Mixed Signals from South America Fleet Market

Mixed Signals from South America Fleet Market

Registrations of light commercial vehicles in Brazil were up year-over-year in 2019, as were truck and passenger car sales. Overall, the country’s entire automotive industry in 2019 saw an 8.6% increase versus what was reported in 2018.

Year-over-year registrations of these segments in the South American country have reflected an increase since 2016 when vehicle registrations and production saw a notable drop by 20% and 11%, respectively, according to the Associacao Nacional dos Fabricantes de Veiculos Automotores (ANFAVEA). This was the result of one of the worst recessions in the country’s history in 2015 and 2016. 

The country’s automotive industry has seen positive improvements since then, with General Motors continuing to lead the way in the country as the No. 1 OEM for the passenger car market. The other top auto manufacturers in the country for the last two years, after GM, were Volkswagen followed by FCA.

Brazil is the sixth largest car market in the world and also the second largest Chevrolet market in the world, according to General Motors, which was driven heavily by the commercial performance of the Chevrolet Onix. The Chevrolet Onix was the best-selling passenger vehicle in Brazil in 2019 with 241,214 sales and was followed by the Ford Ka then the Hyundai HB20. General Motors was also one of the top three manufacturers of new light commercial vehicles, which also included FCA and Volkswagen.

While 2019 was a good year for the Brazil automotive industry, expectations are that 2020 will be another positive year for the country, according to Marcelo Tezoto, South America fleet sales development manager for GM. 

A positive year for both retail and direct sales have helped bolster the strong year, said Tezoto. Retail sales and direct sales represent the two main channels in Brazil’s auto industry, he said, with direct sales representing fleet, government, and rental companies.

“(It’s the) first year of the new government. We don’t have the final numbers yet, but market growth would be around 10% to 12%,” said Tezoto. He added that rental companies were a major contributor to this prospected growth.

Car rental companies own the “outsourced fleet” market in Brazil, as the country does not make a legal demarcation between daily rental and leasing as in the U.S. Overall, the outsourced market in Brazil stood at 52% in 2018, with leisure daily rentals for leisure accounting for 27% and corporate daily rentals making up 21%, according to the Brazilian car rental association (ABLA).

Jair Bolsonaro became the 38th president of Brazil at the start of 2019 and during his first-year tenure the Brazilian government saw improvements in GDP, growing by 0.6% from July to September, and its economy is expected to grow by at least 2% in 2020.

The Central Bank of Brazil was brought down to its lowest recorded percent, 4.25%, in February 2020, which is the fifth consecutive rate cut bringing borrowing costs to its lowest on record, amid global economic slowdown, the coronavirus outbreak, and a slow recovery in the domestic economy, according to Trade Economics.

A trend observed by Tezoto was that more companies were starting to transition their fleet management strategies to incorporate more fleet management/full-service leasing rather than outright purchases, which is also occurring in countries such as Colombia.

This has been the result of a gradual decline in Brazil’s SELIC rate, which is the country’s monetary policy interest rate. By being able to utilize FMC services, corporations have been able to focus more on their core business. 

“Other companies are going in the same direction to focus on their core business and giving their fleet duties to an FMC company,” said Tezoto. “BRF Company is one example that uses full-service leasing. They don’t have fleet and they rent from an FMC all their vehicles that go to sales reps. They pay the vehicle in a monthly basis.” 

BRF is Brazilian-based food processing company, with over 30 brands to its portfolio and has products sold in over 150 countries in all five continents. 

Another major move in the Brazilian fleet industry was Alphabet entering the South American market at the end of 2019 through a new partnership established with Brazilian fleet management company Unidas. Alphabet clients around the world have access to the portfolio of Alphabet products and services available in Brazil, including fuel cards, replacement vehicles, roadside assistance, and more.

As with registrations, the Brazilian automotive production market has also seen gradual year-over-year increases, overall, since major declines that were seen as part of the 2015-2016 recession. The overall industry saw a 2.3% increase in production in 2019.

Market protection in the form of tariffs and quotas on imports prompted companies to open or expand automotive production facilities within Brazil, according to Statista. This helped stimulate the local economy.

Further still, the Brazilian automotive industry had a production capacity of more than five million vehicles in 2018, which generated jobs for more than 130,000 Brazilians. Also, in 2018, Brazil produced about 2.4 million passenger cars, continuing a growing trend from 2016, when passenger car production reached its lowest level in more than a decade, mostly due to the aforementioned macroeconomic crisis.

General Motors has taken advantage of these strengths in vehicle production and has continued to invest in their production facilities. The automaker earlier in 2019 said it was investing more than $1 billion at its São José dos Campos plant in Brazil, which will be used to help the plant produce the upcoming Chevrolet S10 mid-size pickup. 

