Lower interest rates and higher registration numbers: will it become easier to buy a new car in 2024?

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Segment believes in double-digit growth this year, with lower interest rates for automotive financing; The federal government’s new ‘Mover’ program is welcomed. Automotive sector expects growth for 2024. REUTERS/Stringer After a year marked by the beginning of the interest cut cycle by the Central Bank of Brazil (BC) and government incentive measures to reduce the price of new cars in 2023, the sector automotive projects another year of growth in 2024. Fenabrave’s latest projection is for growth of 12% in 2024. G1 does not account for motorcycles and road equipment. This increase, if implemented, would mean approximately 2.6 million units registered on the domestic market alone. For cars and light commercial vehicles, the forecast is for an increase of 12% this year, totaling 2.44 million registrations. The National Association of Motor Vehicle Manufacturers (Anfavea) estimates a 6.1% increase in registrations in 2024 compared to 2023, to 2.450 million units. Production is expected to grow 6.2% this year, to 2.470 million, with exports at around 407 thousand units, an increase of 0.7% on the same basis of comparison. As financing represents 41% of new vehicles registered in the country, sector entities believe that a good boost in the market is linked to an improvement in the credit scenario. But experts interviewed by g1 consider that access to cheaper loans is still reaching consumers at a slow pace, even with the recent sequence of drops in the country’s basic interest rate, the Selic. Understand in this report the main perspectives for car credit and the automotive sector. Will car credit remain expensive? Although the BC has already started the Selic cutting cycle, experts point out that the movement to reduce car financing rates still takes time to be reflected in the conditions offered to consumers. The pass-through of the Selic drop to interest rates has a lag period, which takes three to six months to be felt by the population. The change may be a little faster in secured credit lines, or due to factors such as the length of the relationship with the banks. “It’s difficult to say when the drop in interest rates reaches the consumer end because there is more than one component that explains all of this: we have the influence of the basic rate [Selic], credit risk and the default component in the market, for example, in addition to taxes and other factors. So besides [o repasse] Although it is not automatic, it is also not done in full”, explains consultant Tereza Fernandez, from TF Consultores Associados, specialized in evaluating the automotive sector. Falling interest rates: when does it have an effect on consumer credit? Still, the gradual reduction Selic rate creates a positive downward trend for other interest rates and this should, at one time or another, be reflected in the automotive segment. “Interest rates have already started to fall. This is reflected in the chain more slowly, but it is already a boost “, said the executive director of the National Federation of Motor Vehicle Distribution (Fenabrave), Marcelo Franciulli. Data from the BC, for example, indicate that there was a drop of 3.2 percentage points in the average interest rate charged on car financing of individuals in December 2023 against the same period in 2022, to 25.5% per year. Even with the retraction, the interest level remains much higher than that observed before the pandemic. In December 2019, the average rate for financing it was 19.2% per year. In large banks, the average may be a little lower, depending on the borrower’s profile and the customer’s relationship with the institution. See examples below. Itaú Unibanco: in January 2024, rates start at 1.13% per month (or 14.4% per year). In the same month last year, the rate offered was 1.37% per month (17.7% per year). Furthermore, the payment term can vary between 6 and 60 months and the percentage of the vehicle’s value that can be financed is up to 90%. Banco do Brasil: rates start at 1.19% per month (around 15.25% per year). The institution did not inform how much interest it charged in January 2023. With an average term of 48 months, financing can be up to 100% of the vehicle’s value. When contacted, Bradesco and Santander did not inform the interest rates or the average payment term for vehicle financing in their credit portfolio. For Fernandez, from TF Consultores Associados, even if the prospect is that Selic will continue to fall at least in the first half of this year, this is already a good time for those who intend to take out credit to purchase a vehicle. “It’s a good idea to take advantage of the current moment. The scenario is optimistic, we don’t have any impact from abroad and it’s a good time to get financing. Until June, a lot may or may not happen. The United States has not yet interest, for example. Better to take advantage of now”, he stated. What explains this level of interest? Part of this scenario can be explained by the level of defaults observed in the sector, which, despite having shown a slight improvement, remains at high levels. According to the BC, default was 5.2% in credit for vehicle purchases in December last year. The number represents a drop of 0.2 percentage points compared to the same month in 2022, when it was 5.4%, but it is still much higher than what was observed in December 2019, when it was 3.4%. “Default rates are higher than they were, but they are stabilized. And there is a positive bias because, in addition to the Selic which is falling, another important factor is the law that determines that the repossession of goods when the consumer is in default becomes extrajudicial