Ride-hailing apps breath new life into car rental sector

. May 16, 2019
Initially seen by car rental companies as a threat, ride-hailing apps now represent their best opportunity for growth.

Brazil’s latest unemployment figures are quite disappointing, as one-quarter of the workforce is either unemployed or underemployed. Only one sector actually managed to create jobs: transportation, thanks to ride-hailing apps such as Uber and 99. When these apps started to become popular, back in 2014, they were seen by car rental companies as a threat to their business model. Executives feared that people would no longer rent vehicles if they could call one on their phones.

However, ride-hailing apps now represent a major opportunity for growth in the rental sector—with Brazil’s biggest players dedicating specific areas only to serve autonomous app drivers.

</span></p> <p><span style="font-weight: 400;">One of the main upsides for hire-a-car agencies is longer-term rentals, which reduces the time vehicles remain idle. Besides, ride-hailing companies became a sort of &#8220;middle man&#8221; for potential clients. Uber&#8217;s website, for instance, features five partner agencies which offer special discounts to the app&#8217;s drivers—according to the tech giant, some may reach 50 percent, depending on the model and the duration of the rental.</span></p> <p><span style="font-weight: 400;">&#8220;There is immense growth potential for car rental companies within the transportation app sector. At the moment, 20 percent of the fleet in the rental segment is directed to app drivers,&#8221; reads a recent report by investment bank XP. Indeed, there is plenty of room to grow. Brazil has an estimated 500,000 app drivers—but &#8220;only&#8221; 100,000 of them use rental cars and half of them go to the market leaders.</span></p> <p><span style="font-weight: 400;">If </span><a href=""><span style="font-weight: 400;">Uber took a beating</span></a><span style="font-weight: 400;"> in China from local player </span><a href=""><span style="font-weight: 400;">Didi</span></a><span style="font-weight: 400;">, in Brazil the app has been quite successful. In five years, Brazil has become the company&#8217;s second-largest market in terms of rides—trailing only behind the U.S.—and São Paulo is Uber’s number one city globally, with Rio de Janeiro within the top 5.</span></p> <hr /> <p><img loading="lazy" class="alignnone size-full wp-image-17499" src="" alt="ride-hailing apps brazil" width="1200" height="420" srcset=" 1200w, 300w, 768w, 1024w, 610w" sizes="(max-width: 1200px) 100vw, 1200px" /></p> <hr /> <div id="attachment_17498" style="width: 710px" class="wp-caption alignnone"><img aria-describedby="caption-attachment-17498" loading="lazy" class="size-full wp-image-17498" src="" alt="uber sao paulo rides" width="700" height="641" srcset=" 700w, 300w, 610w" sizes="(max-width: 700px) 100vw, 700px" /><p id="caption-attachment-17498" class="wp-caption-text">Source: Uber</p></div> <hr /> <h2>Ride-hailing apps are not competitors</h2> <p><span style="font-weight: 400;">Since being laid off in November 2018, Denis Antonio, 33, has rented a Chevy Cobalt to work as a driver for Uber, 99, and Cabify. He believes renting a car is the best solution for him—costing roughly BRL 50 per day. His daily goal is to earn at least BRL 250 in rides, for which he works from 5 am to approximately 7 pm—with brief pauses for rest.</span></p> <p><span style="font-weight: 400;">Other drivers share a rented vehicle—which has led some agencies controlling how many kilometers they allow clients to rack up before charging them extra. Localiza, Latin America&#8217;s largest player, has </span><a href=""><span style="font-weight: 400;">special offers</span></a><span style="font-weight: 400;"> for drivers who ride up to 7,000 kilometers in a month, and even has weekly plans for those who don&#8217;t work during weekends. </span></p> <p><span style="font-weight: 400;">That potential has translated into a steady evolution of these rental companies&#8217; market value. Since January 2018, share prices of Brazil&#8217;s top three car rental firms rose between 60 and 115 percent.</span></p> <hr /> <p><img loading="lazy" class="alignnone size-full wp-image-17500" src="" alt="stock market brazil car rental companies" width="1200" height="492" srcset=" 1200w, 300w, 768w, 1024w, 610w" sizes="(max-width: 1200px) 100vw, 1200px" /></p> <hr /> <p><span style="font-weight: 400;">Other factors have helped push the car rental business, such as lower fares to attract more customers—in ten years, prices dropped 15 percent— and corporate clients who want to reduce their costs by renting a fleet instead of owning one.</span></p> <p><span style="font-weight: 400;">There are, however, some risks involved. Forced to increase their fleet, agencies face higher costs with vehicle maintenance, legal proceedings with traffic tickets, and improving their credit screening processes. Moreover, companies need to quickly start preparing for the future, when the demand for electric and autonomous cars will increase.</span></p> <h2>A new (disruptive?) player arrives</h2> <p><span style="font-weight: 400;">Founded by two former executives at 99, Brazilian startup Kovi has recently signed a seed round of financing to tackle the ride-hailing business: it wants to become the leading provider of cars for app drivers—and manage the fleet. Brazilian venture capital fund Monashees is leading a USD 10.5 million investment—one of the largest ever for a Brazilian startup.</span></p> <p><span style="font-weight: 400;">The round featured other major investors, such ONEVC—one of the first to invest in food app Rappi—and Kevin Efrusy, partner at Accel, a fund which has invested in successful Brazilian startups such as Quinto Andar (real estate) and Gympass (fitness).</span></p> <p><span style="font-weight: 400;">While market giants such as Localiza, Unidas, and Movida buy their fleet in scale—benefiting from discounts of up to 40 percent—, Kovi is betting on an &#8220;asset-light&#8221; model. It will sublet vehicles directly from automakers, as well as small car rental companies and leasing firms. One of their suppliers is FleetSolution, a Volkswagen company.</span></p> <p><span style="font-weight: 400;">Kovi believes that devoting its entire business plan to ride-hailing apps will be its key to success. &#8220;Traditional players are still used to short rentals—not drivers riding seven days a week. Management and depreciation of assets are totally different in this model, and we are focused on that,&#8221; CEO Adhemar Milani Neto </span><a href=""><span style="font-weight: 400;">told</span></a> <i><span style="font-weight: 400;">Brazil Journal</span></i><span style="font-weight: 400;">.</span></p> <p><span style="font-weight: 400;">The startup certainly has bold plans—aiming at providing the vehicles to all &#8220;geek workers&#8221;—from motorcycles to food apps to trucks for Cargo X—the &#8220;Uber of freights.&#8221; An expansion to Mexico City is in the company&#8217;s short-term plans.

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Gustavo Ribeiro

An award-winning journalist, Gustavo has extensive experience covering Brazilian politics and international affairs. He has been featured across Brazilian and French media outlets and founded The Brazilian Report in 2017. He holds a master’s degree in Political Science and Latin American studies from Panthéon-Sorbonne University in Paris.

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