Brazil – a new sand pit for future business models?

I had the pleasure last week to be in Brazil to report back to FENABRAVE and their members on our work there.  Our detailed report will be released in due course, but the research itself and the discussions last week highlighted some opportunities that are worth reflecting on.

Brazil has faced some challenging economic times, but there now seems to be some real momentum to take the light vehicle market back up from the 2 million low in 2016 to the 3.5 million peak seen in 2012.  The larger dealer groups have worked hard on restructuring their businesses over the last three years, developing their used car and aftersales business, improving their F&I results, and embracing digital.  They have also continued to open new sites and acquire other businesses, whilst weaker dealers have failed.  The result now is that the leading Brazilian dealer groups resemble the leading UK groups more than any other that we are aware of, with the Top 25 investors having more than a quarter of the retail car market.

There are some other unusual characteristics of the Brazilian market.  Consumers are very open to sharing data, second only to China in surveys that we have seen.  There are some local digital innovators serving the auto retail sector, helping to improve used car performance and increase aftersales retention.  The processes and rules for direct sales channels were developed years ago and agreed between manufacturers and dealers, originally to serve specific markets such as small farmers and disabled people.  There are tensions now as some manufacturers have used those channels to serve the fast-growing rental market which meets the needs of the close to one million ride-hailing drivers in Brazil working for Uber and others.  On the other hand, the fact that Brazil is one of the leading ride-hailing markets globally (Uber’s second largest) can also be seen as an opportunity.  Lower inflation and interest rates by historical standards also opens the door to more innovation in F&I which could improve affordability and boost the retail market.

Given all these characteristics, should manufacturers be asking themselves whether Brazil might be a good sand pit in which to try new approaches towards a future business model?  Why is the rental market serving Uber and others being left to independent players when manufacturers and dealers could play a direct role and experiment with ways for the established players to make money through mobility, rather than lose it?  In an environment where customers are more open to sharing data than Europe, and the online sales platform foundations already exist, what does a truly connected retail and aftersales environment look like?

The dealers as a whole have proven themselves to be adaptable and resilient, and some manufacturers have also been innovative in customer relationship management, in physical formats and in the digital space.  A few conversations are in progress, but there could be a bigger opportunity for manufacturers to develop joint experiments and pilots in the Brazilian market rather than stick to more familiar, but also more resistant, markets closer to home.  I had the pleasure last week to be in Brazil to report back to FENABRAVE and their members on our work there.  Our detailed report will be released in due course, but the research itself and the discussions last week highlighted some opportunities that are worth reflecting on.

Brazil has faced some challenging economic times, but there now seems to be some real momentum to take the light vehicle market back up from the 2 million low in 2016 to the 3.5 million peak seen in 2012.  The larger dealer groups have worked hard on restructuring their businesses over the last three years, developing their used car and aftersales business, improving their F&I results, and embracing digital.  They have also continued to open new sites and acquire other businesses, whilst weaker dealers have failed.  The result now is that the leading Brazilian dealer groups resemble the leading UK groups more than any other that we are aware of, with the Top 25 investors having more than a quarter of the retail car market.

There are some other unusual characteristics of the Brazilian market.  Consumers are very open to sharing data, second only to China in surveys that we have seen.  There are some local digital innovators serving the auto retail sector, helping to improve used car performance and increase aftersales retention.  The processes and rules for direct sales channels were developed years ago and agreed between manufacturers and dealers, originally to serve specific markets such as small farmers and disabled people.  There are tensions now as some manufacturers have used those channels to serve the fast-growing rental market which meets the needs of the close to one million ride-hailing drivers in Brazil working for Uber and others.  On the other hand, the fact that Brazil is one of the leading ride-hailing markets globally (Uber’s second largest) can also be seen as an opportunity.  Lower inflation and interest rates by historical standards also opens the door to more innovation in F&I which could improve affordability and boost the retail market.

Given all these characteristics, should manufacturers be asking themselves whether Brazil might be a good sand pit in which to try new approaches towards a future business model?  Why is the rental market serving Uber and others being left to independent players when manufacturers and dealers could play a direct role and experiment with ways for the established players to make money through mobility, rather than lose it?  In an environment where customers are more open to sharing data than Europe, and the online sales platform foundations already exist, what does a truly connected retail and aftersales environment look like?

The dealers as a whole have proven themselves to be adaptable and resilient, and some manufacturers have also been innovative in customer relationship management, in physical formats and in the digital space.  A few conversations are in progress, but there could be a bigger opportunity for manufacturers to develop joint experiments and pilots in the Brazilian market rather than stick to more familiar, but also more resistant, markets closer to home.