No insurance replacement market, no auction sales, no turn-back cars and little chance of insurance recovery: Those are just some of the issues that Moises Behar faces as general director of AVASA, the largest Hertz franchisee in Mexico and one of the biggest in Latin America.
But with those challenges comes opportunity. With Mexico’s reasonable fuel prices, a groundbreaking partnership with Wal-Mart and a virtual white space in the local market, AVASA is developing new territory, and has grown from a fleet of 700 vehicles to 6,000 in five years.
AVASA by the Numbers
AVASA has been a Hertz franchise for more than 25 years and is part of a holding company that owns dealerships.
AVASA’s fleet of 6,000 units is spread throughout 80 locations in 28 cities and 17 states.
Fully half of AVASA’s business comes from America, with 35 percent from Mexico and 15 percent from Europe and Canada. The leisure/business mix is 60/40, with Cancun, a major tourist destination, factoring heavily into those numbers.
The Cancun location is the largest in Latin America, Behar says. It competes with about 70 car rental operations, many of them mom-and-pop stores, and 5,000 taxicabs.
To more fully service its foreign clientele, AVASA is preparing to become the first Latin American licensee to offer Hertz Gold Key service. Behar has been upgrading the Cancun office, the first in the program, to comply with the program’s numerous service requirements.
AVASA manages a 200-square-meter reservation center with 40 positions. GDS systems work similarly in Mexico, and AVASA works through booking engines such as Travelocity and Orbitz. AVASA receives corporate support from Hertz and benefits from its reservation centers.
Utilization rates have averaged 75 to 79 percent this year, Behar says.
A Taste for the Exotic
Chrysler vehicles make up about 95 percent of AVASA’s fleet. Chrysler does not have the same supply and residual value issues as it does in America, Behar says, and is in fact growing in Mexico.
AVASA runs some 1- to 4-ton trucks, and 3 percent of AVASA’s fleet is luxury cars. AVASA is building a light-duty truck rental division with the introduction of the MUEVELO program. MUEVELO, which is Spanish for move, is filling a niche in the local market that is ignored by the competition.
AVASA is the only Mexican Hertz licensee to offer Hertz’s Prestige Collection, in this case the Mercedes B- and C-Classes and BMW 1 and 3 Series. AVASA also rents the Mini Cooper, Smart Car and the Fiat 500 (Ciento Cinco), not sold in the U.S.
Bucking a trend in North America, AVASA finds success renting large vehicles such as the Hummer H3 SUV and muscle cars such as the Dodge Challenger and Dodge Charger Super Bee. “There’s a very big demand for them, especially for people in their ‘40s who really get a kick out of it,” Behar says.
One big factor in renting large muscle cars is the competitive daily rental rates, averaging $100-$150 a day with unlimited mileage. In addition, fuel prices have remained steady at less than $3 per gallon. Fuel is subsidized by the Mexican government, so high fuel prices have not affected auto rental operators as they have in the United States or Europe.
“The Europeans have had a gas problem forever,” Behar says, noting that when foreigners come to Mexico and have a chance to drive a Hummer or a Challenger, they take the opportunity. “We haven’t seen people renting smaller cars to save gas money,” Behar says.
Buying and Selling
For his new cars, Behar buys directly through the manufacturer and takes delivery through local dealers. As in America, new vehicle prices in Mexico have risen dramatically over the past two years, Behar says, and vehicle manufacturers offer less choice in trim levels.
“I’ll get the [Dodge] Avenger basic and the Avenger loaded,” Behar says. “There’s nothing in between. That’s not only Chrysler, that’s all the makes. So it makes it very difficult that way.”
AVASA holds its vehicles up to 18 months, which is actually down from 24 months. Behar says he’s working to shorten hold times down to a year. “Customer service issues and maintenance costs are really high after 12 months,” Behar says. “We have a problem with our roads, which are not all nicely paved like in the U.S. We have a lot of speed bumps here, and it really takes wear and tear on the vehicles.”
AVASA owns all of its vehicles. Turn-back vehicle programs don’t exist in Mexico, Behar says, and auctions are not a remarketing channel for rental cars. Most new car dealers don’t sell used cars.
