12 Aug 20

To manage uncertainty, Latam needs flexibility

Already in 2019, economic activity had stagnated in Latin America. This year, the Covid-19 pandemic will push the region into its worst economic contraction in over a century. This has consequences for fleet management in the region.

Last year, passenger car registrations across Latin America slowed down to 5.9 million. Around 1.3 million (22%) of those new cars and light vehicles were acquired by corporate customers. And approximately 280,000 of those (5% of the total) were bought by specialised fleet management companies.

Judging from those numbers, Global Fleet estimates that the fleet management portfolio in Latam has grown 15-20% in 2019 alone, in spite of a contracting overall market. It should continue to grow in 2020, albeit at a slower pace.

Read more in the 2020 edition of the Global Fleet Survey, which can be purchased by clicking on this link.

International corporates

The vast majority of fleet management customers in Latam are large international corporates, expanding their fleet outsourcing practices into the region. According to Willis Tower Watson, for example, about 80% of their executives and more than 50% of their sales representatives in Latin America are entitled to a company car.

Most of these companies have their HQs in Europe or the United States, which means that the relevant policies are drawn up outside the region, and need to be adapted to the local environment and its limitations – both in terms of providers and of products.

Open-end vs. closed-end

According to our Global Fleet survey, 79% of international companies present in Latam are willing to use full-service leasing in the region, and their first objective is finding the right leasing partner. This means they have to benchmark international suppliers, where available, against local heroes.

At the turn of the millennium, U.S. fleet management companies opened subsidiaries in Mexico, so they could offer their customers a unique solution throughout the entirety of North America.

Ten years ago, European lessors started doing the same in Mexico and Brazil: following their customers, they offered full-service leasing. The difference: European-style products are closed-end, while U.S.- based ones are open-end.

Geographic overview

  • As a consequence, both open- and closed-end lease solutions are on offer in Mexico, in an original mix. For example, ‘European’ leases are sold with low residual values, in order to enhance remuneration packages. ‘American’ products, on the other hand, are sometimes sold as a forfeit.
  • In Brazil, the market is led by local heroes who have evolved from short-term to full-service leasing and are able to offer very competitive solutions thanks to the synergy between both products.
  • None of the international lessors is directly represented in Argentina. Financing is a challenge due to high interest rates.
  • Some five years ago, international lessors landed in the Andean countries. They now compete with local companies, created some time ago mainly to manage fleets of pick-ups for the mining and fishing industries.

Fleet managers typically use four different suppliers across the region, including local ones.

Priority: safety

A large section of the vehicles on Latin American roads is non-insured, while the accident rate is very high, as is the rate of vehicle-related crime. This is the case in particular in the big cities, where luxury rubs shoulders with misery and crime often goes unpunished.

As a consequence, safety is a top priority for corporate fleets. It is important to find adequate insurance coverage, to offer cars with the appropriate level of safety equipment, to provide sufficient driver training and to exercise the required level of control over driver behaviour.

For all these reasons, telematics is very popular with corporate fleets across Latam. No less than 31% of corporate fleet customers are already using the technology.

CO2 goals

In Brazil, there is no policy to promote a switch from petrol or ethanol to electric cars. Consequently, a clear majority (60%) of companies in Brazil has no CO2 limitation goals.

Across the continent, our survey shows about 40% of fleet managers are still planning to expand the share of diesel vehicles in their fleets. Only 20% are planning to use more EVs, while 40% said they would expand their use of hybrid vehicles.

The changes are happening mainly in the urban centres of Mexico, Colombia and Chile, where local authorities impose a ban on ICE vehicles, especially during days with high levels of air pollution.

Finally, a word on Covid-19. Latin America has been severely hit by the pandemic. Economists predict the economy of most countries, including Mexico and Brazil, will shrink by 7 to 9%. For Venezuela, a further shrinkage of 20% is forecast. This will certainly lead to a decrease of new car registrations. Fleet management companies are therefore working with their customers to generate flexible solutions.

Authored by: Pascal Serres