A culture of consumer lending is emerging in Mexico, with auto financing, along with assorted personal lending, inspiring much of the growth.

For the Mexican car industry, things are looking up. Driven by a strengthening economy and an expansion of automobile financing options, the world's fourth largest producer of automobiles is increasingly looking to its domestic market for customers. Though challenges to sector profitability are evident in the tradition of importing second-hand US cars and the rates of unbanked potential buyers, figures from recent years have been highly promising, and credit agencies and banks are more than aware of this.

Consumers purchased 1.06 million vehicles in 2013, on a rise of 7.7% compared with 2012. This figure represented the highest level of spending since the record high 1.14 million in 2006, and the trend is set to continue in 2014, with some predictions stating figures as high as 1.15 million units by year-end. An elevated production rate resulting from increased investment in the sector, more efficient processes, and low labor costs, is one element feeding consumption. Nissan Motor Co., the market leader, has entered into a $1 billion joint venture with Daimler to construct a new plant, while BMW has separately announced a similar project. In late 2013, Nissan opened its $2 billion Aguacalientes factory, and General Motors Co. and Volkswagen AG are each expanding operations. Overall production reached 2.9 million vehicles in 2013, and is expected to rise to 4 million in the short term, and reach 1.6 million in 1H2014, surpassing former Latin market leader Brazil.

Mexican auto sales to the US have tripled since the signing of NAFTA, and continue to influence the sector heavily as the country moves steadily ahead of Canada to become the primary supplier of North America's largest economy. However, the number of cars available is not the only factor boosting the market. Domestic sales are being held back by the fact that Mexicans are still choosing to buy second-hand imported US models in lieu of supporting the domestic industry and because a major portion of the cars produced are exported.

Another key factor is the development of the auto finance segment, which has expanded considerably in recent years. In general, gross consumer lending in Mexico grew rapidly in 2013, with retail banking emerging as more competitive in response to a broader awareness of the market among rival firms. Individual segments such as auto financing are contributing decisively to the overall industry, with this specific area growing by 15% in 2013.

Consumers range from first time buyers who club together and use communal savings, to wealthy individuals seeking to add a new vehicle to their collection, but it is the mid- to low-income bracket that is being focused on predominantly by banks and credit organizations. As part of a larger encouragement of access to banking and the drawing in of informal workers to the formal economy, efforts to interest consumers in loans are hoped to create a wider base of banked citizens. As a result, microfinance products are being developed to support the half of the Mexican population that earns less than $1,000 annually. Though around half of cars purchased in the country are second-hand imports, the segment is growing as a result of improved credit offers for workers and their families. Financial reform measures will affect the sector significantly, increasing transparency and facilitating legal procedures, fashioning a more robust, transparent sector, and opening the doors to SMEs and smaller firms seeking credit, for the purchase of cars or otherwise.

The main automotive corporations are making sure to encourage the market by forming and teaming up with their own finance subsidiaries. Volkswagen, for example, finances 40 out of every 100 cars sold, and sold over 75,000 financing contracts in 2013. Similarly, NR Finance covers loans for Nissan, Renault, and Infinity, and has signed over 300,000 contracts over the past decade.

Finance companies such as BNP Paribas are explicitly targeting automotive finance as part of their growth strategies, recognizing the inherent potential and seeking to capitalize on this. Not only focusing on new and second-hand automobiles, BNP Paribas is exploring niche segments like motorcycle loans. CEO Jorge Álvarez, in conversation with TBY, identified partnerships with key producers as a strategy, and is positive about opportunities for growth in this area. Utilizing comparisons with other Latin markets, he offered a different perspective. “In Argentina, 800,000 motorcycles are sold per year, yet its population is just one-third that of Mexico" he explained.