AVASA remarkets through wholesale brokers and its 10 used car sales facilities. “It’s basically a grassroots effort of going dealership to dealership and selling through our own retail lots,” Behar says.
Behar compares the rental industry in Mexico to what it used to be 20 years ago in the U.S., of which he has personal experience. Behar started his car rental career at General Rent A Car in Los Angeles before moving to Miami to become Hertz’s director of Latin America. About five years ago he moved to Cancun, Mexico, to become general director of AVASA.
Insurance and Tax Issues
In Mexico, personal vehicle insurance does not apply to a rental car. If a rental customer is involved in an accident, AVASA has little recourse to collect the money, especially if it involves a foreigner.
“It’s not like in the States, where you have collection agencies and you can go after their own vehicle insurance. It’s very difficult,” Behar says.
Minimum age to rent is 21 and a major credit card is required. Some credit cards do offer coverage in Mexico, and AVASA offers insurance coverage, but the customer is not obligated to take it. In lieu of proof of insurance, AVASA requires a customer deposit of between 5 and 10 percent of the vehicle cost.
The AVASA fleet is insured by an outside carrier, and rates are high. Thankfully, the legal concept of vicarious liability—in which the rental company as the owner of the vehicle is responsible for the negligent actions of the renter—does not apply in Mexico. This ameliorates insurance rates somewhat, Behar says.
There are no specific excise taxes targeting car rental to fund unrelated projects such as stadiums and transit lines, though sales tax is high, from 10 to 15 percent. Vehicle registration tax is 2 to 6 percent a year.
The Local Market: A New Concept
Though more than half of the rental business in the U.S. comes from the local market, it is still a small percentage in Mexico.
One reason is that insurance replacement rentals don’t exist in Mexico, as insurance companies don’t cover loaners while clients’ vehicles are being repaired. Even more prevalent is that people still don’t view car rental as a viable means to fulfill their transportation needs. That is changing, slowly, Behar says.
“For the longest time, it was very expensive to rent a car in Mexico,” Behar says. “Now it’s as competitive as the United States. It’s been very difficult, but little by little we’ve been changing that perception and showing the public that car rental is an option.”
Behar credits AVASA’s remarkable growth in five years to an aggressive marketing, advertising and sales effort in an industry that traditionally has done little promotion in Mexico.
AVASA’s sales team includes 70 sales executives, five regional sales managers and one director of sales. AVASA advertises heavily in the Yellow Pages, newspapers, in-flight magazines and in airports. The company has strong marketing partnerships with national airlines Aeromexico and Mexicana as well as with Visa, MasterCard and American Express.
Along with this sales effort, the company has been able to lower rates and offer more vehicle choices and volume. “We’re promoting products other rental car companies haven’t gotten into, such as luxury cars and the Fun Collection,” Behar says. “We’re also going to make a very big deal with Gold Key service.”
The company’s boldest initiative is its recent partnership with Wal-Mart, the first of its kind in Mexico.
AVASA recently signed an exclusive deal to open operations at Wal-Mart’s chain of 268 superstores in Mexico. After five years of negotiations, AVASA won the right to advertise in-store—the only non-food, non–Wal-Mart product with that distinction—and the ability to accept the Wal-Mart credit card for payment. The rental facility is a high-class mobile unit stationed in the parking lot with space for seven vehicles, including truck rentals.
AVASA has opened operations at 10 Wal-Mart stores this year, with plans to open 10 more by the end of the year. “It’s a very big deal for us to go after the local market,” Behar says. “We believe it’s going to take us into a whole different direction here.”
AVASA also recently signed a deal to open locations inside bus terminals. This is another first in Mexico, a country with no train service but an extensive and established bus system.
The creative marketing efforts, partnerships and service innovations will continue, fueling further growth. “Every year we’ve done things that our competitors here don’t do,” Behar says. “We’ve had the pleasure of benefiting from that.”
Daryl Lubinsky is a contributing writer for Auto Rental News.
To subscribe to Auto Rental News magazine, click here.