It’s a quicker and quicker process, which improves the guarantee and helps the credit market”, said Franciulli, from Fenabrave. The executive refers to the new Legal Framework for Guarantees, sanctioned in October 2023. The law changes the rules for the use of assets, such as real estate or vehicles, as collateral for loans and facilitates the repossession of cars by banks in the event of default, among other points. The measure was part of the agenda of the Minister of Finance, Fernando Haddad, last year, and came as an attempt to reduce financing rates by reducing the spread (difference between the interest charged when raising funds by the bank and the interest rates charged to the consumer). In the case of using vehicles as collateral, the text allows repossession without going to court, in case of default. The extrajudicial procedure can be carried out either at notary offices or at local traffic departments. “The new market attracts a public with slightly better credit, so defaults [nesse segmento] is a little lower than the average shown by the BC. But, in both cases, the trend is for a more positive 2024”, says Paulo Noman, president of the Association of Financial and Assembling Companies (Anef). According to Noman, the estimate is that the general vehicle market is made up of around 2.5 million new cars and 14 million to 15 million used cars. Legal framework for guarantees: new rules allow a single property to be used as collateral for more than one loan What to expect in 2024? For the experts interviewed by g1, the positive scenario is a combination of lower interest rates, more controlled inflation, a greater appetite on the part of banks and a more focused look at the automotive sector on the part of the government (understand more below). But the number is still low compared to the peaks reached by the sector, between 2012 and 2014. At the time, the country reached sales of between 3.5 million and 3.8 million vehicles annually, while today projections are in the region of 2. 5 million vehicles this year. At the time, in addition to the measures to reduce taxes on industrialized products (IPI) and the stimulus package brought by the government, the country also experienced a good period of exports in the category. The moment was short-lived, as Brazilian industry faced new economic crises — such as 2015 and 2016 — and complex periods in foreign trade. There was a drop in the volume of production, exports and licensing. Since then, the sector has not recovered the good numbers seen 10 years ago. See the graphs below: For experts, some uncertainties may still weigh on the automotive segment. “It is necessary to understand how much the domestic and imported components, of North American and foreign interest, reflect here”, said Noman, from Anef. In addition to the BC’s still restrictive monetary policy, the crisis is influencing Brazilian public accounts and international factors such as doubts regarding the North American elections and a possible worsening of the war in the Middle East. “There are still some questions. What are the effects of a possible election of Donald Trump in Brazil and the world, for example? Could it affect the exchange rate?”, said consultant Tereza Fernandez, from TF Consultores Associados, specialized in evaluating the automotive sector. “Another risk is a possible worsening of the war in the Middle East, which could affect shipping and freight, in addition to having possible impacts on inflation. It’s something to wait and see. But, if the temperature and pressure conditions are maintained, the Brazilian scenario is positive”, added Fernandez. Should the government bring any measures to the sector this year? If last year one of the factors that helped the segment was the tax cut announced by the government to try to reduce the price of cars worth up to R$ 120 thousand — a program that lasted just a month in the case of popular cars, with more than 125 thousand vehicles sold in the period — this year (and in future years) the highlight is the “Mover” program. A provisional measure (MP) published at the end of December last year provides, among other things, the guidelines for the incentive plan for sustainable vehicles and for carrying out research aimed at the mobility industries. The program must be funded by resources raised by the government through an increase in the import tax on electric vehicles and solar panels. The increase in the tax will be gradual until 2026, and was designed as a way to encourage investment in the national production of electric vehicles. With the increase in tax on imported vehicles, the idea is to make national merchandise more attractive, as the cost should be lower for the end consumer. For Franciulli, from Fenabrave, “Mover” is a more comprehensive plan and should promote a renewal of the fleet in Brazil, starting initially with trucks and buses and then covering the entire chain. “In Brazil, the vehicle has a birth certificate, but no death certificate. We have a huge fleet registered in the country and, of the total, 30% or 35% do not circulate,” she said, adding that the sector also needs to work with the government to reactivate the sale of more affordable vehicles. “These are the people who end up having older vehicles and are unable to renew,” he added. Franciulli considered, however, that “these are not isolated and specific measures” that will bring new growth prospects to the sector. “It’s a set of measures. We need to have a stable economic scenario and the government needs to play its role in controlling spending and promoting fiscal balance, which is reflected in lower inflation. The idea is that the consumer does not lose purchasing power”, added the director of Fenabrave.

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