Cars: government releases margin for rental companies to profit – 07/16/2023 – Marcos de Vasconcellos

After pouring R$ 500 million into the discount program for the purchase of popular cars, the government decided to inject another R$ 300 million into the move. The considerable 60% increase in the budget, given on the 30th, came with a small observation: no restriction on groups.

When the first round was released, the Provisional Measure signed by President Lula (PT) on June 5 prohibited sales at a discount for 15 days from being made to companies. Now, in the second round, an ordinance signed by Vice President Geraldo Alckmin (in the role of Minister of Development, Industry, Commerce and Services) puts an end to this.

Thus, the door opens for large vehicle buyers to attend the fair. The size of orders from rental companies such as Movida and Localiza already allows for a “differentiated” price, as the sellers say. With the new rule, they had a knife and cheese in hand to go shopping and increase their margins.

Like the government, time has been kind to these companies. From 2020 to 2022, Localiza’s “Revenue from the Sale of Goods and/or Services” —which is how much money the company made with its activities— jumped from R$10.3 billion to R$17.7 billion. In the case of Movida, the leap was from R$ 3.8 billion to R$ 10.1 billion.

As much as we still call them “car rental companies,” more than half of the money Movida made last year came from reselling used cars. In the case of Localiza, the share of the reseller sector reached 45% of the company’s total revenue.

On balance sheets and in advertising, these areas are called “pre-owned” —and here I think a semantic discussion of the term is worthwhile. “Seminonovo” is the automotive equivalent of “half pregnant”. There is not even an official definition. There are those who defend the label on cars with a maximum of three years of use and 50,000 km. On the resale sites of the rental companies, however, there are vehicles with more than 80,000 km on the odometer and manufactured in 2018.

At the same time that the government’s program to make new cars cheaper tends to reduce the prices of “pre-owned cars” (by making cars cheaper in general), the end of the restriction on companies allows them to take advantage of the “promotion” to replenish car stocks which they will resell later at market price.

For this, it is important to see who has money in their pockets. Localiza has just raised R$ 4.5 billion, with the issuance of new shares, precisely with the aim of “expanding the company’s vehicle fleet”. The capital increase was announced between the first and second rounds of the government program.

Vamos, which rents (and resells) trucks and machines, followed the wave and also issued new shares on the Stock Exchange to raise R$ 868 million. According to the announcement of the offer —also made in the same period in which the government announced the “sponsored discount” program for cargo transport vehicles—, the allocation of resources provides for the acquisition of new vehicles and machines.

From the beginning of the year until now, Localiza’s shares (RENT3) have risen 33%. BTG Pactual analysts, for example, believe that the stock’s target price —today trading around R$68— is R$80. For them, the company “should benefit from lower depreciation and a very younger”.

Movida saw its shares (MOVI3) rise 44% in the same period. For analysts at XP Investimentos, the shares, currently sold for close to R$10, have the potential to more than double in price and reach R$25.

The shares of Vamos (VAMO3) are, today, almost the same price they had when we reached 2023, before the government program to make vehicles cheaper. Like the other two companies, its shares are “buyed” by different houses.

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