Analyses
9 aoû 17

Brazil has turned a corner

After four years of contracting GDP, the Brazilian economy has turned a corner. The giant of South America is moving back from recession into growth. And that is also good news for the country's automotive industry and its fleet market.

 

From a high in 2012 – when it surpassed the UK's as the world's sixth-largest, the Brazilian economy has slipped back into ninth place. 

 

Economic powerhouse

It bears reminding that despite its troubles, Brazil remains an economic powerhouse: it represents three-fifths of Latin America's entire industrial production, and is home to vibrant steel, chemical, automotive and aircraft industries – not to mention huge mining and agricultural sectors.

The second-largest economy in the Americas (after the U.S.) is forecast to grow to $2,140 trillion this year. Foreign investment is back, and commodity prices, the stock market and the value of the real are up – as are business and consumer confidence.

Some weak points persist: high unemployment, and a chaotic political system – which could delay the reforms needed to sanitise public finances, most notably the costly pensions system.

Shrunken but huge

Brazil's automotive market mirrors its overall economy: shrunken, but still huge. New car sales amounted to 3.6 million in 2012, when Brazil was the world's third-largest automotive market; and were down to just under 2 million last year, by which time Brazil had slid to ninth place. The fleet segment is relatively large, representing 34% of overall sales in 2016 – an indication of the relative maturity of the Brazilian fleet market.

Due to high import tariffs and the large internal market, all major manufacturers have plants in the country. Most of the best-selling models have been designed especially to conform to local consumer preferences, such as the top-selling Chevrolet Onix (pictured). Subcompacts make up almost the entire Model Top Ten. 

Last year, GM was the best-selling brand (17%), followed by Fiat (15%) and VW (12%). However, those three brands' joint share of the corporate segment has shrunk from 71% in 2014 to 53%. In the now more diversified corporate segment, Renault (12%), Ford (10%), Hyundai (7%) and Toyota (6%) are forces to be reckoned with. 

High taxes on petrol and diesel have spurred the popularity of ethanol, and of flex-fuel vehicles – Brazil is a world leader in both.

 

Market fragmentation

Brazil has a total corporate fleet of about 5 million vehicles, with up to 9% of those managed by third parties under some kind of fleet programme, be it operational leasing, long-term rental or fleet management services. 

Despite the fragmentation of the market, the top 10 leasing companies take up 60% of the market. Multinationals like LeasePlan, ALD and Arval compete against a few large locals like Total Fleet, Locamerica and Unidas. 

These large companies are leading the drive towards long-term leasing, while up to 1,700 small players feed off the Brazilian love for short-term rental solutions. 

In spite of this, the long-term, operational leasing option is steadily growing in popularity: as in other markets, Brazil is discovering the advantage of outsourcing their fleet business as fully as possible to third parties, allowing them to focus their capital and attention more fully on their core business.  

Authored by: Frank Jacobs