The Company’s business model consists of a cycle that begins with the acquisition of vehicles to be leased to its customers and ends with their subsequent sale at the end of the period that the Company deems appropriate, taking into account factors such as market conditions, mileage criteria, the condition of the vehicle at the time of disposal, and its claims history.
The rental rate and daily rental fee for each vehicle take into account its expected resale value at the end of the aforementioned cycle, with both the sales volume and sale price being key determinants in achieving the minimum expected return on each transaction. In addition, pricing levels in the vehicle rental market may, from time to time, also influence rental rates.
Credit constraints and increases in interest rates, for example, may directly or indirectly affect the secondary market for these vehicles and significantly reduce their liquidity. Market price volatility may also reduce the resale value of the vehicles, resulting in a greater discount relative to their acquisition price. If the Company fails to adequately estimate future actual depreciation, its business, financial condition, and operating results may be adversely affected. Furthermore, as the Company cannot guarantee market demand for the absorption of these vehicles, the estimated depreciation calculation of the vehicles, determined as the difference between the vehicle’s acquisition cost and its estimated market value on the sale date, may exceed the originally estimated amount, which, in turn, could adversely affect the Company’s business.
The Company’s competitiveness and ability to execute its growth strategy depend on its capacity to invest in, renew, and expand its fleet. To finance its fleet, the Company must raise funds to support such investments, whether through debt financing or equity capital increases.
There can be no assurance that the Company will be able to obtain sufficient financing to fund its investments and support its expansion strategy, or that such financing will be available on acceptable terms and at acceptable costs, whether due to adverse macroeconomic conditions, resulting, for example, in a significant increase in prevailing market interest rates, or due to the Company’s performance or other factors beyond its control, any of which could materially and adversely affect the Company. If the Company is unable to renew its vehicle fleet, its car rental business may become less competitive compared to those of its competitors.
If the Company’s ability to raise funds to finance its operations or expansion is impaired, it may have a negative impact on the renewal and expansion of its fleet and, consequently, on the Company’s competitiveness, which could adversely affect its business, results of operations, and, consequently, its financial condition.
Vehicles in the Rent-a-Car (“RAC”) segment are covered by third-party liability insurance with limited coverage for property, moral, and bodily damages during the period in which they are rented by customers. The Company may be held liable for compensating third parties if the damages incurred exceed the contracted insurance coverage.
Vehicles in the Fleet Management and Outsourcing (“GTF”) segment, in turn, may, in certain cases, not be covered by third-party liability insurance or may have only limited coverage for property, moral, and bodily damages during the period in which they are leased to customers, depending on the type of insurance coverage contracted by the customer, or if the customer opts not to obtain insurance coverage.
Accordingly, the Company is exposed to liabilities for which it may not be insured, arising from moral, bodily, or property damages related to the use of rented vehicles, whether such damages exceed the limits of the applicable insurance coverage or involve vehicles that are not insured.
In addition, the Company’s insurance policy arrangements may be adjusted from time to time to comply with applicable regulations issued by Brazilian authorities and to maintain the financial balance of its vehicle leasing operations. Should the Company be unable to recover these amounts from the users/customers who rented the vehicles, its operating results may be adversely affected.
Furthermore, the Company is exposed to uninsured events (such as war, acts of terrorism, fortuitous events and force majeure, business interruptions, and cyber risks) or losses that exceed the coverage limits established under its insurance policies. In addition, the assessment of risk exposure reflected in the provisions of the relevant insurance policies may prove to be inadequate or insufficient and could result in reimbursement amounts lower than expected.
The Company cannot guarantee that it will be able to maintain insurance policies at commercially reasonable rates or on acceptable terms, nor that such policies will continue to be provided by the same insurance companies or by insurers of a similar standing. Should any of these circumstances occur, the Company’s business, financial condition, and operating results could be adversely affected.
The Company relies on automated systems and information technology systems to conduct its operations, including a computerized reservation system, telecommunications systems, and its website. Online sales performance may be adversely affected by system interruptions or failures that render the website unavailable or prevent the processing of reservations. Significant failures of the reservation system or telecommunications systems may reduce the attractiveness of the Company’s services and may lead customers to switch to competitors. In addition, information technology is essential to maintaining the Company’s internal control system.
Additionally, the Company’s information systems are exposed to viruses, malicious software, and other issues that may unexpectedly disrupt operations, as well as failures in network security controls that may adversely affect performance. The Company’s servers are vulnerable to viruses, crashes, and system failures, which may result in interruptions, delays, data loss, or the inability to accept and fulfill customer reservations. Any disruption to the Company’s systems or the underlying infrastructure supporting them could have a material adverse effect on its business, including financial losses, increased costs, and general harm to the Company’s operations.
The Company collects, processes, and retains information relating to its customers, whether identified or identifiable, as well as its employees, in the ordinary course of its operations. Unauthorized disclosures or security breaches may expose the Company to legal proceedings and administrative sanctions, as well as adversely affect its reputation.
The Company’s business is exposed to the risk of non-compliance with policies, misconduct, negligence, or fraudulent acts committed by employees that may result in customers’ personal information becoming accessible to unauthorized third parties, which could lead to regulatory sanctions, reputational damage, and financial losses. In addition, the Company’s systems may be subject to breaches resulting in unauthorized access to, misappropriation of, or deletion or alteration of customer information or data, as well as denial-of-service attacks or other disruptions to business operations. The Company may not be able to prevent or detect misconduct by employees or third parties.
Given that the techniques used to gain unauthorized access and conduct cyberattacks are constantly evolving and may not be known until they are deployed against the Company or its third-party service providers, the Company may not be able to anticipate or implement adequate measures to protect against such attacks. If the Company is unable to prevent such security breaches, it could become subject to legal and financial obligations, including those provided for under Law No. 13,709/18 (the Brazilian General Data Protection Law, or “LGPD”), such as warnings, mandatory disclosure of incidents, deletion of personal data, and fines of up to 2% of the revenue of the company, corporate group, or conglomerate in Brazil in the preceding fiscal year, excluding taxes, limited to an aggregate amount of R$50,000,000.00 (fifty million reais) per violation. It should be noted that the LGPD entered into force in January 2021. Finally, should any such incident occur, the Company’s reputation could also be harmed, potentially resulting in significant revenue losses arising from lost sales and customer dissatisfaction.
Currently, the processing of personal data in Brazil is regulated by a number of legal provisions dispersed across different statutes, including, among others, the Federal Constitution, the Consumer Protection Code, the Civil Code, and the Brazilian Internet Civil Rights Framework (Marco Civil da Internet). The Company’s efforts to protect the personal data processed within its systems may not ensure that such protections are adequate or fully compliant with the requirements established under applicable laws and regulations.
The LGPD came into effect in January 2021 and transformed the personal data protection framework in Brazil. The LGPD establishes a new legal framework that must be observed in personal data processing activities. In addition, the LGPD sets forth, among other matters, the rights of data subjects, the legal bases applicable to the processing of personal data, requirements for obtaining consent, obligations and requirements relating to security incidents, data breaches, and the transfer of personal data, as well as providing for the establishment of the National Data Protection Authority (ANPD). As a result, the Company may face challenges in complying with the new legislation, given the number and complexity of the new obligations that must be fulfilled.
Any events in which customer information is compromised, becomes subject to unauthorized access, or is otherwise affected by security breaches may reduce demand for the Company’s services and products, resulting in a material adverse effect on its business and operating results, and may require additional investments to address and remediate such issues.