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Overview: Mexican Fleet Market

February 26, 2013, by Mike Antich - Also by this author

There are 34 million vehicles in operation in Mexico, of which 34 percent are commercial vehicles. “Annual new-vehicle sales have been increasing in Mexico. In 2011, there were 557,339 vehicles sold, which represented an 11-percent increase,” said Victor Campuzano, director, sales & marketing for ARIZA, a joint venture in Mexico between ARI and the Groupo Zapata.

Mexico has a population of 112 million people with a diversified economy. It is the 14th largest economy in the world.

Mexico is a preeminent vehicle manufacturer and exporter, mainly to the U.S. and Canadian markets. Yearly, around 1.5 million vehicles are manufactured in Mexico and half of them are exported overseas. Of these vehicles, most go to consumer and small- to medium-sized companies.

“There are seven key FMCs operating in Mexico. They are Ariza de Mexico, General Electric, Wheels, Facileasing (purchased by BBVA), and Masterlease (purchased by Banregio Bank). Wheels is partnered with IXE, which was purchased by Banorte. LeasePlan and ALD are the newest entrants in the Mexican fleet market,” Campuzano said.

This market is currently undergoing some significant changes, according to Sebastian Chirulnicoff, managing director transportation finance, GE Capital Mexico & Latin America. “Currently the fleet leasing market is consolidating its players. We have seen during 2011 that banks have merged with FMCs and this has turned the playing field into a new game. We are now seeing lower lease rates, stronger emphasis on services and competition searching for value-added services that could be new revenue generators,” Chirulnicoff said.

These consolidations will have positive effects on the market, according to Chirulnicoff. “We foresee stronger competition in this market due to the aforementioned mergers. We also foresee that lower rates will continue in the local market. Also new product introduction or product variances (such as renting, bundled solutions, etc.) will arise in 2012,” he said.

Nissan is the top vehicle brand for commercial fleets in Mexico. “GM used to be No. 1, prior to its bankruptcy,” said Campuzano.

Manufacturer fleet pricing is based on buying volume. Fleet vehicles can only be purchased through dealers and a courtesy delivering system is in place. Fleet order-to-delivery times average between four to 12 weeks.

According to Hessel Kaastra, managing director of LeasePlan Mexico, the Mexican fleet market has about 800,000 units that are less than four years old.

The corporate fleet leasing market is small relative to the size of the vehicle production and commercialization. It is estimated that between 70,000 and 100,000 vehicles are leased by upper market and corporate segments. The most advanced industries in terms of fleet management practices are pharmaceutical, retail, and food and beverage companies.

“Most fleet leases in Mexico are open-end leases. Closed-end leases are not very popular and are typically more expensive than open-end leases. The preferred option for most medium and large corporations is purchasing. The reason is that corporations operating in Mexico are afraid of the interest rate risk. Typically, funding uses a floating interest rate; however, fixed rates are available tied to the prime rate,” Campuzano said.

Taxes are a major factor in fleet purchases. “There is a federal tax, ‘tenenica,’ which is 10 percent of the original cost of the vehicle in four years. Also, license plates must be replaced every three years. There are also additional taxes levied by individual Mexican states,” Campuzano said.

Kaastra noted that licensing and titling known as “gestoria” is a key challenge for fleet operators. “Licensing and titling is a complex operation, differing from one state to another. The formalities are lengthy and the requirements imposed by authorities change frequently,” Kaastra said.

Fuel in Mexico is controlled by the government. There is limited coverage by fuel management companies and these typically include only pre-paid options. “Not all fuel stations accept credit cards,” Campuzano said.

This is only one way the state-owned oil and gas company, Pemex, influences fleet costs. “Additional taxation may be levied or deductions capped in corporate expenditures on leasing, insurances, car expenses and gasoline, due to the state-owned oil and gas company Pemex,” said Chirulnicoff of GE Capital Mexico & Latin America.

Changes north of the border could also influence the way Mexican fleets operate. “We foresee additional lease-accounting regulations after the U.S. GAAP make its changes,” Chirulnicoff said.

At end of service, most corporations give drivers the option to buy the vehicle, regardless of the kind of acquisition. “Approximately 95 percent of fleet passenger vehicles are sold to drivers,” said Campuzano of ARIZA.

“In 2011, total Mexican domestic car sales remained behind their best performance in 2007-2008, even if the Mexican automotive sector’s record production level is sustained by growing exports to the U.S. By contrast, the dynamic company fleet market is therefore gaining unprecedented importance: Even if cash owned by companies in a liquid economy still remains the worst enemy for leasing, the traditional asset-driven culture is moving toward a more ‘focus on core business’ approach, which favors the outsourcing of non-core activities, such as car fleet ownership and management, even in the public sector, which was one of the most active segments in 2011,” said Thierry Merienne, general manager for ALD Mexico.

“This dynamism is increasingly leading new actors, such as banks, to develop fleet management abilities, through acquisition of existing independent lessors or through agreements with fleet managers. In this fast development phase, which we anticipate to be a long-term trend, both open- and closed-end schemes have been growing quickly, and users are increasingly shifting their criteria for choice from cost of acquisition to a more comprehensive TCO (total cost of ownership) approach,” said Merienne.

Kaastra of LeasePlan Mexico said that the move toward operational leasing known as “arrendamiento puro” is one of the biggest trends in the Mexican fleet market. “Increasingly, corporations are choosing to outsource the management and the ownership of their vehicles. An important benefit consists of fiscal advantages for vehicles over 175,000 Mexican pesos (approximately $13,549 based on the exchange rate in March 2012). Moreover, focus on core activities has benefitted the concept of full-service leasing,” Kaastra observed.

--By Mike Antich

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