Analysis
17 Dec 21

Localiza acquiring Unidas in Brazil, what’s next?

With the recent announcement in Brazil that Localiza (the country’s largest car rental and leasing company) will acquire Unidas (the second largest), many questions are on the minds of automobile suppliers and fleet buyers alike so lets get down to answering some of them here. 

What are the next steps, and when will they happen?

To accomplish the acquisition, the newly formed company will need to sell off some of its assets. This includes rental agencies in cities where they have a large market share as well as some of its vehicles. 

While the agency closedowns will need to occur in markets where competing companies have little or no participation, the exact number of vehicles to be sold has not been stipulated. Local analysts, however, see it in the range of 71,000 or equivalent to approximately 15% of the new groups original size. 

Although no company names have been made public, Localiza has stated that it is already in negotiations with potential buyers. The eventual buyer will have to be approved by Brazil’s antitrust regulator CADE.  No deadline as to when this should be executed has been disclosed.

“I think the transition will happen quickly as Localiza will be looking forward to taking advantage of its position. It is a very cost-conscious company that knows the Brazilian market well, and they will be aggressive with trying to get discounts from auto manufacturers,” industry expert Milad Kalume Neto (pictured left) told Fleet LatAm

The newly formed company will also be prohibited from making any new car rental acquisitions for three years. It must inform CADE of any such operations during the period and disclose any new long-term fleet operations for a period of five years. Last but not least, the new group cannot hire any key executives from competitors for at least five years, local paper Folha reported.

How will this impact competition?

Localiza and Unidas are the two largest players, respectively.  They are followed by local company Movida at number three, and then ALD Automotive and Arval (multinationals). Local firms Ouro Verde and LM Frotas, the latter operated by Volkwagen Financial Services (VWFS), and about 10 others which make up most of the market. 

In comparison to Localiza and Movida, Folha reported that Unidas has some of the most competitive prices in the market today, both in terms of Rent-a-Car and Corporate fleet management. If so, with Localiza absorbing Unidas, prices could increase and Movida would achieve quicker returns on margins.  

“In general, Localiza buying Unidas is not such a bad deal for Movida. They will soon be the second largest player in the market, and I feel they will be quite competitive” local business advisor Yuri Sanchez (pictured right) told Fleet LatAm.

Some feel that most competitors, however, are worried about this news as the market will be more concentrated. “While Localiza was in the position to buy large numbers of cars in the past, it will be able to buy even more once combined with Unidas,” said Mr. Kalume who is Business Development Manager for automotive business intelligence company Jato Dynamics.

Considering the scale of their purchases, the new company will be able to negotiate vehicle purchases at lower prices. This will be an issue for auto manufacturers as they will be pressured to offer considerable discounts.

It’s a tough time for auto manufacturers, according to Fleet LatAm Chairman Pascal Serres (pictured left). “As demand is higher than supply owing to micro-chips shortages and the scarcity of stocks today, OEM discounts could actually be less in the immediate future,” says Mr. Serres. 

There will be some arm wrestling in the market. Besides the newly formed Localiza seeking to increase its capacity, generate economies of scale, and maintain competitive advantages in both Rent-a-Car and long-term fleet operations, it will incur 1-2 years of restructuring cost, adds Mr. Serres. 

How will this impact the offerings for fleet buyers?

Although the conditions set forth by CADE did reduce the market share of the new group to less than 50% from 72% previously, some analysts are forecasting an increase in prices for the Rent-a-Car market and possibly Corporate Fleet. 

"To maintain favorable pricing, healthy competition is needed,” says Paulo Miguel Jr. (pictured right) who is president of Brazil’s car rental association ABLA. For this to happen, we need to have a strong competitor in the third position - meaning a company following Movida - or possibly more. 

This will partially be in the hands of Cade as it will be approving which companies will be taking over some of the Localiza shed assets. 

We are following the merger closely as it will bring significant changes to the sector. However, as some of the details of the terms are confidential, we are not exactly sure how it will influence the market, added Mr. Miguel. 

“In terms of service, I don’t see much change for fleet managers as there are still various mobility alternatives. Of course, there will need to be a balance between costs and the quality of service but all-in-all, I do expect very hard competition coming to the market soon,” said Mr. Kalume.

As for vehicle footprint, fleet and rental companies in Brazil own a total of some one million vehicles. Localiza holds 28% of them, followed by Unidas (18%), and then Movida (12%), the only companies that top the 100,000-vehicle threshold,” the ABLA executive told Fleet LatAm.  

“The remaining 42% of the market is divided among 15 medium-sized companies and approximately 11,000 small local operating companies, he explained.

In the third quarter of 2021, Localiza revenue was approximately 2.7bn reais (US$475mn) and Unidas revenue was 854mn reais, according to Goldman Sachs. While Localiza has a fleet of approximately 300,000 and 5,000 employees, Unidas has some 170,000 vehicles and 2,300 employees.

With the shedding of assets, the newly formed Localiza group is expected to have a fleet of approximately 400,000 vehicles, being some 250,000 Rent-a-Car and 150,000 Corporate.  Movida has approximately 168,000 vehicles (80,000 Rent-a-Car and 88,000 Corporate).

Both Localiza and Unidas were contacted for further information, but they were unavailable for comment at the time. 

For more on the footprint of automobile leasing and fleet management companies worldwide (before this business transaction), download the latest Global Fleet e-book regarding the matter.   

Authored by: Daniel Bland