Overview: Brazilian Fleet Market
TORRANCE, CA - With a population of almost 200 million people, Brazil is the largest fleet market in South America, according to Joao Andrade, sales director for Total Fleet Brazil – Localiza.
The six major FMCs in Brazil have well-developed processes to manage fleet operations. Localiza is the largest car-rental network in South America, with more than 460 locations in seven countries and a history of stable management. It is also the largest individual client of Fiat, General Motors, and Volkswagen in Brazil and operates a fleet of more than 100,000 cars.
Out of the approximately 4 million corporate vehicles in the country, more than half are located in the Southeast region of Brazil, which contains the major population centers, including Rio de Janeiro and Sao Paulo. Examples of companies operating major fleets in Brazil are Proctor & Gamble, Kraft, Merck, Honeywell, Pirelli, and Danone.
Fleet management in Brazil faces several challenges. First, Brazilian fleets have little leverage with car manufacturers and limited bargaining power. Three automotive companies control 75 percent of the Brazilian market share — VW, GM, and Fiat. “Fleets don’t have huge bargaining power,” Andrade said.
The second challenge is the geographical dispersion of fleets due to the country’s size. “This is compounded by poor road conditions and poor driver education,” Andrade said. “There are also issues in terms of reliability of the service-provider network and parts availability. Lastly, there is unpredictability in remarketing values, which creates high depreciation risks.”
The vehicle maintenance/service-provider network is not reliable in some parts of the country, and there are widespread shortages in parts availability.
“The main challenges for fleet management in Brazil today are the low quality of maintenance services mostly related to repair shops that are not compliant with minimum customer service levels, and everything related to insurance; car theft rates have been increasing in the last six years drastically and this cost is passed on to the insurance premiums,” said Ricardo Fonzaghi, VP international sales for LeasePlan Brazil.
To minimize fleet downtime, Total Fleet Brazil has two employees dedicated to locating parts.
Another challenge in the Brazilian fleet market is the financial stability of service providers. This includes concerns about the reliability and reach of the services network. Many service providers have difficulty with the ability to integrate with global level systems to access fleet information. “When doing fleet business in Brazil, it is important to talk with clients and get referrals to check the service provider’s track record. If possible, visit selected providers to get a better understanding of their basic business processes,” Andrade said.
The current labor shortage in Brazil is impacting the quality of services from fleet service providers. In addition, there are recurring quality problems with brand-new vehicles sold in Brazil. “The poor quality of some OEMs in the market is affecting product credibility. This is compounded by a spare parts shortage,” Andrade said.
Presently, the used-vehicle market is depressed and resale values are uncertain. One factor behind the uncertainty in future resale values is a trend in decreased new-car sale prices, according to Andrade.
There is also market uncertainty as to whether the economic crisis in Europe may spill over into Brazil.
“Last year was a year of dynamism for the Brazilian fleet market, although the last months of 2011 showed some signs that the economic crisis initiated in Europe might herald some tougher times to come here as well,” said Pascal Vitantonio, general manager for ALD Automotive Brasil.
For most of the year, the 2011 economic landscape replicated, albeit with less intensity, the favorable equation for a developing industry that had taken place in 2009 and 2010.
There are many positive aspects to the Brazilian national economy, such as an overall growth of about 4 percent (against 7.5 percent in 2010), which is sustained by wider and easier access to credit for an increasing share of the population.
“The country’s automotive market, as a whole, is strong with several newcomers or emerging leaders (Chinese and Korean carmakers, and a revitalized presence from Renault/Nissan) challenging the dominant position of the historical ‘Big Four’ (Fiat, VW, GM, and Ford),” Vitantonio said. In addition, the Big Four are actively engaged in significant revamping of their respective fleets.
Companies from all sectors of activity are continuing to invest in renovating and growing their corporate fleets. “In addition to many multinationals entering the Brazilian market, the economy is surfing the wave of huge investments in the oil sector and in infrastructures in the wake of international events, such as the 2014 Soccer World Cup and the 2016 Olympic Games in Rio de Janeiro,” Vitantonio added.
“Nevertheless, the car market — whether for new or used vehicles — being extremely sensitive to the availability of personal credit, showed a brutal deceleration during the last four months of the year, triggered by extremely prudent financial institutions with the government and the Central Bank trying to avoid repeating the 2008 crisis. Beyond the obvious impact on the used-vehicle sales that all the actors of the industry are closely monitoring, the most recent situation on the credit market has also been a strong impact on the other end of our product lifecycle, namely funding. Developing and structuring funding capacities at competitive prices are back on top of the agenda of all the actors of the industry, and it is expected that asset-backed solutions become more frequent and cost-effective,” Vitantonio said. “Another concern for the fleet management companies is the ever-changing and increasingly complex set of rules and regulations, whether on vehicle taxation, licensing drivers and car owners, or car safety equipment, which tends to elevate the break-even point and increase legal and reputation risks.”
LeasePlan’s Fonzaghi added that “the fleet market in Brazil is still considered very immature in terms of development. The two main reasons behind this situation is the interest rate, which makes ownership or mileage reimbursement very attractive methods of acquisition, and the complex country taxation structure, which increases the price of the vehicles. Locally, company cars are considered a tool to support companies to achieve their macro objectives, therefore most companies that have a vehicle connect this asset to a source of revenue to the company.”
--By Mike Antich