The State of the Fleet Market in Mexico

To examine the state of Mexico’s fleet market, Automotive Fleet Editor Mike Antich spoke with Peter Rodriguez, CEO of Global Motors. Based in Mexico City, Global Motors provides leasing services for cargo, tractor and foreign buses, as well as trailers, semi-trailers, machinery and computer equipment.

AF: Global Motors has been operating vehicle leasing operations in Mexico for 30 years. What are the biggest challenges you find in operating a fleet in Mexico?

Rodriguez: One of the largest challenges is Mexico’s weak legal system. Because there’s a weak legal system in Mexico, we have to worry about many things managing our fleets that you don’t necessarily worry about in the United States. For instance: having your truck stolen.

We have huge numbers of stolen vehicles every year. The last time I checked the numbers, the total of stolen vehicles in the United States was about 2,000. In Mexico, stolen vehicle totals are running around 40,000 to 50,000 annually. Keep in mind, U.S. fleets are 10 times larger than Mexican fleets.

That’s a huge, huge number for Mexico. So, as always, the security issue is a main factor, but it's also been a complex issue.

One consequence for fleets is having to get replacement vehicles, and that is driving used-vehicle prices through the roof. It’s the same thing currently going on in the United States.

Even though Mexico is a country that produces a lot of vehicles, many are not staying in Mexico.

I think the reasoning behind the imbalance is profit margins. The profit margins on cars sold in the United States are probably much higher than in Mexico.

To give you an idea of the situation: even though Mexico did have a record sales of 94,000 cars in January 2023, a record dating back only to 2020. In trucks, 3,402 heavy trucks were sold in Mexico, but Mexico produced 18,568 units.

That gives you a little behind-the-scenes background. The units manufactured in Mexico don’t necessarily stay there. They’re going to the markets where OEMs can gain the highest profit margins.

OEMs probably roll out much of their production in the U.S. Then, as soon as U.S. inventories are where they need to be, OEMs start sending to Europe. Latin America currently is probably in third or fourth place in the economies of scale and profit margins.

AF: How do you acquire your trucks -- through dealerships?

Rodriguez: We usually buy from Daimler Financial, which, in Mexico, has a division that sells the trucks coming off leases. It’s called Select Trucks. I think Daimler Financial also has Select Trucks in the United States. We do a lot of financing through Daimler Trucks for Daimler Finance, so we get a lot of off-lease vehicles from them. We don't usually buy new trucks; we usually buy models that are four or five years old.

AF: How long is the wait for trucks? Is the truck inventory plentiful in Mexico or do you have to wait a while?

Rodriguez: Actually, right now it’s really hard to get trucks. There's nothing out there. Concerning Select Truck leases, even companies that are big truck operators in Mexico —there’s probably 10 companies with 50% of the fleet — are impacted.

The business model for these huge companies with leased vehicles from Daimler Financial was to get new trucks in and every three to four years renew their fleet.

Since COVID started, however, they’ve had to push those times to five or six years. They’re operating like rental companies do all over the world. Since they can’t get fleet vehicles, they're running their fleets a lot longer. And when they do turn them, they have a lot higher mileage.

AF: How long do you keep your vehicles or trucks in service?

Rodriguez: We usually run them for five years.

AF: But that's been lengthening now because of the vehicle shortage?

Rodriguez: Yes. We still have some 2005s that we’re getting rid of. We’ve run trucks a lot longer than we normally would.

AF: How do you dispose of used trucks in Mexico?

Rodriguez: We have a Web page on which we publish available trucks and equipment.

We have sellers who work for us. We send them inventory lists, and they’ll come around to look them over.

We also put “For Sale” signs up at our yards. In Mexico, 95% of local small truck companies are owner-operators, as opposed to the United States where maybe 40% of fleet is owner-operator and 60% is large companies. It’s much easier for a trucker to be driving by and see a truck, stop in and ask about its sale.

Finally, a few auction companies will sell some of the older trucks. So we’ll also send trucks to auctions.

AF: You mentioned there's a Carvana-like company in Mexico. Could you elaborate on that?

Rodriguez: There’s a company called Kavak, and they, more or less, copied the business model of Carvana. It’s the first “unicorn” in Mexico — a company that reaches a valuation of $1 billion without being listed on the stock market.

Currently, Kavak is a privately owned company with valuations of $8.7 billion. It’s gotten a lot of funding from companies like BlackRock, and they've also gotten other funding from the U.S.

So they’ve expanded. They started in Mexico and are now in Brazil, Peru, Chile, and Argentina. It’s an interesting business model that is Internet based.

Kavak did really well during COVID as Carvana did, when people didn’t want to go to dealerships. Customers were shopping online. Kavak took advantage of that business model, adapting it to the Mexico platform, which must contend with, as I mentioned before, a legal system that isn't as efficient as in the United States.

You must be really careful who you’re doing business with in a country like Mexico, where the majority of used-vehicle transactions are sold person-to-person. Kavak came in and provided guarantees.

Under their guarantee, you can pick up the vehicle and drive it. If you don’t like it, you can bring it back. If something was wrong with the paperwork, you can bring it back.

In this latter situation, to give you an idea: in one year, more than 4,000 legal claims are registered against fraudulent activity for used vehicle being sold. Those 4,000 cars probably have crooked paperwork. They were stolen, and their VINs were changed.

Consequently, there's a lot of distrust in purchasing used vehicles. That’s where Kavak has come in and given some sense of security to operations. And they’ve done really well here.

AF: Have you sold any of your trucks through Kavak?

Rodriguez: No, I haven’t sold any trucks to Kavak. The company mostly handles standard cars.

AF: Any closing thoughts on the Mexican fleet market?

Rodriguez: Mexico is a place full of opportunities. Its economy is still one of the strongest in Latin America.

And Mexico is holding its own, bouncing back very quickly from COVID pandemic.

The country’s numbers are up everywhere. From a geopolitical standpoint, when it comes to the United States choosing who they would rather do business with — if you're looking at China or Russia — Mexico has never really had lots of conflicts with the United States.

So, I think Mexico is a safer place to do business, especially in these times.