Two Brazilian Car Rental Companies Merge, Seek to Change Car Rental Market

RIO DE JANEIRO, BRAZIL – Two of the largest car rental companies in Brazil have announced a merger, through the incorporation of Unidas’s shares by Localiza.

The company resulting from the merger will have a market value of R$50.5 billion (US$10.1 billion) and a fleet of nearly 491,000 vehicles – 336,000 in the rental segment and 154,000 in corporate fleets.

The shares of both companies are among the highest in the stock market today. Despite the negative scenario on the stock market, Localiza’s shares skyrocketed 13.09 percent, after announcing a business combination with Unidas, whose shares grew 18 percent at 11:30 AM.

Together, companies will have greater innovation power. “Companies will have more capacity to leverage technological platforms to increase efficiency and have a greater positive impact on customer experience,” says Luis Fernando Porto, president of Unidas, in a press conference with investors regarding the transaction.

According to Eugenio Mattar, president and co-founder of Localiza, this innovation will give companies greater diversification in their business, which reduces risk – dependent on car rental and fleet management, companies have suffered with the pandemic, which led to the quarantine and closure of stores and rental agencies. “We want to lead the development of the mobility market,” says Mattar.

Last week, Localiza launched Meoo, a long-term rental aimed at those who want to use a car but do not want to deal with certain bureaucracies. Designed for individuals and small and medium-sized companies, Localiza offers a zero km car, which can be custom ordered.

Clients of Meoo have no expenses with inspections, maintenance, legalization of documents, insurance, and contingencies such as claims, theft, or seizure, so the savings can reach up to 30 percent compared to their own car.

The company also offers the Localiza Driver service, directed at App drivers such as Uber and 99. At the start of the pandemic, the rental company offered discounts so that these users could keep their cars. This sector is slowly returning to normal, both in terms of number of rentals and price. In July, approximately 50 percent of the slump in volume for App drivers rental had already recovered.

The consolidation risk

The merger is yet another consolidation process in this sector after Unidas and Locamérica merged in 2018. With this transaction, “companies will benefit from synergy and scale, providing an interesting competitive advantage in the post-pandemic,” says a report released by EXAME Research.

The main challenge of the deal is its approval by CADE (Administrative Council for Economic Defense), Brazil’s competition regulatory agency. “Together they account for 15 percent of the market for vehicles sold in the country and may have to face the automakers lobby, and will need approval from CADE,” says a report released by Mirae.

Car rental companies have suffered from the pandemic. Localiza reported a 53 percent drop in profits in the second quarter this year. Unidas saw the recurrent net profit virtually vanish, to R$1.7 million, a drop of 98 percent, with a 34 percent decline in EBITDA (earnings before inflation, taxes, depreciation, and amortization).

Localiza said it has already overcome the worst of the crisis caused by the novel coronavirus pandemic, with the reopening of its rental branches and semi-new vehicle dealerships. With the merger, it becomes stronger for the post-pandemic rebound.

Source: Exame