Guide to Fleet Management 2013 Brazil, excerpt

Guide to fleet manaGement 2013

Brazil

Trends

Fleet

Taxation

NEXUS COMMUNICATION - GLOBAL FLEET - MAGAzINE - SEPTEMBER 2013 - PRICE: 390 BRL / 165 US $ / 125 EUR

Do’s & dont’s Green Business Finance Mobility

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FinanceFleet Mobility

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Renting Mobility Leasing

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Guide to Fleet Management in Brazil

Guide to fleet manaGement 2013

Brazil

Trends

Fleet

Taxation

NEXUS COMMUNICATION - GLOBAL FLEET - MAGAzINE - SEPTEMBER 2013 - PRICE: 390 BRL / 165 US $ / 125 EUR

Dear reader, It is with great pleasure that we present this Guide to Fleet Management in Brazil, the first ever publication of our GLOBAL FLEET division. This new publication is dedicated to Executive Fleet Managers in multinationals with fleet operations in Brazil, and aims to present some basic and essential information on Fleet Management in Brazil. In this guide, you will discover the main differences between the Brazilian and the European and US fleet markets, some relevant cultural differences, and especially the market specifics. It is a fact generally acknowledged that an increasing number of multinationals are looking for solutions to manage their fleets globally. But in order to make such a global approach to fleet management work, it is necessary to understand the dynamics of each local market.

The famous slogan does indeed apply here too: Think global, act local. Whether or not your company is already in a position to require global fleet management procedures, we think our summary of the fundamentals of the Brazilian market, and our basic recommendations to manage a vehicle fleet efficiently in South America’s economically most important country make for an interesting case study. By providing this comprehensive overview in both English and Portuguese, we aim to narrow the gap between local and global fleet managers. The complexities of Brazilian taxation, safety policy, fuel and maintenance management, as well as the peculiarities of the local culture and bureaucracy add to the already daunting difficulties of fleet management per se. It is therefore our solemn hope that this Guide to Fleet Management in Brazil by GLOBAL FLEET will successfully navigate you through the main aspects of fleet management in Brazil. Finally, let me recommend that you join our Executive Network on www.globalfleet.com, where we present your with a forum to share best practices - and other experiences. We believe that this is a great gateway to knowledge of, and success in, the Brazilian market.

Caroline thonnon Global fleet leader

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guide to fleet management

Do’s & dont’s Green Business Finance Mobility

Green Mobility Country profile

Mobility

Green Taxation

Finance

Safety

Company car Renting Business

Trends

Do’s & dont’s

Country profile Trends

Mobility

Automotive Legislation Leasing

Business

Company car

Renting

Renting

TrendsAutomotive Mobility

Green Fleet Taxation Mobility Taxation Safety Mobility

Business Fleet

Green Paulo

Green Mobility

Trends

Legislation Trends

Do’s & dont’s Mobility

Renting Mobility

Safety Renting

Trends Finance

Fleet Mobility

Finance

Business Renting

Leasing

Automotive

Fleet

Green

Best practices

Mobility

Automotive

Fleet

Safety Automotive Country profile

Mobility

Renting

Mobility Finance

Business Trends Business

Leasing Leasing

Mobility

Mobility

Fleet Do’s & dont’s

FinanceFleet Mobility

Safety

Leasing Mobility Green

Mobility Green Best practices

Fleet Leasing

Green

Company car

Renting Taxation Leasing Safety

Best practices

Mobility

Finance

Renting

Trends

Best practices

Company car Safety

Best practices Fleet Renting Leasing Country profile

Business Do’s & dont’s Mobility

Leasing Business

Do’s & dont’s Automotive Business Renting Mobility

Safety

With the support of

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Network and share expertise on www.globalfleet.com

Colophon

EDIToR

Caroline Thonnon – Global Fleet leader cthonnon@nexuscommunication.be

Thierry Degives, Managing partner at nexus Communication SA, parc artisanal 11-13, 4671 Barchon (Belgium) T : +32 4 387 87 94 – Fax : +32 4 387 90 63 www.nexuscommunication.be contact@nexuscommunication.be

