Photographer: Dado Galdieri/Bloomberg
Emulating Apple to Tap Into Brazilians' Rising Car-Sharing FeverBy , , and
Stock has jumped more than 1,700% since share offer in 2005
Localiza CEO expects growth to continue, keeps focus on Brazil
Car rental companies don’t exactly inspire notions of digital prowess.
Localiza Rent a Car SA, however, has made high tech a central focus of its business as tech-savvy Brazilians drop the dream of car ownership. The company is rolling out facial recognition, as in the iPhone X, to improve its customer experience -- read: get you into your car faster -- in a country where millennials are demanding better.
The push, combined with a clean image, which has become in short supply in a nation plagued by scandals like the all-encompassing Carwash corruption probe, has helped Localiza -- controlled by the same two families for some 44 years -- jump more than 1,700 percent since its 2005 initial public offering. The benchmark index rose 200 percent in that span.
"Despite the commoditization of the industry, Localiza has invested a lot in technology and differentiated itself," said Marcos Silberman, an equity analyst at XP Investimentos’s asset management unit. "Management’s also very competent, investing more in technology than others, and in marketing, and making it evident that renting a car is worthwhile."
Localiza, based in Belo Horizonte, puts about 4 percent of revenue back into technology annually. That money has gone into revamping its website and mobile app, as well as improving its yield management. That allows it to know when to charge higher prices when and where demand is greatest.
Chief Executive Officer Eugenio Mattar is optimistic that the investments will continue to push results. Rentals rose by 30 percent from the previous year so far in 2017, and used car sales for the company rose 38 percent in the third quarter as the Brazilian economy slowly emerges from its worst recession on record. The company’s app has been downloaded more than half a million times, and it has about a third of the market share in Brazil, ahead of smaller competitors.
"We should see strong growth as well next year," Mattar said in an interview at Bloomberg’s Sao Paulo office. "We are making a lot of changes to guarantee the loyalty of our clients and improve their experiences."
The stock fell 0.9 percent as of 3.34 p.m. local time Monday, trimming this year’s gains to 93 percent.
Still, the increase in ride-sharing also brings issues which Localiza is trying to solve, namely high default rates in cars leased to drivers for apps like Uber, who tend to have poor credit.
While it’s considered buying its smaller rivals, nothing makes sense with high valuations and too many locations in common, Mattar said. Going abroad is also not on the agenda. Localiza’s specialty is Brazil, and local, organic growth-potential is still great, he said. Economists surveyed by the Central Bank expect the economy to grow 0.9 percent this year and another 2.62 percent in 2018.
The company is readying for what could be a volatile 2018 ahead of presidential elections. While a market-friendly candidate has yet to emerge, some investors are concerned about former President Luiz Inacio Lula da Silva’s lead in the polls, followed by firebrand ex-army captain Jair Bolsonaro. Localiza is keeping a conservative cash position, Mattar said.
Despite the rally and one of the highest valuations among global peers, none of the 15 analysts surveyed by Bloomberg has a sell rating on the stock.
"It’s hard to prosper in this business," Mattar said, adding that the tech push makes them stand out among peers, allowing Localiza to tap into the demands of an impatient generation. "There’s a change in behavior starting with millennials. It’s slow, but it’s happening."