For decades, automotive financing has been a key pillar of consumption and credit in Latin America. Since the 1990s, when auto loans began to become widespread, this industry has enabled millions of families to access new and used vehicles, while driving the growth of banks, finance companies and dealerships.

Today, the context has changed radically: credit is becoming more expensive, margins are narrowing and risk management is once again taking center stage.

A bit of history: the golden age of credit on wheels

During the years of low rates and high consumption growth (2010-2019), automotive financing experienced a remarkable boom.

Competitive rates, labor stability and the expansion of retail credit made it possible to finance vehicles with longer terms and lower entry requirements.

The model was simple: finance companies grew by volume, dealerships rotated inventory rapidly and customers had access to ever more modern cars.

But that cycle began to break with the pandemic. Disruptions in supply chains drove up prices, the scarcity of used vehicles raised their resale value, and interest rates rose with global inflation. Business stopped being expansionary and became more selective.

The present: more expensive credit, more cautious demand

Today's market is more mature and demanding. Institutions must not only lend, but also understand the debtor, assess their financial resilience and anticipate their ability to repay.

Easy credit is behind us; smart credit is the new standard.

On the one hand, consumers are more reluctant to take on debt, which impacts new vehicle sales. On the other hand, current debtors are showing signs of financial stress, with increases in delinquency and refinancing rates.

Finance companies and specialized funds have had to strengthen their credit analysis capacity. It is no longer enough to evaluate income or length of service; today it is essential to understand the payment behavior, the client's resilience and the real value of the pledged asset.

Added to this is the rapid depreciation of vehicles, accelerated by technological advances (electrification, software, connectivity), which affects the strength of warranties in the event of default.

In parallel, companies should invest more in post-credit follow-up, monitoring in real time indicators such as late payments, evolution of collateral value and client behavior.

Data management and the use of artificial intelligence are becoming key allies to anticipate risks and optimize preventive collections.

Looking ahead: technology, data and new models

The future of automotive financing will depend on its ability to adapt to a structurally changing market.

Some trends that are already emerging:

1. Increased digitizationAutomotive credit fintechs are simplifying origination processes, improving the customer experience and reducing operating costs.
2. Intensive use of analytics and alternative scoringTraditional credit evaluation models are complemented with behavioral variables, mobility history and real-time data.
3. Evolution of the ownership modelThe rise of leasing, subscriptions, and "car-for-use" raises new financing and risk schemes.
4. Increased regulation and transparency requirementsThe supervision of originators and funds will be more rigorous, with the aim of protecting consumers and ensuring the soundness of the system.
5. Technological change in vehiclesThe transition to electric and connected cars will generate new financing demands and asset valuation methodologies.

The future of automotive finance will be hybrid and technological. Digitization will continue to reduce origination costs, while the use of predictive analytics and big data will become standard practice.

The big challenge will be to balance automation with responsible credit management. In an industry that has learned to move fast, resilience will be the new driver.

The challenge is no longer just to finance more, but to finance better. The combination of data, prudence and customer proximity will make the difference between those who survive and those who are left behind.

In the meantime, the question that should guide the conversation is: How can the industry maintain access to credit without compromising the quality of its portfolios?

Raimundo Fuenzalida
Portfolio Manager Fynsa AGF