Commercial Banks Expect Surge in Automotive Credit in Mexico due to New Brands, Attractive Interest Rates, and Electric Vehicles

The commercial banks view with appetite the behavior of financing or automotive credit in Mexico, given a greater availability of vehicles in agencies, the arrival of new brands, mainly Chinese, attractive interest rates and production and sale of electric vehicles in the country, which could lead to more than 90 billion pesos in credit to buy a car this year.

Enrique Margain Pitmanexecutive director of loans to individuals of HSBC Mexico, He told El Financiero that the demand for financial products to purchase a car has continued to rise, mainly for new vehicles with 60 percent of the placement, while the pre-owned industry represents the rest of the financing.

“In terms of origination, there is a positive trend, which has occurred until April there are 117 thousand loans for cars, for 31 billion pesoswhich means that throughout the year about 85 thousand or 90 thousand million pesos would be given in the financing part, against about 80 thousand million pesos last year,” he said in an interview.

This would represent an annual growth of 12.5 percent in the amount of automotive credit placement by banks.

Meanwhile, Margain added that with data to April, The bank’s automotive loan portfolio is worth close to 168 billion pesos in 876 thousand automotive loans and a past-due portfolio of 1.18 percent,

“It has behaved well, the benchmark we have is December 2022 where it was at 1.43 percent, delinquency has been adjusting downwards,” he explained.

On the other hand, the manager commented that the sector offers financing with a weighted rate of between 14.8 and 15 percent to contract a loan, which has been attractive to buyers.

He added that, given the arrival of new Chinese car brands in Mexico, competition will make automotive financing more attractive in the coming years.

“Unquestionably, the arrival of new brands, many Chinese and Asian in general, is what gives consumers more alternatives and more financing opportunities; there is going to be a lot more competition and that is something positive. In terms of financing, the type of vehicle that is coming, they are electric, hybrid, plug-in cars, that is also a positive trend that is being generated”, assured Margain.

Paulina PrietoVice President of Mortgage and Automotive Credit at Scotiabank MexicoHe commented that after the pandemic, automotive financing changed, also giving a boost to the purchase of pre-owned cars with credit.

Prior to and during the pandemic, around 70 percent of the credit went to new cars and the rest for semi-new; today both share a 50 percent stake.

“In 2021 there was already a growth in automotive financing because the banks were beginning to grow, already in 2023 there is already a much clearer recovery of inventories although we are not yet at pre-pandemic levels, but growth is seen around 9 percent in vehicle financing,” he said.

He added that the banking institution has its sights on gaining 16 percent of the automotive credit market share, although this year at the close of its fiscal year in October they estimate to reach financing of up to 40,000 units.

“We want to have around an 8 percent stake, give or take. We have a market share of 7 percent in loans placed, we came from 6 percent. Our intention is to recover up to 16 percent participation and that would mean originating around 50,000 units per year,” Prieto said.

According to the Mexican Association of Automotive Dealers (AMDA), In the first semester, 356 thousand 964 cars were financed with automotive credit, 14.3 percent more than a year ago. By type of financing and market share, branded or linked to assembly companies were equivalent to 78.7 percent, followed by banks with 19.6 percent and self-financing with 1.7 percent.

“The credit has not been complicated; Mitsubishi’s client is a very good client for financial issues, credit issues; we have an approval rate above 70 percent, they are paying customers, of course it has decreased a bit, at some point it is more difficult to access credit,” he added Ah-Kin Vázquez, President and CEO of Mitsubishi Motors de México.

The Chinese effect

On the other hand, Scotiabank’s board of directors pointed out that given the boom in the arrival of Chinese car brands in Mexico, mainly electric, as well as a possible price war between these brands and Tesla – who recently announced a price drop for their models in that country – could have an effect on the Mexican market.

“In China, for every Tesla that is sold, four vehicles of any other brand are sold, BYD, there is Changan, Chirey, JACbecause they are very similar at 30 percent in cost, that’s why I think that in Mexico the Chinese cars are going to come to pulverize the market, the growth is going to come from there,” Prieto said, for which he estimated that the arrival of Chinese cars will open the market more accessible to new technologies.