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 steepest increase in the past decadeaccording 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 decreased to around one million placements in the local market.
Faced with this scenario, manufacturers are finding a “lifeline” in financing schemesby promoting various strategies that allow it to continue maintaining its sales levels despite said increase in price, such as the launch of new plansamong which stands out The credit balloon 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 currently balloon credit generates 5% of total sales for financing in the local market, a figure that could be increased depending on the availability of vehicleshighlighting that it begins to be 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 companywhich meant a 0.9% growth compared to the same period last year, 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 competitivenessthus 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 consequence of the diversification in the offer. In mid-June it was released BitCar by TIP Mexicoa 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.