Features
7 Oct 20

Localiza, Unidas seek to leverage Brazil market through strategic partnership

Brazil’s two largest car rental and leasing companies, Localiza and Unidas, are seeking to maximize operational efficiency by capitalizing on technological innovation, increasing diversification, and reducing risk, following the completion of their merger announced in late September.

The new group would be valued at more than 50 billion reais (US$9bn), being Localiza worth some 39.2bn reais and Unidas with 10.8bn reais.

With an expected fleet of some 490,000 vehicles (336,000 Rent-a-Car and 154,000 Corporate) and representing approximately 15% of the vehicle sales market in the country, it will certainly benefit from economies of scale.

"When it comes to Rent-a-Car and Full-Service Leasing, size does matter, and the merge of the two Brazilian leaders would give the new company a substational competitive advantage, both in terms of acquisition and operational costs" says Fleet LatAm Chairman Pascal Serres.

The next largest company of its kind in Brazil would be Movida with a fleet of approximately 110,000 cars. (73,000 Rent-a-Car and 37,000 Corporate).

Together, “the companies [Localiza and Unidas] will be more apt to leveraging technological platforms aimed at increasing efficiency and thus having a greater positive impact on the customer experience", Unidas president Luis Fernando Porto (pictured above - right) said at a press conference with business investors.

According to Localiza CEO and co-founder Eugenio Mattar (pictured above - left), this innovation will bring greater diversification and result in less risk. With this, “we want to lead the development of the mobility market,” he said.

"Localiza and Unidas have very specific business models which combine short term and full-service leasing in a very efficient way. With that said, they are well prepared to move toward the business of mobility and offering their customers all the flexibility required," adds Mr. Serres. 

Like many other companies, the two were hit quite hard in the second quarter amidst the COVID-19 pandemic. While Localiza net profits slid 53% year-over-year to 90 million reais, Unidas saw a 94% drop to 2.7 million reais. The worst looks to be over, however, as used car stores and rental agencies are reopening. 

As for the merger, challenges still remain. Besides awaiting approval from Brazil's antitrust agency Cade (which could take up to a year), plans to collaborate could be stifled by automaker lobbies. 

Once the merger goes through, Localiza shareholders will hold approximately 75% of the new company while Unidas shareholders will hold some 25%. The transaction is being managed by Bank of America and Banco Itaú, respectively.

Since the merger announcment two weeks ago (22 Sep), the price of Localiza shares at the closing of Tuesday (6 Oct) was up by 11% to 57.31 reais and Unidas  up 14% to 24.07 reais.

Localiza Initiatives

Considering that three out of four shares will pertain to Localiza, its recently established initiatives will hold considerable weight on the upcoming plans of the new group.

For one, the company has launched Meoo, a long-term rental option for those seeking to use a car but with less red tape in doing so, local paper Exame reported. Created for individuals as well as small and medium-sized companies, Localiza offers zero km cars customized to satisfy your needs. 

Unlike having your own car, you do not need to deal with the headaches of tune ups, maintenance, documentation, insurance, accident claims and theft. This option could save up to 30% compared to buying a car yourself, the report said.

Meanwhile, the company also offers its Localiza Driver service which is aimed at mobile-app-based ride hailing companies such as Uber and 99. Although the service has suffered since the beginning of the pandemic, much of its lost volume has been recovering since July.

Top photo (source: Linkedin)

 

Authored by: Daniel Bland