According to data from Argentina's Association of Financial Companies for Automotive Brands (AFIMA), vehicle financing declined 4.2% year-on-year (y-o-y) in the first two months of 2014, with some 65,517 units purchased in this way. As vehicle sales look set to contract in 2014, and access to credit more generally declines across the economy, BMI expects to see a slowdown in autos financing in the near term. However, we do see room for growth in financing from autos companies and dealerships as financing from other lenders dries up.
Vehicle financing increased 20.7% in 2013. Over the year, increases in autos financing outpaced the jump in vehicle sales. Broader measures of total credit also expanded in the country in 2013, although we do believe the credit cycle may return to a downtrend as the macro picture deteriorates.
|BMI View Plays Out As Financing Drops|
|Argentina Sources Of Autos Financing|
Possible Growth Area?
The majority of financing comes from individual savings plans, with banks and captive finance companies also providing large percentages of credit. As the graph shows, these traditional methods of financing have declined over the year to date in Argentina.
Unlike more developed markets, such as the US, automotive companies and dealership networks provide very little autos financing in Argentina. However, loans from autos companies increased some 164.6% y-o-y in the first two months of 2014, building on positive momentum from 2013- this is partly due to low volumes, but we expect this to remain a growth area going forward, as lending from traditional institutions, such as banks, looks set to wane.
Drag From Sales Slowdown
Vehicle sales in Argentina declined 19.2% y-o-y in the opening two months of the year, to 101,559 units. BMI has become increasingly bearish on the outlook for the Argentine autos sector in 2014 on the back of a devaluation of the peso, along with the likelihood of further weakness in the unit going forward, and new taxes on autos imports. On the back of these dynamics coming into play, combined with high base effects from strong growth in much of 2013, we forecast a 15% decline in vehicle sales over the year ( see 'Industry Outlook Deteriorating', March 10). As demand for new vehicles slows, we expect this to drag on autos financing volumes.
Credit Cycle Peaked?
Furthermore, BMI believes that the expansion rate of broader measures of credit in Argentina is likely to have peaked for the time being and we caution that signs of rising non-performing loan rates in the economy and a difficult macroeconomic environment could see Argentina's credit cycle return to trend, and possibly below in the foreseeable future ( see 'Credit Cycle Analysis: Starting To Look Overextended', November 13 2013). This is likely to drag on autos financing, particularly from banks and captive companies.
Nevertheless, credit as a percentage of GDP remains very low by historical standards and could have significant room to grow. In the near term, expectations of rising prices and a lower nominal value for the exchange rate will likely help to drive demand for credit to purchase tangible assets, including autos, at a time when we estimate inflation to run closer to 25% year-on-year, rather than the officially reported 10% inflation rate.
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