Steven Schoefs – Chief Editor sschoefs@nexuscommunication.be Frederic Van Vlodorp – Managing Editor Fvanvlodorp@nexuscommunication.be Sigrid nauwelaerts – Sales & Marketing snauwelaerts@nexuscommunication.be Romina De Gregorio – Internal Sales & operations rdegregorio@nexuscommunication.be Vanessa Digneffe – Internal Sales Assistant vdigneffe@nexuscommunication.be pierre-Yves Simon – IT & Web Manager pysimon@nexuscommunication.be Contributors: Frank Jacobs, Tony Elliott, hugo Jorge, Arnold Sturm, pwC, Bart Vanham, JATo Brazil, Ecofrotas layout: Un pas plus loin – info@unpasplusloin.com With special thanks to pascal Vitantonio (AlD Automotive Brazil)

GloBAl FlEET BRAZIl is a special issue of www.globalfleet.com, the first networking and crossmedia platform for multinationals willing to optimize their fleet management through globalization.

Reproduction rights (texts, advertisements, pictures) reserved for all countries. Received documents will be not returned. By submitting them, the author implicitly authorizes their publication.

Circulation: 5,500 copies This first Brazil’s Guide is available (English or portuguese) on www.globalfleet.com/shop price: 390 BRl / 165 US $ / 125 EUR

ConTEnT

COUNTry LANDSCAPE

FLEET AND AUTOMOTIvE LANDSCAPE

BACKGRoUnD

Brazil has experienced an impressive, sustained spurt of growth. It is now the sixthlargest economy in the world, as well as the largest in South America. >> p.7

AUToMoTIVE & FlEET DATA

The automotive market is key to Brazil’s economy, at all levels: manufacturing, oil production, consumer behaviour… >> p.20-29

pRoFIlE

Brazil is the B in the famous BrIC acronym. Overview of the main features of this huge country and its emerging economy. >> p.8-9

FInAnCE & SUpplIERS

How to finance a corporate fleet - our guide discusses solutions and provides concrete examples from the business world. >> p.30-41

polITICAl STRUCTURE

Brazil’s federal model generates the political stability necessary to manage both economic growth itself and the social change that accompanies it. >> p.12-13

TAXATIon & lEGISlATIon

Knowledge of Brazil’s tax system and other regulations is essential to manage a corporate fleet. >> p.42-47

EConoMY

Brazil has a bright future, but there will be problems. An inventory of the country’s strengths and weaknesses. >> p.14-18

TREnDS & FoRECAST

A review of future challenges from the perspective of past European experience and present Brazilian reality. >> p.48-55

CASE STUDIES

Companies already operating in-country share their experiences, to help you better understand the Brazilian market. >> p.56-67

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guide to fleet management

AUToMoTIVE & FlEET DATA

automotive Brazilian market 5 year overview After the 2008 world crises, the Brazilian automotive car market changed and became heavily influenced by Government policies, using taxation, fuel pricing and interest rates to affect the consumer choice and the cars they buy.

Engine size

1.0-litre engines: used to be the leader in 2009, 2010 and 2011 taking a significant share of the market, with ethanol flexfuel capability representing more than 40% of volumes registration.

HB20 Hatchback and Chevrolet Onix, scoring 4th and 6th highest sales volumes for year to date 2013.

However, sales of 1.4 and 1.6-litre engines have increased over the last 12 months and have become more attractive to consumers, following the introduction of new designs and improved standard specifications.

They now represent a new trend within the Brazilian market with new models, such as Hyundai

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guide to fleet management

Rodolfo Salomon Sales Manager - JATO Dynamics, Brazil.

A preference for smaller cars in five door hatchback and five door sedan body styles was also highlighted in the market.

