Auto industry faces new hurdle as financing gets costlierValor Internacional
The year 2014 will be tough for carmakers. Not only are they losing tax incentives the auto industry was granted in recent years and facing obstacles to export to Argentina, they also find difficulty to use financing as means of boosting vehicle sales in the country.
Since last year, large carmakers have been trying to attract customers to dealers with the promise of cheap credit, subsidizing interest rates — the famous “zero interest.” Sales, though, are not reacting and so far are down from the same period in 2013. Worse: with higher funding costs from the financial system, the days of “zero interest” tend to become rarer.
Cumulative sales this year show a 2.7% contraction for the auto industry, when compared to the same period in 2013. The numbers include passenger cars, light trucks, trucks and buses.
“Not even in the 2009 crisis the expectations for the sector were so bad as in this beginning of year,” says Décio Carbonari de Almeida, president of the association of carmakers’ banks, ANEF.
On average, interest rates charged by carmakers’ banks were at 1.33% a month in January, according to ANEF data. In December, it was 1.27%, and in January last year, 1.25%. When carmakers subsidize the rate, it may be between 0.7% and 0.9% a month. Among the five largest banks in Brazil, the average rate for vehicle financing was 1.6% a month in January and 1.33% a year earlier.
If the appeal of cheap financing doesn’t work so well by itself, brands need to add more benefits to sell. The list that has been offered include paid car-property tax (IPVA), discounts to the listed price — of 5% to 10% — or free installation of accessories such as parking sensors and GPS.
The issue is that cheap credit from financing arms of carmakers is far from being effective for all. While they have reduced the frequency of “zero interest,” these banks have increased the requirement for down payment (from 30% to something around 50% of the price) and tightened durations, Mr. Carbonari says.
He rules out a move by carmakers’ banks to extend maturities — or even accept riskier clients — in order to increase sales. “The 2010 and 2011 experience had a hefty bill that was paid soon after, with the increase in loan losses,” he says. Demand, though, is also weaker in his view, since in the first months of this year there has been a 16% decline in the number of proposals by borrowers compared to the August-November period of last year, he says.
With restriction to credit and also lack of demand, the stock of vehicle financing has been performing poorly. In January, the outstanding amount was at R$193 billion, 0.2% down in a 12-month period.
According to Fenabrave, trade group of car dealers, promotions with “zero interest” in financing are more a result of the brands’ strategy to sell their products than of an improvement in the credit environment. Flavio Meneghetti, the association’s president, says that banks continue as restrictive as they were last year. Dealers report approval rates for financing requests are at 50% to 60%. Mr. Meneghetti doesn’t believe these offers will be kept for long, since they’re costly for the industry.
With carmakers’ banks raising their rates, commercial banks managed to regain some of the lost ground. Having reached a historical high for their market share in December, with a little over 43% of new vehicle financing, carmakers’ banks are today with 36.2% of the market. The second place, Itaú Unibanco, has 16.9%, and was the one to have gained the most from carmakers. The data are from Cetip and were obtained by Valor with the market.
Even gaining market share, commercial banks, which once were the top names in this type of financing, are far from being willing to resume practices that brought them strong credit growth between 2009 and 2011 — such as 60-month financing without down payment. The delinquency wave caused by such growth is something that no bank is willing to experience again.
The rate of defaults in this type of credit, which peaked at 7.23% in June 2012, ended January this year at 5.17%, according to the Central Bank.
“We have appetite for the good risks, but we don’t compete in rates with carmakers’ banks,” says Edmar Casalatina, directors of financing at Banco do Brasil. “What we do in some cases, and for some clients, it’s granting a grace period of 180 days for them to start paying. But I can’t even think of increasing our portfolio’s risk,” he says. BB has a loan-loss rate for vehicle financing of 1.8%.