Chevrolet also announced at the end of 2019 that it would launch several products in 2020, with most of these launches focusing on SUVs, the most popular vehicle segment in Brazil, according to General Motors.

Sales of light- and heavy-commercial vehicles in Argentina declined by 77% in 2019, year over year, when compared to 2018, which fell amidst the country’s current recession.

Despite this, fleets in the country are looking for ways to adapt to new strategies and consider future mobility plans as the country seeks to exit its latest economic crisis.

Right now, Argentina’s currency, the peso, has lost two-thirds of its value since 2018; inflation is hovering around 30%; and since 2015 the economy has contracted by about 4% and its external debt has increased by 60%, according to a recent report by Congressional Research Service. Overall, the recession not only impacted overall vehicle sales in 2019, which resulted in a 10.9% drop, but also hit the country’s vehicle production (down by 32.5%) and exports (which fell by 16.7%), according to the Asociación de Fabricantes de Automotores (ADEFA). 

A contraction of the country’s internal markets, due to macroeconomics imbalances, resulted in a diminished demand from Brazil for its products, which is Argentina’s main export destination and impacted the decline in imports, said ADEFA President Gabriel Lopez.

Argentina saw a decrease in fleet sales in 2019 when compared to the previous year, down by 2,000 units.

In 2019, 2,000 fleet vehicles were sold in Argentina, according to information from Dataforce, a vehicle sales data company with locations in Germany and Italy. The No. 1 bestselling fleet vehicle in Argentina was the Toyota Corolla, which sold 470 assets, and was followed by the Ford Focus, which saw 233 assets sold, and then the Toyota Etios, which sold 231 units.

Meanwhile, the total market saw 333,000 units sold, which was down roughly 276,000 units from the previous year, according to Dataforce. Private sales decreased by 46.9%, which represent around a decline of 266,000 vehicles. The most popular car amongst private buyers has been the Ford Ka Plus with 15,887 sales, followed by the Chevrolet Onix (15,259 sold), and the Toyota Etios (15,259 sold). 

“While the drop in sales in commercial vehicles certainly affects the performance of the corporate market, fleet operations in Argentina continued to evolve and develop with a very good rhythm in 2019,” said Joaquin Lizarralde, head of operations of RDA Renting.

Lizarralde added companies are extending their vehicle use policies, going beyond the typical three-year utilization period, due to the economic situation, but this has caused longer-term concerns.

“Plenty of companies decided to generate extensions in their vehicle use policies and this meant more pressure over aftersales services and quite a significant increase on maintenance requests,” he added.

To rejuvenate the automotive industry in the country, Lopez of ADEFA encouraged the idea of moving forward with putting in place a recently proposed 10-year automotive strategic plan that would be launched by the government and automotive industry in 2020.

Lizarralde of RDA Renting added additional thoughts on this prospective decade-long plan.

“There was an announcement that stated that the industry would work on presenting a 10-year plan aimed to develop the automotive industry by combining efforts from all the actors involved in the productive chain and creating a long-term state policy,” said Lizarralde. “The framework of this 2020-2030 strategic plan is to declare the automotive industry as a strategic sector, gain international competitiveness, and increase production and employment by setting up long-term policies to incentivize investments. Changes in mobility will also be addressed by this plan.”

Despite the economic troubles resulting from Argentina’s recession, Lizarralde observed other major trends that are being seen in the industry include a growing interest in telematics solutions from fleets, which is driven by an increased desire for safety programs designed to diminish accidents as a result of bad driving habits and to improve driver productivity.

Other trends observed by Lizarralde included an increase in the supply of hybrid vehicles in the county.

“Vehicles with alternative powertrain propulsion systems are here to stay and this will mean a whole new approach to mobility in the times to come, both for the individual and corporate market,” said Lizarralde.

However, a lack of a robust charging infrastructure for EVs and the high price point for hybrids will mean development in areas of alt-fuel may be delayed for Argentina.

“For hybrid combustion the current challenge is the investment, as prices are still a bit high and there are no sufficient studies at the moment about how maintenance and residual value will impact in this kind vehicles,” said Lizarralde. “When electric vehicles arrive to the market in the next few years, infrastructure will be probably one of the biggest challenges to overcome.”

Colombia saw its economic conditions improve in 2019, thriving after a rough 2017, and the automotive industry also saw growth during this period and was particularly boosted on strengths seen in the commercial fleet segment.

