Sao Paulo rideshare rules draw ire of apps, rental agencies

SAO PAULO (Reuters) - New rules restricting drivers of out-of-town vehicles from working with ride-hailing services in São Paulo came under fire from technology and rental car executives on Thursday, who threatened to legally challenge the decision in Brazil's biggest city.

São Paulo Mayor João Doria, whose name has been increasingly floated as a possible candidate in the 2018 presidential race, unveiled the rules last week as part of a plan to regulate ride-sharing services such as Uber and local rival 99.

The move has serious implications for drivers from the São Paulo suburbs, along with the rental agencies such as Localiza Rent a Car SA , much of whose fleet is registered at its headquarters in the state of Minas Gerais.

"We have seen the city kind of taken over by cars ... using São Paulo roads and paying taxes somewhere else," said São Paulo Transportation Secretary Sergio Avelleda, defending the measure to journalists on Thursday.

Rental car companies disagreed.

The head of policy and communication for 99, Matheus Moraes, said the demand to register and pay local property taxes on cars was redundant for the company's drivers, who already contribute a road usage fee per mile for using ride apps in the city.

"Mobility is about using the cars you already have," he said at an industry event in São Paulo. "This measure is limiting ... and we are going to work like heck with the government to see if we they will reconsider that point."

Uber took an even stronger stance in an emailed statement, calling the requirement of local vehicle registration "unconstitutional," and Localiza also condemned the measure.

"This decision does not make legal sense," said Localiza Chief Financial Officer Roberto Mendes in a telephone interview. "We have to evaluate the situation. We understand that there are legal aspects that we could challenge."

Demand from unemployed Brazilians renting cars to drive with ride-hailing services has been one of several factors driving robust revenue growth for Localiza and rival Movida Participações SA this year, according to analysts.

The rental agencies have even offered special monthly contracts for drivers on the apps. Uber's Brazilian website promises rental savings of up to 50 percent for its drivers and lists promotions from the agencies side-by-side in major cities.

The new rules could seriously complicate those arrangements, since so much of São Paulo's rental fleet is registered in other cities.

(Reporting by Alberto Alerigi Jr. and Natalia Scalzaretto; Writing and additional reporting by Brad Haynes; and Leslie Adler)