In the US, vehicle sales are said to have peaked. As sales plateau, those that lend to new owners will face increasingly fierce competition to offer credit, according to Moody’s Investors Service said.
“The combination of plateauing auto sales, growing negative equity from consumers and lenders’ willingness to offer flexible loan terms is a significant credit risk for lenders,” said Jason , Senior Credit Officer at Moody’s to Reuters. Mexico, usually highly attuned to the US situation, is not facing the same concern in the commercial market.
Mexico’s population of over 122 million people continues to boost car sales, and increase demand for car loans, thanks to economic stability. This has consolidated buyers’ trust in financing solutions.
Vehicle sales boomed in the US following the Great Recession. While sales of new cars and trucks hit a record annual high in the US of 17.55 million units in 2016, Mexico cannot compete with 1.65 million vehicles sold, but this does indicate market opportunities to grow into. Mexico sold 258,249 more vehicles than in 2015, equal to two months’ extra sales and putting the country in third place just behind Italy and China in worldwide growth.
Eduardo Solís, the President of AMIA, contrastingly indicated that while the country reached record sales numbers like the US, the country was selling well below its potential 2 million cars per year. This opportunity for growth encourages lenders to trust in the Mexican car market. Financing grew over 16 percent at the beginning of 2017 as 76.6 percent of cars purchased were acquired thanks to car loan companies.
The Director General of AMDA, Guillermo Rosales, commented in a recent conference that the increase in vehicles sold in Mexico is thanks to stable prices, more loans being awarded, and a drop in the number of used vehicles entering the market.
Consultancy firms with specialist automotive divisions, J.D. Power and LMC Automotive, forecast US automotive sales will increase in 2017 to 17.6 million units, but Moody contrastingly says that sales will decline to 17.4 million vehicles. To manage demand dropping for car loans, Moody’s suggests lenders could further loosen loan terms and loan to value criteria. “With every successive year, lenders’ profitability is getting thinner and thinner, and their credit losses have been growing,” said Grohotolski.
60 percent increase in exports to Latin America
Weathering the storm of drastic policy changes north of the border, Mexico is proving less dependent on the US car market and turning to domestic economic potential to fill the gap. The FMI tagged Mexico as the country with greatest potential to increase its exports to Latin America, largely due to free-trade agreements already being set up. Exports to Latin America grew almost 60 percent in February, compared to 6 percent the same month in 2016.
AMIA also reported 9.7 percent increase in automotive exports from Mexico, since Trump took power and 11.1 percent solely in February. The most-targeted industry by the US president has not been rattled by border tax threats.
Data sources: Auto News, Carmudi Whitepaper, El Financiero, AMIA, Milenio.