas, Sinaloa, Coahuila, Sonora, Puebla, Baja California, and San Luis Potosi.

The financing index extracting the fleet effect, that is, only considering retail purchases in its calculation, is 68.3 percent at the national level; this allows us to measure the importance of purchase channels, such as leasing, corporate and government purchases in the various states of the country.

In summary, despite the stagnation in the new vehicle market (as of July 2022, 601,561 units are registered, a decrease of 0.2 percent compared to the same period in 2021), financing is up 1 percent with 362,015 units acquired through financing.

This is especially noteworthy in a context in which the reference interest rate has increased as part of the strategy of the Mexican central bank, which, like many central banks in the world, is combatting the inflationary escalation that is impacting both consumers and producers. In this sense, although the upward trend is expected to continue and the position of the reference rate is expected to close the year at a level of 9.5 percent, the sensitivity to interest rates on automobile loans has shown that the increases are not reflected in proportional and immediate increases. Currently, the weighted average rate by balance in the case of auto loans granted by banks is 12.7 percent, according to accumulated data through April 2022, slightly below the average registered for this indicator in the period 2019-2021: 13.2 percent.

Finally, the good management of automobile credit has left the overdue portfolio at 1.76 percent, with respect to the total portfolio, which makes us confident that as soon as supply recovers and the economic conditions of consumers improve, financing will be a strong tool for the recovery of the sale of new vehicles.