Automakers in Latam focus on in-house services to boost profits
Tough times call for tough decisions, some of which result in major shifts in the way business is done, and this is certainly true for automakers in Latin America as they seek ways to face the challenging year of 2020 brought on by the pandemic fallout.
With this year’s vehicle sales expected to drop 30% year-over-year or even more in the region, companies need to streamline operations and cut down on less lucrative strategies such as direct sales offerings to car rental and leasing agencies at considerable discounts.
In a recent comment by Ford South America president Lyle Watters, he mentioned that the company will be more selective in terms of offering these discounts. This will certainly result in less market share but improving the bottom line is what it’s all about.
“We are avoiding some of our low margin fleet sales and have had to say no to some large rental companies,” the executive said in an interview with local automobile news portal AutoData, explaining that Ford will not be pulling out of the car rental segment in its entirety.
Although there are only a few OEMs eyeing the option to provide in-house short-term car rentals, many already provide long-term rentals, also known as corporate fleet leasing.
Among those in Latin America are Volkswagen Financial Services (Mexico), Renault Financial Services (Brazil), FCA Rental (Brazil), and Toyota Kinto (Argentina, Brazil, Uruguay). The largest fleet holders are Volkswagen Financial Services with 55,000 vehicles and Renault Financial Services with approximately 32,000 vehicles.
For car rental and leasing companies in Latin America, terms can be quite attractive. “They could be offered discounts of up to 30% and payment grace periods of up to 120 days, and possibly better terms for large volume orders (15,000 + vehicles),” vehicle corporate sales specialists Claudio Ferreira told Global Fleet.
Claudio Ferreira (source: handout)
For Mr. Ferreira, who specializes in the large-scale direct sales market, OEM’s cannot overlook the importance of maintaining a good relationship with car rental agencies, some of which can represent fleets of 100,000 vehicles or more. Remember, if retail doesn’t perform up to par, who else will empty your stock?
Meanwhile, one major change in the market which could put a twist on plans for many companies in South America is the merger plan announced by the region’s two largest car rental and leasing companies, Localiza and Unidas in Brazil.
With a total fleet of nearly 500,000 (if approved by Brazil’s antitrust agency Cade), the partnership will gain leverage, thus impacting the relationship it will have with automakers and the strategies of competing rental agencies. It could take up to a year to be approved so there is some time to prepare.