1.4 million cars joined the roads in Latin America in the first quarter of 2018. In a region that struggles with automobile safety, the increase of motor vehicles on the road raises challenges for policymakers, auto manufacturers, and citizens. Over 115,000 people die every year from car accidents in Latin America. In 2000, 26.2 people per 100,000 died in car accidents and that number is expected to rise to 31 car-related deaths for every 100,000 people by 2020. In the US, the rate of accident deaths hovers around 11.4 per 100,000 people.
Managing Latin America’s growing automobile fleet is one of the most significant challenges that startups and governments will need to tackle as cities swell. Latin America is home to many auto producers, so manufacturers will also need to pay attention to new technology to stay competitive.
Opportunities in autotech in Latin America
Worldwide, startups and giant tech companies are tackling the conventional auto industry with solutions that include self-driving vehicles, electric cars, pay-per-mile insurance, and car-shares. Latin America is experiencing a wave of autotech startup launches, including a few that raised notable international investment rounds.
Much of this innovation remains concentrated in Latin America’s two largest markets: Brazil and Mexico. This disparity makes sense as 70% of vehicles on the road in Latin America are in these two countries. In Brazil, there is approximately one car per four inhabitants, while in Mexico, the ratio is one in three. Argentina, Colombia, and Chile trail far behind in quantity of vehicles but maintain similar ratios.
Mexico City, Rio de Janeiro, Santiago, and Bogota already rank among the most congested cities in the world. Several of these cities also struggle with air pollution related to the number of cars on the road. As more Latin Americans transition into the middle class and make investments in motor vehicles, cities across the region will need to look to technology to improve transportation.
The innovations in Latin America’s autotech industry can be broken down into distinct categories, including insurance (insurtech), car sales, car-sharing, and auto repair. Here is an overview of each type as well as the main startups that are innovating in these fields in the Latin American market.
Improving safety: Insurtech for Latin America’s auto industry
According to Global Fleet, only 25% of Latin American drivers have regular car insurance. Compared with markets in the US or Europe, auto insurance makes up a tiny portion of Latin America’s GDP. In the US, premiums are equal to almost 7% of GDP, while in Latin America, the ratio is below 3%. These low numbers are likely due to the relatively high cost of owning a car as opposed to using public transportation across many of Latin America’s cities. In cities with heavy traffic like Santiago, Bogota, or Mexico City, public transportation can also be more reliable and faster than car transport.
The auto insurance industry as a whole in Latin America was worth over US$64.2B in 2017 and the demand for insurance is growing quickly. In a region that registers over 115,000 auto-related deaths each year, a reliable car insurance market is essential to managing transportation safety.
In the US, startups like Metromile help provide more transparent insurance policies based on drivers’ behavior. Other services exist to help customers choose the best insurance for their needs or to negotiate claims more effectively. Similar startups are emerging in Latin America. Interestingly, although Mexico and Brazil are by far the region’s largest auto markets, Chile leads in the way in car-related insurtech.
Chilean startup ComparaOnline is an online platform that allows consumers to compare several insurance policies in order to choose the best option for their needs. Auto insurance is just one among the several services that they offer, including travel insurance, home insurance, and health insurance. While ComparaOnline was founded by Sebastian Valin in Chile, the startup is now active in Brazil, Argentina, and Colombia as well. After raising a US$14M Series C round from Bamboo Capital and the IFC, ComparaOnline acquired their Colombian rival, ComparaMejor, in September 2018 to streamline their expansion into Colombia.
Jooycar, also based in Chile, follows a similar model to Metromile. Using the power of IoT, Jooycar uses a small plug-in device to track vehicle health and driver behavior to create more precise insurance policies. Jooycar currently works with the Chilean insurance provider Consorcio, as well as Latin America’s largest insurance broker, Sura, to provide pay-per-mile insurance services that help customers save money as they drive. In September 2018, Jooycar raised $3M in follow-on funding (Magma Partners was the first investor) from HCS Capital, an insuretech fund based in Miami, to help expand into the US market and across Latin America. Jooycar also offers fleet management services for cars and light trucks.
Brazil also has a connected-car platform, Nexer, which connects the vehicle to a smartphone to enable better management. The app keeps users in constant contact with mechanics to help car-owners improve car maintenance. It was voted one of 34 top Latin American startups to watch in 2017.
Mexico’s Custodian, which participated in the 500 Startups Latam accelerator in 2018, helps customers navigate insurance claims and save money. They have options for individuals and for fleets to help negotiate relationships with insurance providers and eliminate frustration.
Managing auto sales through the Internet
Brazil’s Instacarro is the undisputed used-car sales leader in Latin America. After raising a $3.5M seed round in 2016, Instacarro went on to raise $22M in its Series A in November 2018 from FJ Labs and Lumia Capital. Brazil’s used-car market is worth up to $50B, and Instacarro planned to use the new investment to expand across the regional market. Founded in 2015, Instacarro has inspected over 60,000 cars which were sold through its platform.
