Last week, I had the opportunity to speak in Sao Paulo, Brazil at the biannual convention for the Brazilian car rental association, ABLA (Associacao Brasileira das Locadoras de Automoveis). Now in its 14th year, the Forum ABLA draws car rental operators and vendors from across Brazil and internationally.
My address involved how the changes in transportation are affecting the U.S. car rental market in the U.S. In the meantime, I got a good download of what’s going on in the Brazilian market.
You might recognize some similarities to issues the U.S. car rental industry faces, while others are uniquely Brazilian.
The Brazilian car rental market is not nearly as consolidated as the U.S. market — yet. Similar to the U.S., it is made up of three majors — Localiza, Unidas, Movida — though they control about 50% of the market, not 95% as in the U.S. The Brazilian majors are upping their share, as they are on a buying spree of medium-sized regional players with fleets of more than 1,000 units.
Smaller companies in the daily rental market are finding it harder and harder to compete with the Big 3, primarily based on the extreme advantages afforded the majors when it comes to buying and selling power. That said, there are still about 11,500 car rental companies in Brazil, most with fleets of fewer than 100 vehicles.
Those smaller companies do play in a market sector that still represents good business for them — long-term rentals to commercial customers — the equivalent of our fleet leasing market in the U.S. and Western Europe.
Car rental companies own the “outsourced fleet” market in Brazil, as the country does not make a legal demarcation between daily rental and leasing as in the U.S. Overall, the outsourced market in Brazil stood at 52% in 2018, with leisure daily rentals for leisure accounting for 27% and corporate daily rentals making up 21%, according to ABLA.
As the footprint for the global fleet management companies (FMCs) is comparatively small in Brazil, this market appears viable for independent rental companies at least for the foreseeable future.
In the outsourced fleet management market, vehicles stay in fleets for 12 to 36 months, with a 24-month average, far shorter than the average of commercial fleet leases in the U.S. In the Brazilian daily rental market, vehicles are de-fleeted at an average age of 17 months.
The gross revenue for the entire daily rental and outsourced market in Brazil was R$15.3 billion, or US$3.73 billion at today’s exchange rates, according to data from ABLA.
Besides a wide gulf in borrowing rates and an ability to command the lowest prices from the manufacturers, the majors also maintain remarketing advantages by selling direct through their own used car lots. De-fleeted vehicles up to three years old make up the “semi-new” market.
The auto auction isn’t a major de-fleeting channel for car rental in Brazil. Smaller companies sell off-rental units to small used car lots, though the market suffers from various forms of fraud such as brokers skimming money off the units they sell.
Internet remarketing channels have yet to take off, as trust for an online sale isn’t yet established and the online infrastructure isn’t yet in place nationally. That said, I met an independent car rental operator with only 30 cars who set up his own mobile-optimized website for used car sales. Car rental operators can sell used cars without a dealer’s license.
Brazilian car rental faces other familiar challenges relating to traffic fines linked to the rental vehicle and not the renter and overdue rentals treated as civil matters, not stolen vehicles.
Probably the biggest story for car rental in Brazil is related to Brazil’s biggest mobility story — the explosion of ride hailing, or “transport apps” as Brazilians call them. I took Uber often during my short trip, with one Uber driver maintaining that transport apps have resulted in work that has saved Brazil from deepening into an even greater recession than it’s already experiencing.
From 200,000 to 500,000 drivers (I heard differing estimates) drive for Uber and competitors Cabify and 99 in Sao Paulo alone. And most of the vehicles they drive — 60% of them — are rented. Localiza has an advantage in that it’s the only company renting direct to these drivers. It seemed like every ride-hailing car was a Chevy Onix with both an Uber and a Localiza sticker.
Unlike in the U.S., which tends to cascade vehicles from daily rental into the hands of ride-hailing drivers, the Brazilian rentals are predominantly new. Excessive mileage is a problem, and some rental companies are trying to corral mileage through caps.
I expect in two years’ time the majors will have grabbed another 20% of share.
In 2018, the total car rental market in Brazil licensed 412,753 autos, or 19% of the newly licensed cars that year. That’s an astounding figure, which shows just how important the car rental market is to the fifth largest country in the world.