MEXICO CAR RENTAL MARKET ANALYSIS

Market Challenges And Opportunities

Mexico Car Rental Market – Drivers

Increased Standard of Living in Mexico     

A decade ago, Mexico’s economy was highly concentrated on a few industries such as oil & gas; however, the country has become a new manufacturing hub, which has improved its economy. Mexico has abundance of manufacturing units and is on track to becoming a major manufacturing hub and creating more employment, resulting in increased household disposable income. As a result, standard of living has increased significantly in the country and has in turn led to an increase in domestic tourism. According to the Federación Mexicana de la Industria Aeroespacial (FEMIA), an organization formed to boost Mexico's aerospace industry, the country's aerospace sector has grown from 100 manufacturing hubs in 2004 to 350 in 2019.

Increased Business Travels to Mexico

With the U.S. bordering it on the North and with Central and South America on the South, Mexico has several geographical advantages, due to which key car rental players are investing in Mexico for setting up their manufacturing units and expanding their businesses in the country. Mexico currently has more than 44 trade agreements and has received outstanding investment from OEMs in the last 10 years. It offers significant growth potential for industries such as automobile, aerospace, electronics, home appliances, steel and food. For instance, according to United Nations Conference on Trade and Development’s (UNCTAD) World Investment Report 2020, Mexico ranked 14th in the world in terms of foreign direct investment inflows in 2019. This has led to an increase in demand for business transportation in Mexico, leading to long-term agreements between corporates and car rental companies.

Mexico Car Rental Market – Restraints

Highly Sensitive To Economic Downturn

A business is affected by a number of economic factors, including the level of economic activity in the markets in which the company operates. For a car rental agency, decline in economic activity typically results in decline both in business and leisure travel and accordingly a decline in the volume of car rental transactions. The key reason behind this is whenever implementing cost-cutting strategies in corporates, travel budget is the first thing considered. For instance, in 2019 Mexico’s economy was fall 8.2% from previous year this has affected trades including export manufacturing base and supply chain in Mexico. Car rental agencies may reduce rental rates to meet competitive pressures, which could adversely affect their financial condition and results of operations

Fluctuation in Fuel Cost

A car rental company can be negatively affected by limitations on fuel supplies, the imposition of mandatory allocations, rationing of fuel supplies or significant increase in fuel price. For instance, gasoline price in Mexico was ~0.4 US$/liter, which is increased to ~1.08 US$/liter due to increasing demand in Mexico. Moreover government taxes lifted the gasoline and diesel prices, this is affecting Mexico car rental market. Also, gasoline card earnings may be reduced if fuel costs fall, including relevant taxes, because fuel card fees are normally dependent on the total amount of transactions.

Mexico Car Rental Market – Opportunities

Introduction of New Business Models

A series of new business models has presented fresh opportunities of growth to the car rental services industry. For example, the aggregator model enables rental companies to connect with actual car owner; this simplifies the renting procedure, along with significant benefits of cost and risk reduction.  For instance Hertz, a car rental company is focusing more on hotel/travel, self-drive and corporate lease (long-term) rentals. This enables ease of availability to customers from multiple locations. The aggregator model reduce capital investment and risk factors, compared to traditional business models followed by most car rental companies.

Electric and Hybrid Vehicles

Increasing stringent emission regulations to reduce pollution is prompting transport companies to include electric and hybrid vehicles in their fleets. Although demand for these vehicles is currently low, it is expected to increase significantly in the near future. For instance, in February 2022, Grupo Guepardo, a car renting company in Mexico, signed alliance with JAC, a China-based carmaker. Grupo Guepardo will deliver a fleet of City Cars for Budget, full-electric versions of its JAC E10X, as part of the agreement.

Mexico Car Rental Market- Impact of Coronavirus (Covid-19) Pandemic

A drop in Mexico air traffic has led to a decrease in demand for airport automobile rentals. Manufacturers operating in the car rental market are recovering from the losses caused due to disturbed services due to halt on transportation activities and travel restrictions. Major market competitors, such as MEX Rent a Car, Alamo, and others, have disposed of their older cars at a higher volume than typical during the epidemic in order to generate revenue from these transactions. Revenue generation through capital sales, indicates a downturn in revenue from operating activities thereby placing the company in a vulnerable position from not only a financial perspective but also a brand perspective.