Car Financing in Mexico

Carmudi 2015

Overview of Mexico's Economy

Mexico’s economy has been on a steady climb since 2010’s global recession. Looking at 2015, Mexico’s GDP expanded more than forecasted in Q2, after a pickup in domestic demand spurred growth in June. Gross domestic product rose 2.2% from a year earlier, compared with the 2.15% median forecast of Bloomberg economists.

Mexico has an estimated 121.7 million population with a 4.8% unemployment rate and a $1.3 trillion economy that has shifted increasingly towards manufacturing in the last 21 years after the North American Free Trade Agreement (NAFTA) came in effect.

Mexico exports 70.2% of its goods to the U.S., valued at 4.03 trillion Pesos. A continued high level of exports should lead to the continued steady recovery of domestic investment and consumption. Exports manufacturing drove growth, largely coming from the double digit growth in the automobile sector for five years in a row. In 2014, 20% of cars produced in the NAFTA bloc were produced in Mexico compared to 10% in 2004, a 100% increase over a single decade.

Retail sales and consumer credit helped fuel “moderate growth” in the second quarter. While growth forecasts have decreased due to tumbling oil prices and output, the Mexican economy is still likely to expand this year by 2.5 percent, the fastest since 2012.

Oil revenue contributed about 18% of the federal budget for the first half of this year. In 2014, it accounted around 30% of the budget. With the decline in oil revenue along with a 10% drop in oil output in 2014, the Mexican government is planning to drastically cut spending for the 2016 budget that will be presented to the Congress in September.

Overview of the Auto Industry in Mexico

Auto Production

After the 2010 world recession that shook the Mexican automobile industry, Mexico is on track to become a leader in manufacturing and exporting of light vehicles globally. Enhanced logistics, low cost of labor, and critical trade relationships in the country has made Mexico the seventh largest car producer worldwide and the fourth largest auto exporter after Japan, Germany and South Korea. The current annual production of cars and light trucks in Mexico, the second largest vehicle supplier to the U.S. market, has reached 3.2 million and is expected to rise to over 5 million by 2018.

With ten free trade arrangements that encompasses 45 countries (EU members counted separately), Mexico is seen as a lucrative market by foreign automakers. Seven Asian and European automakers have opened assembly factories in the last 18 months or made public of plans for one. Automakers such as Fiat Chrysler Automobiles NV, Ford Motor Co., General Motors Co., and Nissan Motor Co. have heavily invested on expansions in the country that is expected to increase Mexico’s production capacity to over 650 thousand units, or a 14% increase annually. A $1 billion auto plant in Mexico for small SUVs is currently being planned by Volkswagen. Mexican officials have also stated that automakers and auto part suppliers have reserved over $20 billion worth of new investments in the country.

Nissan’s export numbers, the largest player in Mexico’s automotive market, can shed light on how Mexico is fast becoming a major auto manufacturing hub. Six years after opening its auto manufacturing factory doors in Morelos, Mexico in 1966, Nissan began exporting locally-made cars. It took three decades for Nissan’s exports to hit 1 million units or roughly 33,000 units annually and only 13 years to grow that number to 5 million units or over 307,000 units every year. Increased production combined with increased sales, has led to a surge in related jobs. Employment related to car manufacturing has risen 40% since 2008, totaling 675,000 jobs in 2014.

Domestic Sales

The Mexican domestic auto market drastically plunged following the financial crisis in 2008 with car sales recouping only reaching pre-crisis levels or over one millions cars annually in 2013.

Domestic auto sales in Mexico saw a rebound thanks to drastic cutbacks in used car imports from the U.S. and  a plethora of dealer promotions and easier credit. The Mexican government toughened used car import restrictions and cut back the volume of vehicles brought in from the U.S by 64,000 or roughly 70% through May 2015 in comparison to 228,000 between January and May 2014.

Growing Domestic Car Sales


Based on a 2014 study by Nielsen, 79% of online consumers in Mexico plan to buy a new or used car in the next two years. Mexico has the highest car buying intent among emerging economies after Indonesia (81%), Brazil (82%) and India (83%).

Consumer Credit in Mexico

With credit increasingly becoming easier to access and cheaper, banks are seeing increased competition.  Rates on consumer loans have dropped in recent years. The average home mortgage carries a fixed annual interest rate of 10.9%, compared with a variable 20% rate 15 years ago. Similarly, car loans average 12.8%, down from 24% in 2000. Consumer credit stands 68% higher in the first quarter of this compared to the same quarter in 2009.

Consumer Credit Growth (in millions of Pesos)

Yet credit penetration remains low, as Mexico’s large informal economy shuts many consumers out of the financial system. Workers who don’t report income to tax authorities have trouble building credit histories. Mexican banks count 50 million people among their clients, or less than half the country’s population. Nearly a quarter of Mexican households use credit cards, an improvement over the 4% that had plastic 15 years ago. As the economy continues to grow, there is a large growth capacity for financing.