There has been a reduction of standard safety features but this will change with the Brazilian government announcing that all manufactures must include ABS and AIrBAGS by law and will become mandatory in all vehicles produced in 2014. â– rodolfo Salomon

Passenger cars table 1: Brazilian Car market by Segment Yr_09

Market share_09

SA Popular

396,437

14.97%

348,999

12.20%

406,330

14.00%

395,765

12.70%

124,890

8.60%

SA Small

1,363,176

51.47%

1,560,125

54.55%

1,453,740

50.09%

1,571,800

50.45%

809,376

55.76%

SA Lower Medium

426,316

16.10%

444,664

15.55%

500,583

17.25%

583,327

18.72%

251,515

17.33%

SA Upper Medium

171,078

6.46%

171,454

6.00%

143,380

4.94%

161,382

5.18%

79,385

5.47%

SA Mini Van

105,212

3.97%

107,977

3.78%

123,013

4.24%

118,237

3.79%

52,142

3.59%

SA Medium Wagon

22

-

7

-

3

-

6

-

2

-

SA Large Wagon

146

-

27

-

5

-

76

-

119

-

SA Luxury Wagon

36

-

7

-

1

-

1

-

10

-

2,868

0.11%

3,653

0.13%

10,979

0.38%

4,421

0.14%

456

0.03%

SA Luxury Car

12,702

0.48%

15,254

0.53%

19,576

0.67%

12,137

0.39%

5,488

0.38%

SA SUV

167,487

6.32%

203,498

7.12%

233,620

8.05%

258,911

8.31%

123,760

8.53%

SA Sports

2,113

0.08%

3,051

0.11%

9,788

0.34%

9,194

0.30%

4,097

0.28%

SA Pickup

2

-

1

-

7

-

7

-

138

-

SA Other

658

0.02%

1,013

0.04%

1,007

0.03%

600

0.02%

212

0.01%

SA Large Car

Total

2,648,253

Yr_10

Market share_10

2,859,730

Yr_11

Market share_11

2,902,032

Yr_12

Market share_12

3,115,864

Jun YtD_13

Market share_13

1,451,590 Source: JATO Dynamics

Table 1 shows sales in the South America Small segment have been dominant throughout, remaining strong for year to Date 2013. The volkswagen Gol is the current market leader for year to date 2013, followed by the Fiat Palio and volkswagen Fox. Also making significant progress is a new entry from Hyundai; the HB20 launched in October 2012 is currently 4th. table 2: Brazil Passenger cars market by engine Capacity Yr_09

Market share_09

Yr_10

up to 1.0

1,303,850

49.25%

1.1 - 1.5

396,756

14.99%

1.6 - 2.0

854,192

2.1 - 2.5

32,975

2.6 - 3.0 3.0 +

Litres

Market share_10

Yr_11

Market share_11

Yr_12

Market share_12

Jun YtD_13

1,344,253

47.03%

1,198,034

41.37%

480,619

16.81%

512,795

17.71%

32.26%

929,833

32.53%

1,063,131

1.25%

37,419

1.31%

49,259

28,807

1.09%

26,909

0.94%

30,908

1.17%

39,299

1.37%

Market share_13

1,188,238

38.15%

541,276

37.30%

560,567

18.00%

267,513

18.44%

36.71%

1,276,202

40.97%

609,860

42.03%

1.70%

39,251

1.26%

7,203

0.50%

27,561

0.95%

22,084

0.71%

11,077

0.76%

45,020

1.55%

28,545

0.92%

14,179

0.98%

Source: JATO Dynamics

In terms of engine size, vehicles up to 1.0-litre have been losing sales to vehicles with 1.1- to 1.5-litre and 1.6- to 2.0-litre size engines, due to the fall in interest rates during this period. In September 2008 the interest rate was 13.75%, today the interest rate is 8.5%, so Brazilians are strongly incentivised by credit and the cost of instalments and not the price of the vehicle. The low interest rate allows consumers to upgrade to larger models.

guide to fleet management

21

FInAnCE & SUpplIERS

overview of funding methods When a company needs new vehicles for its fleet there are several financing and management methods available. Each method has its advantages and drawbacks. In this article Global Fleet provides a comprehensive overview of the different acquisition methods related to corporate car fleets in Brazil.

