Fitch: Mexican Auto Financing Shifting to Longer Loan Terms
Compared to expected delinquency rates, Fitch-rated autofinanciamiento ABS pools have performed well. Autofinanciamiento is a group-financing technique for low-income buyers. Expected 120+ day delinquencies for autofinanciamiento loans are between 5% and 9%. Actual delinquencies are tracking below historical vintage levels, while historical delinquencies for Mexican prime auto ABS are between 1% and 3%.
Autofinanciamiento ABS pools' credit-enhancement levels and other structural features help protect bondholders from asset quality deterioration. Solid and lengthy origination histories along with adequate eligibility criteria help mitigate some of the risk inherent to revolving structures. In Fitch's view, revolving structures heighten the importance of the sponsor's origination and underwriting policies, internal procedures and controls, the quality of technological systems and overall governance. Loan homogeneity and proven servicing have resulted in consistent collections for Fitch-rated autofinanciamiento ABS.
However, we believe a trend toward longer loan terms within the Mexican automotive financing sector (including captive lenders, banks and autofinanciamiento companies) has begun. Loans with terms higher than 60 months were introduced in in 2014 and their volume grew in 2015. Longer-dated auto loans are generally riskier than similar loans with shorter tenor.
We expect this trend to have minimal impact on Fitch-rated autofinanciamiento ABS as their eligibility criteria preclude these loans from being included in the pools. Should defaults develop, autofinanciamiento sponsors have the option to repurchase nonperforming and defaulted loans from the issuance trusts. They have yet to employ this asset-quality control feature.
Autofinanciamiento programs date back to the 1970s in Mexico. At that time, low-income borrowers made monthly payments to a special trust (managed by a commercial bank) that financed the purchase of cars. These cars are individually allocated to borrowers via lottery or auction. Current autofinanciamiento programs are more like traditional auto loans as borrowers receive guaranteed delivery of a new vehicle after making a certain number of consecutive monthly payments or one single payment equal to the number of monthly installments.