Instacarro and its regional competitors tackle a pain point with global relevance. Buying a car, especially a used one, can be a particularly risky process. Quality controls and regulations tend to be lower in the used car market, meaning buyers often do not know the history of a vehicle before they purchase it. Car dealers worldwide are not known for their transparency, and this trend is no different in Latin America.
Car sales platforms tackle this issue by inspecting vehicles and publishing full reports to help buyers make better purchasing decisions. The demand for these services is so high that there is a holding company which manages platforms in Argentina, Mexico, Peru, Panama, Bolivia, and Ecuador, called LatAm Autos. The company is listed on the Australian Stock Exchange.
In Chile, ChileAutos helps people buy and sell new and used cars through an online platform. They were acquired in 2016 by Australia’s CarSales for $15M. Almost every country in the region has their version of Instacarro, capitalizing on the information gaps that characterize the traditional used-car market.
Finding a mechanic through a marketplace
Marketplace startups are popular across almost every service industry in Latin America as a way for small store owners to connect with more clients. These platforms also allow customers to learn more about the business before visiting, solving pain points on both sides. The marketplace model works well for the auto repair industry, especially in a region characterized by many indistinguishable small vendors who need to gain clients’ trust to keep their business.
Mexico’s Garage connects car owners directly with mechanics who provide at-home or roadside services. The platform offers transparent pricing for simple services to users, who can pay online and receive mechanic services within 60 minutes. Clients can also contract Garage’s services via Messenger and Whatsapp, making the app particularly apt for its Latin American clientele since Whatsapp is practically ubiquitous in the region. Garage participated in 500 Startups Latam in 2017.
Also from Mexico is car parts e-commerce platform, Rigs, which is looking to create the region’s largest auto part marketplace. They have raised over $275K from KF Ventures and Genesis Capital Ventures. You can learn more about Rigs in my interview with founder Nestor de Haro on the Crossing Borders podcast.
Chilean-Canadian startup, Karzen, helps car owners find trusted mechanics across several cities. Karzen also participated in the Start-Up Chile Seed program in 2018.
Carsharing: A growing market opportunity
While Latin America’s ridesharing space is already extremely crowded, carsharing is growing more slowly in the region. In the US, carshare options like ReachNow and Car2Go began to appear in the late 2000s much like popular rideshare apps Uber and Lyft. However, in Latin America, ridesharing apps like Uber, Didi, Beat, Cabify, and 99, exploded in popularity without a similar boost in the carshare market. Carsharing consists of very short-term car rentals with no intermediary, either from individuals or companies.
One of the reasons for this disparity is the low levels of trust within Latin American societies. Up to 63% of Brazilians and 42% of Mexicans do not trust their fellow citizens, while only 20% of US citizens lack trust in their neighbors. Companies and individuals, therefore, have little incentive to allow a stranger to rent and use their car unattended.
However, a few startups have managed to build a business around carsharing in Latin America’s largest markets. In Mexico, Alberto Padilla Luengas, Cristina Palacios, Ignacio Cordero, and Federico Casas created a carpooling platform called Aventones that eventually was acquired by French startup Blablacar. You can listen to Federico’s story on my podcast.
Mexico also has a peer-to-peer carsharing platform, Carengo, which directly connects individuals with cars to people who need short-term rentals. These rentals tend to last between one day to one week, rather than just a few hours. Another new rideshare model in Mexico is Pronto, which participated in YCombinator. This startup treats the rideshare model as a subscription service rather than a commission-based business. It also offers safe services for female passengers and drivers.
Brazil – the country with the lowest trust levels in the Americas – has two carsharing platforms: Zazcar and Urbano LD Sharing. Zazcar works similarly to Zipcar in the US; cars are spread out across parking lots in São Paulo and must be dropped off where the ride started. The vehicles belong to Zazcar, so they are rented directly via the app. Urbano LD Sharing is more similar to Car2Go in that the cars can be picked up or dropped off anywhere in the city. Urbano tends to use electric cars in a variety of formats (Smartcar to SUV) to best suit the needs of Brazil’s urban population.
Chile has its own carshare service, Awto, directed by Chilean entrepreneur Leo Prieto, which provides smart, short-term car rentals through several centers throughout Chile’s cities. They offer a subscription plan which allows frequent users to pay lower prices for each rental, or an a-la-carte plan with no overhead costs.
Improving auto transportation in Latin America
With more than a million cars entering Latin America’s roads every quarter, the transportation industry will have to rely on technology to keep up with demand and provide better services to their customers. Car insurance, sales, and repair services will have to turn to platforms that increase transparency and simplify transactions.
Connected car technology will help make roads safer and hopefully counteract the steadily-rising death toll on Latin America’s streets. From the other side, policymakers and engineers will need to work to solve problems related to traffic and air pollution, which now plague most of Latin America’s major cities.
Green transportation options such as carsharing, carpooling, and electric vehicles are becoming more widely available across Latin America, combating these challenges from the private sector side. There are still many opportunities for autotech to make the transportation industry more efficient and to make Latin American cities friendlier, less-congested, and safer places for their citizens.