Automaker Financing Unleashes Sales in Mexico Laurence Iliff - Automotive News
go to original July 21, 2016

When banks and finance companies say no, cash-poor Mexican consumers turn to a traditional form of credit known as autofinanciamiento, or "self financing."

That means a large group of people create a financing pool by making monthly payments on cars, sight unseen. The incoming money is used to buy the vehicles and hand them out over time. Each time enough money accumulates in the account, a new car can be purchased and delivered to a member of the pool.

Who gets the next car is often determined though a form of lottery, which means a few buyers are lucky enough to take delivery after their first or second payment, while the rest must wait, sometimes a year or more.

The cumbersome arrangement was born of necessity, as decades of economic crisis, currency devaluations, bank meltdowns and double-digit inflation created a perilous environment for lenders in which credit was costly and cash was king.

But today, self-financing arrangements account for just 5 percent of loans for new cars, and they have been restructured to allow for immediate delivery with a significant down payment.

That's because Mexico now has stable banks, low inflation, a floating currency less subject to sudden devaluations and automakers that have seriously scaled up their own financing operations.

Fully 68 percent of new-car loans last year came from the captive finance arms of automakers, according to the Mexican Automobile Distributors Association's analysis of JATO Dynamics data. Five years ago, automakers financed around half of new-car sales.

The captives' involvement has proved crucial to Mexico's finally joining the ranks of more developed car markets in which credit is plentiful and long-term loans come with reasonable interest rates.

Read the rest at Automotive News

Related: American Car Makers That Left U.S. for Mexico Suffering Worst Drop Since 2009 (Fox News Latino)

Related: Export Advice: Doing Business in Mexico’s Automotive Industry (Industry Week)

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