Carlos Del Río
CEO
Credimotion
/
Expert Contributor

Pre-Owned Vehicles: The Great Bet for Mexico?

By Carlos del Río | Thu, 03/10/2022 - 17:00

It is well known that the pre-owned vehicle sales segment is king in the industry. According to INEGI data, there were around 34 million private vehicles registered in our country as of January 2022, of which it is estimated that 6 million units are sold annually. This industry represents around US$70 billion where approximately only 20 percent are C2B2C transactions. That leaves us with just over 4.8 million operations that are carried out between C2C individuals.

But why?

There are several reasons why the pre-owned industry is much bigger than the new car sales segment. Let me point out the three most important: the cost of a brand-new vehicle is substantially higher than one that is 2 or 3 years old. Let’s remember that in Mexico, we perceive cars as a heritage resource, and this is because the general purchasing power is much lower than before. As a result, it is much easier to commit to the acquisition of a vehicle than, for example, real estate. Likewise, buying a new vehicle suggests absorbing an immediate depreciation of up to 25 percent in some cases only in the first year. Finally, the lack of financial credit institutions in the pre-owned segment makes people unable to access a new vehicle for the first point mentioned.

In 2020, the new vehicles sales suffered a drop of almost 28 percent where, according to credit industry statistics, pre-owned vehicles only suffered a contraction between 6 and 8 percent. This is a very clear reflection of the segment’s strength because even with the COVID19 pandemic that paralyzed numerous industries, the pre-owned car segment continued almost normally.

The growth in sales of the pre-owned segment versus new cars has grown by double digits over the last few years.

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Source: www.ingei.org.mx (Chart provided by the Expert)

Another complementary factor of the segment is that it generates a positive impact seen from several fronts. With the need for new automotive financial companies, due to the high demand for credit that concerns our country, the opening of new service networks, which have grown to more than 231,000 workshops that are dedicated to repairs, bodywork, painting as well as preventive and corrective services, and with businesses dedicated to automotive parts, which amount to 46,000 establishments, offices that perform management services, car wash businesses, etc, it becomes a virtuous circle that activates our economy, generating a large number of direct and indirect jobs.

Upward Trend

In recent years, the number of participants in the sale of pre-owned cars has grown considerably.  For instance, in the last 10 years we went from 500 pre-owned multibrand dealers to just over 2,000 by mid-2021. This number considers other commercial channels, such as the informal “market cars,” dedicated marketers’ “re-salers,” and auction houses. As of 2017, several very important players have been born that are dedicated to B2C and C2B2C in a semi-digital way, allowing the user experience to be more pleasant, efficient and secure. This is an excellent solution to the great problem of insecurity that exists in our country. Likewise, it further boosts the industry because customers receive several comprehensive solutions for the sale and/or purchase of units, such as credits, home deliveries and trial periods.

What Is in Store for the Segment?

Although it is true that industries and countries throughout the world are heading toward a greener planet, with fewer vehicles or with cleaner mobility solutions, it is also important to consider that, in general, having a vehicle represents having your own independence and being able to have mobility, in some cases status, and also security. Regardless of the future solution, people, in general, will always seek to have some means of transportation that allows them to cover all those primary needs.

Starting from the basis that in our country around 1 million new units are introduced every year due to the sale of new cars plus the almost 18 million "chocolate" nonlegal vehicles that are in the process of legalization, which represent almost 25 percent of the of the national vehicle fleet, this suggests that within the next seven to 10 years we will be close to doubling the number of private units that will circulate throughout the country. This will force us to face other issues, such as greater infrastructure and better anti-fraud controls.

One of the most important factors that must be addressed is that a large part of the population does not have access to a vehicle due to a lack of credit. The lack of financial inclusion, even though it is not exclusive to Mexico, is a latent issue that is slowly growing. This growth is recent, and we are in need of more financial companies who can offer real and very specific solutions to the car segment. It is clear that we still have a long way to go, but in my very particular opinion, the scenario is very positive. Even though it is full of challenges, there is also a great opportunity for foreign investment to address the needs of the important automobile industry on our continent.

Photo by:   Carlos Del Río