“Economic growth has risen, fostered by strong domestic demand driven by improving credit markets and a positive response from companies to the tax incentives granted in a recent tax reform,” said Maurcio Serna Lozano, commercial director, ALD Automotive.

Due to this, Colombia had experienced a 2.7% growth in 2019, equating to a total of 263,000 vehicles, with 20% of the registrations corresponding to company vehicles. 

“Mainly the growth of the sector was driven by the working vehicles like pickups, light- and heavy -trucks, buses, and taxis while, the passenger vehicles sales (smaller automobiles and SUVs) actually decreased 1%,” Lozano said. He also added that 2.5% of the growth was from rental vehicles.

Growth for Colombia in 2020 is expected to be around 3.3%, being one of the highest growths in the region surpassed only by Panama, which is expected to grow 4.2% this year.

December of 2019 was the best month for vehicle registrations in Colombia, capping off a successful year overall. 

“2019 was indeed a good one for the automotive industry and showed a consolidation of the recovery of the sector after the lowest point in 2017 with 238,000, but still far from the record year of 328,000 registrations in year 2014,” said Lozano.

Several years ago, Colombia enacted an infrastructure project within a larger strategy called the 2015-2035 Intermodal Transport Master Plan. A facet of the infrastructure plan was designed in part to stimulate fleet sales to construction and engineering businesses in the country.

This infrastructure modernization plan aimed to improve road concessions, sea and river ports, and airport modernization.

“This definitely helped drive the growth of vehicle sales and has been seen in the growth of heavy and light truck segments, dump trucks, pickups,” said Lozano. “In 2019, the heavy-truck segment registered a variation of 65.9%, while pickup trucks grew 15.4% and commercial cargoes of less than 10.5 tons of gross vehicle weight grew by 10.7%.”

There were also greater dynamics of the Colombian economy that helped boost growth of the Colombian automotive market which also supported the country’s fleet industry. This includes renewal programs of truck and bus fleets, reactivation of the oil sector, lower interest rates and lower tariffs of free trade agreements, as well as the expansion of vehicle-free import tax from the Mercosur trade block.

“The heavy and light trucks enjoyed tax incentives granted in the recent tax reform, especially to the small transporter,” said Lozano.

Lozano also added that the penetration of fleet leasing is low but increasing, which is also a trending aspect seen in Brazil. There is a gradual change in mentality of moving away from owning assets, said Lozano.

An important aspect to fleet management is driver safety, and fortunately, vehicle safety in Colombia has been an area the government is addressing.

“By law, every company in Colombia with a fleet of 10 or more vehicles must have a Strategic Plan for Road Security, locally known as ‘Plan Estratégico de Seguridad Vial PESV,’” he said. “It is an excellent government initiative aimed at assuring road safety and security, one in which international corporate mobility solutions company ALD Automotive – by developing key action plans - can be a real partner in.” 

Leading the automotive markets in Colombia are Renault and Chevrolet, that latter of which has had a history of holding market leadership in the country.

“Renault and Chevrolet have been the benchmarks in Colombia in vehicle sales, four out of 10 vehicles sold in our country corresponds to these two brands,” said Lozano. “The two have assembly plants in the country, they have the largest dealer networks in the country, with aftermarket coverage even in remote areas and vehicle models in all segments, this also makes them the most desirable brands for fleets.”

He added the Chevrolet’s approach to the market leans heavily on its continued investment in producing more SUVs and trucks. Renault has also seen strong fleet sales of its entry-level Kwid crossover and its Renault Duster SUV, both 4x2 and 4x4 versions. 

The South American country has also been making strides in the realm of alt-fuel vehicles, specifically with regards to battery-electric vehicles.

“Colombia continues to make progress in this change, taking the leadership in the region in sales of electric vehicles,” said Lozano. “Colombia is the country in Latin America with more electric vehicles (only BEV) with exponential growths every year.”

He noted that certain cities of Colombia have ambitious plans to implement EVs in order to reduce pollution. For example, cities of Medellín and Bogotá have environmental restrictions for the use of internal combustion engine vehicles, though fleets are freely allowed to use electric vehicles as often as needed. 

However, these ambitious plans are still costly, and continued support by the OEMs will be a major component to continued investment of these areas, he added.

“Other measures such as a VAT of 5%, not having tariffs, under road tax, have helped reduce the difference in price between conventional vehicles, however they are still very expensive,” he said. “The low infrastructure in terms of public charging points limits the use of these vehicles.”

There has been a boom in micro-mobility solutions, including scooters, bicycles, mobility applications, though they lack clear rules with regards to usage. Meanwhile, the government has declared ridesharing services like Uber illegal.

As a result, Uber decided to close its operations in the country in February 2020. 

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