"A classic make-or-buy decision"

October 8, 2021

In order to strengthen their position in the fleet business in Brazil, Volkswagen Financial Services have set up a joint venture with the local provider LM. In an interview with Corporate Communications, Jörg Pape, CEO of Volkswagen Financial Services in Brazil as well as Regional Manager for South America, explains the strategic goals in the fleet segment and provides a fascinating inside view of the Brazilian market at the same time.

Mr. Pape, before we come to the joint venture with LM, what are the tendencies evident in the Brazilian vehicle and mobility market in general?

Pape: Firstly, the market is shifting from private to commercial customers. While private customers accounted for around 75 percent of new registrations up until a few years ago and commercial customers only 25 percent, the proportion is now around 50 percent on both sides. Secondly, customers are increasingly buying their cars online, and there is more of a focus on the actual use of the vehicle – similar to the situation in Germany. The challenge for us is that we have some catching up to do in the fleet business domain – in what is a growing market segment.

And you want to benefit from this increasing significance of the fleet market through the joint venture with LM?

Pape: Absolutely. That's why we founded the company Fleetzil in Brazil back in 2017 with a focus on long-term vehicle rental. The leasing business is of little relevance in Brazil. Its place is taken here by long-term rental with the same idea in mind, namely to use the car instead of owning it. It's also true, however, that the majority of companies are still financing – but with a growing trend towards renting.

So how did the idea of the joint venture with LM come about?

Pape: We were faced with one of those classic make-or-buy decisions: either to expand our own company, Fleetzil, or to work closely with an external partner. At present, the long-term rental market in Brazil is dominated by three large listed companies from Brazil, multinational non-captives, very small micro-providers, and LM. LM stands for the initials of the company's founder and owner Luiz Mendonça. In the course of our initial discussions, we quickly realized that the two companies complement each other very well and are also an excellent match in terms of their corporate culture.

To what extent will the companies be integrated?

Pape: One thing's certain: we don't want to build up a second Braunschweig and we definitely intend to preserve LM's character as a medium-sized company. After all, that's a major asset. Brand neutrality is also something we want to maintain at all cost. Because that's what our customers expect of us. At the same time, however, we will integrate our Fleetzil into LM in order to avoid cannibalization effects and to optimize the processes. We firmly believe that we'll be learning a great deal from LM during the first few years.


Where do you see the greatest synergy effects?

Pape: LM undoubtedly benefits from our good funding options. The company could have grown much more with better access to the capital market. Another advantage lies in our good contacts to the brands in the Volkswagen Group. We, on the other hand, profit from LM's multi-brand capability, its strong 40-year brand presence, and its better processes and systems. LM is also active in the truck rental field and it has been piloting a car subscription model for several months. We see great potential there.


Why's that?

Pape: We're observing that more and more private customers are also looking into the merits of subscription models. The proportion is still around five percent at the moment. But there are clear indications that their number could increase to ten percent or more in the medium term. On top of that, I also see opportunities to offer car subscriptions in the used-car segment. That would be a logical step, considering that we will have to remarket around 40,000 cars a year from contract returns in the medium to long term. In Brazil too, our goal will be to stay involved with the customer and the car for much longer.

Let's turn our attention away from business again and back towards daily life in Brazil. What impressions have you picked up so far about the culture and way of life?

Pape: As I had already worked for a number of years in Mexico, the culture shock wasn't that big. São Paulo has, however, grown in height, so my living in an apartment on the 16th floor of a 25-storey building is not the exception, but the rule. It's also interesting that the city banned visible advertising in public spaces a few years ago, so everything looks quite socialist and gray. Otherwise, the city has a very international flavor, with Japanese and Italian influences among others. Getting around by car is surprisingly stress-free as there are stiff penalties for traffic violations.


What about crime?

Pape: Both Mexico and Brazil are, of course, objectively dangerous countries. Having said that, it doesn't actually feel that way here in São Paulo. One can walk through the streets in many areas of this city without any problems – even after dark, which sets in early due to the proximity to the equator. But one should still avoid carrying expensive watches or obvious valuables, and there are certain rules of conduct it is advisable to observe when parking and getting in or out of the car. In my opinion, the risk is manageable.


And how are your colleagues?

Pape: We have a great team in Brazil, one that enjoys working passionately and professionally on the issues of today and tomorrow. By the way, Brazilians on the whole are much more easygoing and less formal, which is also reflected in what they wear. For example, before the pandemic flared up, we introduced a "Bermuda Day" at work. That went down very well.

Mr. Pape, thank you for sharing your interesting insights with us!

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