Car manufacturers see financing as the best alternative to maintain their sales levels, in the midst of the largest increase in the price of vehicles in the last decade. In addition to expanding the installment options they offer, they are launching new strategies , which has encouraged competition between brand finance companies and banks.
An example of the above is Mazda , which currently places 44% of its total sales through financing, a figure that it intends to raise to 60% for the coming year with the launch of new schemes.
In August, the Japanese brand launched a loan for students called Mazda First, aimed at young people between 18 and 25 years old with a minimum monthly income of 6,000 pesos who are looking to buy their first car or who want to build a credit history. Soon it will launch a balloon loan from Santander.
The ruptures in the global supply chains, the lack of semiconductors, the increase in the cost of raw materials and the rise in transportation freight, have caused a kind of perfect storm in the automotive sector, which caused a rebound in the cost of units up to 14.6% in 2022, the most pronounced increase in the last decade , according to data from the consulting firm JD Power.
This increase exceeds general inflation, which was 8.7% at the end of September. The highest number reported in 22 years.
This has permeated sales levels. Before the Covid-19 pandemic, an average of 1.3 million new cars per year were sold in Mexico, but since the start of the health contingency, the average has decreased to around one million placements in the local market .
Faced with this scenario, manufacturers are finding a “lifesaver” in financing schemes , by promoting various strategies that allow them to continue maintaining their sales levels despite said increase in price, such as the launch of new plans , among which the balloon credit or ” balloon payment” and the lease .
“It is not that these schemes did not exist before, but the offer has increased because they allow monthly payments to be diluted a little more or shortened in some cases,” says Gerardo San Román, director of Jato Dynamics for Latin America.
The advantage of this scheme is that it allows the consumer to finance a part of the total price of the vehicle and obtain a competitive monthly payment for 36 or 48 months, with the possibility of deciding, once that time has elapsed, if he wishes to refinance the pending amount or leave the vehicle as a hitch for a new one.
For brands, it is a way to shorten vehicle renewal time: instead of having to wait five or six years for the customer to finish paying their traditional credit, they will have it back in three or four years.
San Román estimates that balloon credit currently generates 5% of total financing sales in the local market, a figure that could increase depending on the availability of vehicles , noting that it is becoming increasingly popular.
From a sector perspective, consumers are leaning towards purchases through financing. At the national level, from January to August, 59.4% of the total purchases of new light vehicles were made through a bank or brand finance company , which meant a growth of 0.9% compared to the same period last year, from according to data provided by the Mexican Association of Automotive Distributors (AMDA).
Guillermo Rosales, president of the organization, considers the above as “good news” , since a greater participation of economic agents encourages competitiveness , thus increasing the offer that reaches consumers.
“The flow of credit remains open, there is intense competition between brand finance companies and banks, and at the same time, we are recovering inventory and with them sales. Loan placements are also showing a favorable cycle,” Rosales assures at a press conference.
Leasing is another scheme that is also being promoted as a result of the diversification in supply. In mid-June, BitCar was launched by TIP Mexico , a 100% digital platform focused on leasing for individuals.
San Román points out that previously, the leasing schemes were only available to individuals with business activity or legal entities, which “shows the popularity that these plans or these purchase alternatives are beginning to have,” he adds.