The Brazilian fleet market, although still under development in many ways, is gradually converging toward the standards of the more mature markets. There is no reliable and official source of information with respect to the size of the fleet business in Brazil. The Brazilian “corporate fleet” is estimated at more than 4 million vehicles. Its “business universe” (light vehicles, excluding taxis, police, and other public services) is probably closer to 500,000-1 million vehicles.
Combined, all Brazilian fleet management companies operate about 280,000 vehicles, while the renting or leasing model is comparatively less developed than in Europe or the U.S.
Bridging the Quality & Reliability Gap
The gap of quality and reliability is increasing between the largest fleet management players and their smaller competitors, thus contributing to accelerating the consolidation process long due within the industry.
Concerns about safety and sustainability are emerging among fleet managers, as well as demands for more customized services, with differentiation between an operational and an executive fleet, and a greater focus on the quality of the drivers’ experience.
The fleet market in Brazil has faced strong challenges in the current economic landscape. The government’s strategy of stimulating consumption through a temporary tax reduction, which took place between May and December 2013, caused considerable instability in the depreciation of pre-owned cars as it became easier to purchase new vehicles. This had a strong impact on the fleet management and car rental markets, as the companies saw most of their assets losing value.
While the tax rates gradually increased back to normal levels through June 2013, the new rules being applied are still not entirely clear to the market and are generating certain insecurity; additionally, the lower prices for new cars implied an excess in demand that has resulted in long delivery times for many models of most automakers.
The biggest change to the Brazilian economy in 2013 was the reduction of interest rates. The government made an effort to push banks to get a more competitive rating by reducing its own, which was not felt 100 percent by companies or consumers in 2013 and is expected to have reflections in 2013.
The pre-owned vehicle market is still under pressure due to government incentives provided to the automotive industry to keep vehicle production high. This affected lease prices once the risk bore by the leasing companies was passed on to its customers. Compared to figures from 2009, the market is still below water.
The Increasing Regulatory Environment
The Brazilian automotive industry is a critical sector for the economy, and employment was greatly impacted in 2013 by a series of specific tax policies implemented by the federal government.
“The first objective was to protect local production capacities against imported products and impacted mainly Chinese and Korean manufacturers, but also European ones, which, despite having local capacities for the mass market, imported most of their executive and luxury models,” according to Pascal Vitantonio, general manager for ALD Automotive.
Late in 2013, a second wave of temporary fiscal regulations occurred, which were aimed at providing a strong incentive to the sector overall by lowering the taxes on new-car sales.
"This has resulted in a great dynamism of the market, with record production and sales levels, but also in many manufacturers facing situations of challenged industrial strategies and/or production overheating,” Vintantonio said.
A system of import quotas, limiting imports to a certain number of units, has also affected the market, since most models of various manufacturers come from outside Brazil (concentrated mainly in Mexico and from countries that are part of MERCOSUR, a free trade zone consisting of Argentina, Brazil, Paraguay, Uruguay, and Venezuela). Currently, the total renting market in Brazil is composed of approximately 490,000 cars, 55 percent in fleet management.
“There are many different challenges for managing a fleet in Brazil, and taxation rules just about touch the tip of the iceberg when it comes to the new IPI (excise tax on industrialized products) tax that was put in place December 15, 2011. It protects local manufacturers against the less-expensive Korean and Japanese imports. However, this likewise affects vehicles, such as the VW Passat, which is imported from Germany. There are many others as well,” according to Joe LaRosa, director of global fleet services for Merck & Co.
Delivery times have increased and become volatile depending on the model, production cycles, and distribution channels, requiring many corporate clients to revisit car allocation policies in a sense of greater flexibility and, sometimes, requiring a complete revamping of their fleet mix.
“A few challenges I am finding with our fleet is replacement rentals. When our vehicles are in for servicing, many of the incidental rental cars are not up to the same safety standards as the current fleet vehicles, leading to more downtime. The biggest complaint I receive is the extremely long order-to-delivery lead times. Factory ordering for fleet is so far down the list of priorities for delivering dealerships that it has taken as long as 10 months to receive a car. Often, it’s the wrong color or has different equipment,” LaRosa explained.
The Brazilian government recently adjusted fuel prices by 7 percent, which, together with the inflation from 2013 (around five percent), will impact the total cost of vehicle ownership.
The good news from Brazil is that the National Institute of Measures, Quality and Technology (INMETRO) has released a study of vehicles manufactured in Brazil that will provide a better view to companies and consumers regarding vehicle efficiency. Previously, the majority of the data available was from manufacturers. Now, the country has a neutral source of information regarding the subject.
Charting the Fleet Market
Within the universe of multinationals and large national companies, it is typical to see fleets totaling more than 1,000 units and spread over distances of several thousand kilometers in both rural and urban areas.
Even middle-market companies can have very large fleets when combining operational, commercial, and executive profiles. Some sectors — such as pharmaceuticals, food and beverage, consulting, and financial services — are traditionally huge consumers of fleet management services, but fleet management products are now filtering down through the Brazilian economy as a whole.
The demand is increasing for more value-added services. Many fleets, especially within the sectors of telecommunication, utility, and services, are now considering the use of telematics as a tool to facilitate the operational management of a fleet in a more efficient and sustainable way, not simply to increase security.
With or without the assistance of telematics, fleets are challenging fleet management partners to provide dashboards, decision-making tools and processes, and consulting approaches to optimize resource allocation.
● Capital: Brasilia