Car Rental Companies in Brazil Lose Revenue, Lack Vehicles As Manufacturers Lag

RIO DE JANEIRO, BRAZIL – Faced with the restructuring of production chains, automakers are failing to cope with the market upturn, particularly in terms of direct sales, in which fleet owners are major customers. In this scenario, rental companies are being impacted by vehicle delivery delays. The companies are experiencing a drop in revenue and may lack cars to rent at the end of the year, the busiest period for the sector.

“This delay will affect car rental companies’ profitability this year. If all goes well, the market should only stabilize in the first quarter of 2021,″ says Paulo Miguel, ABLA’s president, in an interview with EXAME. “Until then, we expect a period of bottlenecks in the sector.”

According to the leader, delays are occurring mainly among the larger volume models and may reach 170 days. “Late orders at the automakers amount to at least 150,000 vehicles, but we should receive approximately 70,000 by the end of the year,” he estimates.

Models of several categories, particularly larger volume models, are now lacking in some markets in Brazil, due to the breakdown of the production chain in the country, mainly for smaller auto parts manufacturers.

“Automakers have been striving to meet the market within their capabilities, we know the moment they are experiencing,” said Miguel. However, this dynamic has fully impacted car rental companies. The association leader reports that the average delivery time for vehicles to the sector is between 20 and 30 days, but currently the minimum period automakers are asking for is 60 days.

In a recent interview, Luiz Carlos Moraes, president of ANFAVEA, the national automakers’ association, stated that the automotive industry is reviewing its portfolio to more assertively serve customers at a time when the market is still rebounding from the strong tumble in the pandemic.

“This more assertive reading of the product mix is critical, as companies in the sector will not work with as much stock,” said Moraes.

This was also the position adopted by rental companies at the start of quarantine. “During the pandemic, some rental companies sold their fleets to adapt their lots and expected to have cars available for purchase on resumption, which was not the case. This will ultimately hinder daily renting. Over the recent holidays, some companies ran out of vehicles to rent.”

Miguel says that rental companies are now losing revenue because of lack of cars to rent and this issue may escalate at the end of the year.

In 2019, car rental companies bought 540,000 vehicles from automakers, a 24 percent increase over the preceding year. According to Miguel, the companies in the sector have been expanding their operations, mainly with businesses such as leases for transport app drivers, which currently represent 20 percent of revenues.

Fleet outsourcing is also a niche with potential for rental companies. According to ABLA, in a conservative estimate, between 70 and 80 percent of Brazilian companies own their own fleet. Globally, this rate drops to 40 percent. “In tourism, with daily rental, we still have much to grow..

Contract renegotiation

The rental sector is undergoing a process of consolidation, with the three largest companies merging their businesses, in a context of hardship triggered by the pandemic.

ABLA’s president states that, at the start of the pandemic, all orders for vehicles to automakers were suspended. In June and July, car rental companies started buying again, but plants were still shut down. Moreover, retail was also warmer, higher than expected, which made it even more difficult for the industry to serve the market.

“We can’t discuss the fulfillment of delivery contracts because they were suspended in the pandemic. Now rental companies are renegotiating the delivery of fleets,” Miguel says.

In addition, another aspect causing loss of profitability for car rental companies is the reduction of discounts granted by automakers for large volume sales. “We are experiencing yet another reality, there is a reduction in discounts for us.”

In the direct sales business, automakers typically grant considerable discounts to rental companies for large volume sales. In times of crisis, the partnership between the two sectors tends to avert even higher losses for the automotive industry; however, in recent years, faced with successive economic crises, automakers executives began to complain about the “cannibalization” of the market, with excessive discounts by some companies that would be undermining the sector.

In a note, ANFAVEA states that the instability in the pace of production is the result of the shutdown of all plants during some time in the pandemic and that “this has led to a disorganization of stocks in lots and dealerships, and also in the flow of supply throughout the automotive chain, be it components or raw materials such as steel.”

The association adds that, as each automaker’s production planning is made well in advance, “it was necessary to wait for the market to pick up again in order to understand the levels of demand in order to adjust the orders for parts and raw materials and production to the most appropriate pace.”

ANFAVEA further states that “there have been many changes in the consumption profile due to the pandemic, which has required adjustments to the product mix and also to the versions of each model.”

For ABLA, car rental is growing, with Brazilians choosing to travel more by car. “Our concern is indeed with the end of the year. We advise clients to ensure vehicle reservations in advance, because they may not find models to rent,” says Miguel.

Source: Exame