The light vehicle funding in Brazil can be broken down into four main areas: • Outright Purchase • Full-Service Lease • Finance Lease • Vehicle Finance loan

Outright Purchase Outright Purchase is where the fleet owner decides to use its own internal cash, or Bank loan arrangements, to purchase its requirements for the fleet of light vehicles. This means that the fleet owner will underwrite the Operating risks involved with the purchase and use of these vehicles.

If the customer does not wish to become involved with the management of the light vehicle fleet on a daily basis, there are a few very capable suppliers in the Brazilian market that offer comprehensive fleet management services to light vehicle fleet owners.

Pros & Cons + If the fleet owner’s Treasury has undertaken a Discounted Cash Flow (DCF) evaluation, and if this evaluation shows that Outright Purchase is the best fleet acquisition policy, then the

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guide to fleet management

fleet owner enjoys the fact that it will not be paying for the lease companies’, or finance house’s profit margin or management fees.

- The offset to this positive is the negative that there will be an element of Full Time Employee (FTE) cost in looking after the in-house fleet. Calculations will need to be undertaken to establish that those costs are in fact less than outsourcing the fleet’s management. note: The internal and external finance factors are likely to change constantly, so it would be a good idea to recalculate the Discounted Cash Flow on an annual basis. + Outright Purchase does allow the fleet owner the flexibility to terminate its light vehicles without being charged an early termination fee by the lease provider. Therefore, the customer retains flexibility to terminate vehicles earlier or extend the use beyond the original intentions.

- Against this flexibility is the truth that the fleet user will probably have to Balance the Accounts to reflect the WrittenDown value of the terminating unit versus the, usually lower, Market value; in itself an internal Early Termination cost.

TAXATIon & lEGISlATIon

Automotive production of new vehicles in Brazil is predicted to rise to 5,0 million by 2017.

facts & figures : Company car taxation in Brazil As in almost all countries, taxes on cars are an important source of revenue for the government. Taxes impacting cars are numerous in Brazil.

Import In order to stimulate production in the region, importing cars is quite expensive. Definitive imports of goods into Brazil are generally subject to five different taxes: customs duty, one federal excise tax (IPI), two social contributions over imports (PIS-Import and COFINS-Import) and one state vAT (ICMS).

In general, imported cars are subject to the maximum consolidated rate of 35%. On a regional level, Brazil signed preferential trade agreements with certain Latin American countries, the most relevant ones with Mexico, Uruguay, and Argentina, potentially allowing for duty free imports.

• The federal excise tax levied on manufactured products (IPI) is a federal value- added “like” tax levied on nearly all the sales of industrialized products and on imports, including vehicles (see separate article on IPI in Brazil).

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guide to fleet management

• The “Employees Profit Participation Program over Imports” (PIS-Import) and the “Tax for Social Security Financing over Imports” (COFINS-Import) are taxes also known as social contributions and usually burden imports at the respective rates of 1.65% and 7.6%. These taxes may also be creditable, provided that certain requirements are met (e.g., depending on the method used to calculate corporate income tax adopted by the importer, the destination of the goods, the sector of industry etc).

• The state vAT (ICMS) is a state tax levied on importation and circulation of merchandise. ICMS rates vary in accordance with the good’s tariff classification, as well as the importer’s fiscal domicile. ICMS rates over imports usually range from 17% to 19% (some exceptions apply). Being a vAT, ICMS is usually a recoverable tax and can be offset against the ICMS levied on subsequent taxable transactions or the acquisition of fixed assets (since these fixed assets are used in activities resulting in transactions subject to ICMS).

Due to the import duties and mainly the IPI, Brazil can adapt the cost of import of industrialized products in such as sense that it impacts the market and local production. The IPI has specially an important role in the automotive industry as market regulator (see separate article on IPI).

