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Top Trends, Challenges, & Opportunities in South American Fleet Market

January 16, 2018, by Mike Antich - Also by this author

There are 77 million registered vehicles in 13 countries in South America, of which 22 million are commercial vehicles. The South American fleet market has tremendous potential that will grow in tandem with the forecast of the region’s retail automotive market growing significantly by 2025, becoming one of the top three growth markets globally for light-vehicle sales. With South America on the cusp of dramatic changes, below are the top trends, challenges and opportunities that will influence the region’s commercial fleet market.

Emergence of Regional Fleet Managers: One emerging trend in South America is the creation of a regional fleet manager position that will mirror what occurred earlier in Europe with the creation of pan-European fleet managers. In South America, local fleet operations are quite independent, but some multinational corporations are reorganizing to optimize operations and leverage a corporation’s regional footprint. A corollary manifestation of this trend is the creation of regional procurement organizations.

Procurement Ascendency: Universally, cost containment is the No. 1 priority facing all fleet managers. One global megatrend is the shift in the type of decision makers influencing fleet policy and practice toward procurement. In the past, procurement would do its "sourcing task" and then step away from fleet. Now, procurement is staying involved with fleet after the contract process to ensure the company “gets what it bought” from its fleet OEMs and suppliers. Procurement’s involvement with fleet has grown deeper and its scope of responsibility has expanded.

Uncertainty about President Trump’s Economic Policies: There is unease about the Trump Administration’s “America First” economic policies. This, coupled with U.S. corporate tax reductions, currency exchange rates, interest rates, and inflationary pressures, could trigger an outflow of capital from South America and other emerging markets into the U.S. Similarly, there is uncertainty whether the Trump Administration will withdraw from the North American Free Trade Agreement (NAFTA) and whether an unintended economic domino effect will extend to other countries.

Impact of Currency Exchange Rate Fluctuations on New-Vehicle Prices: Some countries in South America, such as Chile, do not manufacture vehicles domestically, which means that 100% of the new vehicles sold are imported. In these countries, vehicle prices are heavily influenced by foreign exchange rates. For instance, when the Chilean peso weakens, not only do new-vehicle prices increase, but so too the cost of replacement parts.

Emergence of Chinese Brands and Impact on Residual Values: One major disruptive force in some South American countries is the flood of Chinese imported vehicles. Many Asian OEMs have increased market share by pursuing a low price strategy. For instance, in Peru, many Chinese brands are sold and offered at prices well below the market average, which is depressing the resale value of these vehicles. However, the increased volume of low-priced Chinese vehicles is exerting downward pressure on prices in the used-vehicle market as a whole.

Impact of Taxation, Legislative & Regulatory Issues: There has been an escalation in the taxation of fleet assets in the South American market, which is already heavily taxed. There are already a multitude of taxes, such as a value-added tax, vehicle excise duty tax, company car tax (benefit-in-kind), and other country-specific taxes. In South America, there are ever-changing, complex sets of regulations on vehicle taxation, presenting not only fiscal challenges, but also creating administrative issues.

Growth in B/C-SUVs and B/C-Pickups Market Segments: As is occurring throughout the world, Crossover utility vehicles, compact SUVs, and light-duty pickup trucks represent the fastest growing segments in the global automotive industry in every region of the world, impacting both retail and fleet sales. As OEMs introduce more new models in these segments for sale in South America, the growth in market share will accelerate.

Crisis in Road Safety: Fleet safety and accident management are a major concern in most Latin American countries. For instance, in Brazil alone, 50,000 people are killed annually in vehicle accidents. Also, the population of South America trends younger, increasing the percentage of young drivers in the road, which is the most accident-prone demographic. An increasingly more frequent request from multinational fleets to suppliers in South America is for a region-wide standardized safety program with customization to local regulations and practice.

Inconsistency in Insurance Programs: Insurance is a major challenge for fleet operators in South America. First, many non-fleet drivers in South America are not insured. Second, there is no consistency in the pricing of insurance products. In some countries it is difficult to get a fixed price for insurance, particularly in Mexico, where you can have either an annual insurance policy or a multi-annual insurance policy. A company can either fix the price throughout the term of the lease, which is more expensive, or you can choose annual, depending on your accident rate, which can fluctuate. There are also significant differences in the process to get reimbursed by the insurance company, varying by country.

Cost Control and the Minimization of Leakage: Cost control is a major challenge for most fleets in South America. One cost management issue, especially for large multinational fleets, is curbing what is known as “leakage,” which is overcharging by vendors for services that are higher than prevailing market rates. The reality is that some service providers try to take advantage of large corporations in Brazil, which is one argument favoring the use of a fleet management company familiar with local rates.

Productivity Impacted by Congested Metro Areas: This is a major challenge, especially in major metro areas, that impacts employee productivity. To ease congestion and curb vehicle emissions in poor air quality metro areas, some Latin American governments have implemented restrictions as to how often vehicles can be driven, which is disruptive for many fleets, especially for distribution fleets and their customers. As a way to side-step this driving restriction, some companies are increasing the size of their fleets to create a pool of available vehicles. This allows them to have 100% of their fleet circulating each day.

More Detailed Fleet Market Reports

The 2018 Global Fleet Conference to be held in Rome, Italy, on May 28-30, 2018, will feature breakout sessions dedicated to analyzing the fleet markets in Latin America and the Asia-Pacific region. Click here to find more information on the agenda for the 2018 Global Fleet Conference

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Mike Antich

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Mike Antich has covered fleet management and remarketing for more than 20 years and was inducted in the Fleet Hall of Fame in 2010.

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