Localiza and Unidas merger should make car rental more expensive

The effects of the purchase of Unidas by Localiza, approved on Wednesday (15) by the Cade’s Court (Administrative Council for Economic Defense), should represent an increase in the price of leasing vehicles for the final consumer.

As the leaf, Unidas was the competitor that sought to present the most competitive price, both in vehicle leasing (RAC) and in fleet management and outsourcing (GTF, when companies rent vehicles for their activities), compared to main rivals –Localiza and Movida.

On average, the price charged by Unidas was R$80 per rental of a 1.0 car, with power steering and air conditioning, while the market in general used to charge almost twice the price, around R$150 a day. With this, Unidas promoted greater competition in the sector, especially forcing the large competitors Localiza and Movida to readjust their tables downwards.

Source accompanying the sector informed the leaf, under the condition of anonymity, that Localiza has now “swallowed” the main competitor in price. That’s because, for the merger to take place, Cade’s Court established the sale of the Unidas brand.

For those who take third place, Movida, the news is not necessarily bad at first: with the increase in the average price in the car rental market, Movida will recompose its margins, increasing sales.

By three votes in favor and two against, Cade’s Court also approved the merger under the following conditions: the company resulting from the operation must sell part of its vehicle fleet for lease and part of its used car fleet. What caught our attention was the fact that the Court kept this number of vehicles confidential, as well as the deadline that companies have to dispose of the fleet.

The new company formed by Localiza and Unidas must also commit not to carry out new acquisitions in the RAC market for three years, notifying Cade of any operation in the following two years; notify the court of GTF transactions for a period of five years; and not hiring key executives from the competition for a period of five years.

A report by the Goldman Sachs bank, signed by analysts Bruno Amorim and João Frizo, informs that the Court went beyond the remedies that had been suggested in September by Cade’s General Superintendence – although the divestment figures have not been released.

Analysts estimate that the fleet to be sold will be 71 thousand vehicles, which would represent a 15% reduction in the original size of the new company. “We note that Cade pointed out that cars and stores to be sold must be located mainly in cities where Movida (3rd largest player) is not present, and/or locations where the smallest competitor has a low presence”, says the report.

For analysts, the decision is favorable for Localiza, as the merger will create potential synergies. “We note, however, that the number of cars to be sold remains confidential (although it is higher than the value previously negotiated with Cade’s Superintendence) and the sale of the Unidas brand brings additional uncertainties to business prospects, especially in the segment RAC, where we believe the brand plays a more important role in customer engagement,” they say.

Now, Localiza needs to find a buyer for the assets to be sold, which must be approved by Cade, as a condition for the deal to be concluded. The deadline for this, however, was not disclosed.

In a statement released to the market, Localiza informed that it is already in negotiations with potential buyers for the sale of the assets.

In the opinion of Paulo Miguel Jr., president of Abla (Brazilian Association of Car Rental Companies), it is still difficult to talk about the effects of the merger, since it is not known for sure how many of the new company’s assets will be sold.

“At first, we looked at the decision with a little caution”, says the executive. “We hope that the remedies determined by Cade can give rise to a third large company, after Localiza and Movida, which can contribute to healthy competition in the market”.

The rental company’s fleet is estimated at 1 million vehicles in Brazil today. Of this total, around 28% are from Localiza, 18% from Unidas and 12% from Movida. In other words, Localiza and Unidas together account for 46% of the sector’s fleet.

They are the only three on the market that add up to more than 100,000 cars each. The remaining 42% are divided between 15 medium-sized companies, such as Ouro Verde, with fleets ranging from 15 thousand to 50 thousand vehicles, and around 11 thousand small ones, with local operations.

In October, a report from leaf revealed that 21.4 million nights were sold in the rental market for individuals last year. Of this total, Localiza accounted for 67.8%, Movida for 23.6% and Unidas for 4.1%, according to data from Lafis Consultoria.

In other words, Localiza and Unidas concentrate 72% of the rental market, which had revenues of R$ 7.8 billion last year. Also considering the outsourced fleet management (segment in which Unidas is stronger), revenue reached R$ 17.6 billion last year.

X-ray

Locate

Foundation – 1973, Belo Horizonte (MG)

Employees – 5 thousand

Fleet – 273.3 thousand

Net revenue* – R$2.7 billion

United

Foundation – 1985, Belo Horizonte (MG)

Employees – 2,300

Fleet – 180.8 thousand

Net revenue* – R$843.7 million

*third quarter of 2021; Source: Companies and Goldman Sachs