TREnDS & FoRECASTS

Green Fleet Management is currently in its infancy in Brazil, but it will become a major social issue and additional cost for fleet users, as has happened in Europe, the US and the Far East.

Will Brazil learn from europe’s mistakes?

Brazil’s economic advances over the past 10 years have been breathtaking. And it remains an exciting country, thanks to its dynamic, fast-growing economy. But will Brazil learn from Europe’s mistakes?

Brazil experienced strong year-on-year, year-to-Date growth in 2013, reaching the significant figure of 1.35 million new light vehicle registrations. To demonstrate just how impressive Brazilian growth in this field is, just compare to the abysmal result for the European Union: minus 500,000.

On top of that, evidence strongly suggests that Brazil’s light vehicle fleet market will reach ‘European’ levels of maturity at a much faster pace than the four decades it took in Europe itself. But that also implies that some of the problems experienced in Europe’s light vehicle fleet market over those 40 years could be replayed in Brazil - if also more quickly. For Brazil has the benefit of hindsight: a historical analysis of what went wrong in Europe should allow Brazilians to avoid the same mistakes… or at least minimise their negative impact.

Company cars are a great way to attract and retain high-quality employees; Car Eligibility will therefore continue to increase in Brazil.

CASE STUDY

As a diversified technology company, 3M is present in over 70 countries worldwide.

3M Brazil Global guidelines with local flavor As a global principle, 3M prefers leasing to purchasing fleet vehicles, and tries to leverage its spend by reducing the number of OEMs and competitively bidding leasing companies. The major fleet concerns are the same worldwide: driver safety and environmental impact. We asked Emilio Priolli, Supervisor Administrative Services and Fleet Manager, how a global player like 3M deals with the demands, peculiarities and obstacles of the Brazilian fleet market?

Who manages your Brazilian fleet? e. Priolli: “Our Brazilian fleet team is directed by the Administrative Services Department, which reports to our local Hr Department. But the management is done in partnership with the Procurement team.”

Can you tell us the main thrust of your car policy in Brazil, then? e. Priolli: “Sure. There are two different policies, one for our operational Fleet, other for our Benefit Fleet. For our operational fleet, we define the brands and models on offer on a yearly basis. And every renewal in the fleet is made with a 24-month operational lease agreement. A limited

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guide to fleet management

number of staff is entitled to a company car: certain salesrelated positions, because they use the car as a work tool.

But there are other positions that can come with a car, if so approved. And finally, individual departments can request the use of pool cars, but this is only approved if they generate savings, for example by cutting our rental car bill.”

So, are there any global features to 3m’s fleet management? e. Priolli: “yes there are. We have a worldwide definition for the entry-level benefit car, and the TCO for every new brand or model is submitted to the global fleet manager for approval. As a global principle, 3M prefers leasing to pur-

CASE STUDY

Agilent’s car policy is based on a Global Policy Framework, but Flavia Alves understands the necessity to listen to local needs: “We try to include our employees’ opinions whenever possible.

We have a management committee to which I present the new car lists on an annual basis.”

Agilent “learning and improving everyday” Agilent is a Life Sciences, Chemical Analysis, Diagnostics and Genomics, and Electronic Measurement company. The company is also involved in the drug testing process for the upcoming Football World Cup in Brazil in 2014, and the Summer Olympic Games in Rio de Janeiro in 2016.

“

It’s not really the medical field in which Agilent Brazil is operating”, says Flavia Alves, Trade & Logistics Supervisor at Agilent Brazil who is responsible for firm’s fleet management programme. “It’s diagnostics and measurements. We do not manufacture any product here in Brazil. The firm’s factories are in the United States and Asia, and we retail these products from sales offices located across the world including here in Brazil.”

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guide to fleet management

How important is the Brazilian market to the company? f. alves: (Laughing) “Quite important I hope. Brazil is an emerging market and that means, like the other BrIC nations, we present economic opportunities and growth potential for Agilent. In the past two years we have doubled in size and increased our workforce from around 70 employees to 170 today.