When it comes to auto lending, half the vehicles sold this year were bought on credit, mostly with financing offered by manufacturers or specialized lenders, also known as finance captives. Mexican banks make relatively few auto loans, about 2.3% of the total loans provided by banks in the Mexican banking system regardless of the quality of loans. Over the past two years, Mexican banks reached below 5% growth in auto loans versus an 8% backdrop in compound annual growth rate in light vehicle sales between April 2010 and April 2015.

Auto sales through loans have reached a peak level of roughly 63% of all new vehicle sales in the post-crisis period. As price inflations of new cars persists and new cars become less affordable in a slow economy, the market research company Euromonitor International expects the demand for car financing to remain supported. Subsidies from parent auto manufacturers contributes to the success of the automotive captives in the country as auto manufacturers are devoted to preserve their market share in the growing environment.

Banks and nonbank financial firms which focus on consumers with limited access to banking services have been losing share to financial captives. Recent growth and performance of the asset class have played a key role in the attractiveness of the auto loan market in Mexico.  The average car loan interest rate is 12%. The average car loan in worth 166,800 pesos, with an average car price of 241,200 pesos.

Traditionally, the Mexican government has implemented few restrictions on financing products. Instead, it has taken the position that financial education is the best way to protect citizens in making important financial decisions. This has led to a diverse selection of financing products for home loans, auto loans, and credit cards. The amount of consumer credit available in Mexico has increased by 75% from Q3 2010 to Q3 2015.

The stimulating nature of the vehicle industry in Mexico along with a new wave of consumers purchasing their first cars while relying on credit schemes will further benefit the auto lending industry in the country.


Consumer Financing Timeline

Overview of Financing in Mexico from 2008 to Today

  • 2008

    Domestic production exceeds 2 million units with an annual growth rate of 4.0%. Furthermore, Mexican auto exports in 2008 grows by 3.0%. Interest rates spike at 8.4% in relation to the American financial crisis

  • 2009

    Consumers purchase vehicles through financing at a rate of 53%

  • 2010

    Auto production increases nearly 50%, totaling almost 2.3 million vehicles. Interest rates for auto financing range from 10.3% to 19.2% via captive loans and 14.5% to 17.9% via bank loans

  • 2011

    The average interest rate for auto loans hits 14.9%. Sales during the first five months are 20.4% below those reported in the same period in 2008

  • 2012

    In March, loans for car purchases grow by 12%. 42,301 cars are sold in the same month, as reported by AMDA

  • 2013

    The Bank of Mexico identifies an average term for auto financing at 45 months with an average interest rate of 13.3 percent

  • 2014

    Interest rates as low as 11.99% are offered by Scotiabank and Banco del Bajio. Auto financing increases by 5.5% during the first six months. Auto companies hold a market share of 63.1% of auto loans

  • 2015

    During the third quarter, 195,706 credit loans are approved by banks, up 29.6% from the previous year

Consumer Attitudes Toward Lending in Mexico

More relaxed auto loan criteria has led to a great increase in auto loan applicants. The total value of auto loans has reached over 78 million pesos, based on data from the Comisión Nacional Bancaria y de Valores (CNBV). In 2014, a total of 53,082 auto loans were approved.

Despite the growth of total auto credit, many car buyers do not consider financing from banks or automakers a given. “Most people are not aware of the different financing options available for them. There are banks, financing companies and leasing companies that offer financing for new and used cars [but they remain invisible to many],” according to Fernando Gómez, CEO of Nexu.


Account Holders in Mexico

Borrowers Using Formal Channels

When loans are visible, they are often even misunderstood. A few myths, such as going to jail for defaulting on a loan or paying firms to “clean” one’s credit history still exist.
Many Mexicans find the process surrounding credit application tedious and complicated, resulting in consumers resorting to non-traditional lenders that guarantee a less complicated and quicker approval and issuance. In 2012, Latin American countries such as Argentina, Brazil, Chile and Mexico, consumer credit issued by non-traditional credit providers contribute to over 20% of lending volume in general in comparison to the more developed countries such as France, Japan and the U.K. where the number is below 4%. Compared to other Latin American countries, this number is found the highest in Mexico, where as much as 40% of all loans are provided by alternative channels. Payday lending is particularly booming in Mexico, where millions of consumers and credit seekers have limited or zero interaction with financial services.

The Future of Car Financing in Mexico

Mexico’s car industry is growing at a fast rate; year by year, the total car production is improving by 8% on average, securing Mexico at number eight out of the ten car manufacturing countries in the world. We expect that locally manufactured cars prices continue to decrease and this will attribute to a continuing rise in national car sales.

Another fact to consider is the growing e-commerce in México. This new business way is developing at a real fast rate, helping out the buyers and sellers to reach and establish a commercial relation.

Edmundo Montaño, Managing Director of Carmudi México, commented: “Data shows that consumer demand for auto financing, the most common way to buy new cars in Mexico today, continues to flourish. With the rate of new car purchases through financing growing from 53% in 2009 to 63% this year, we expect auto purchases through loans and the worth of each loan demand to continue to grow. To stay in line with this trend, Carmudi have also partnered with Nexu, who offers prospective buyers the best financing scheme that fits to their own unique situation to provide the best financing options in the market today.”