Car Lease Programmes are the Next Big Thing for Automakers in India

The dream run of global automobile companies in India is now witnessing a screeching halt, and their back is now against the wall. The current situation is not due to bleak economic growth or poor product lineup. In fact, India gets the best product lineup from auto companies compared to anywhere in the world.

The primary factor is due to the change in consumption and behavioural pattern of consumer, which is now more influenced by western cultures. And, is less to do with any other factors. With more younger and millennial customers getting into the market, the companies are forced to redesign their strategies and approach.

For decades, automakers banked on people’s sentiment of owning a car, thus driving up sales, which made India one of the most lucrative markets. The situation is quite opposite now, struggling to acquire customers even with fresh product portfolio.

How Auto Companies Plan to Fight the Slowdown?

Millennials, who all are credited with this current shakeup in the market is making companies think out of the box. As compared to the earlier generation, millennials are more focused on carrying less baggage and resist spending on big box experiences.

For example, millennials now prefer using ride-sharing services (Ola, Uber) which offer the same benefits of owning a car with the advantage of being chauffeur driven and at a fraction of cost compared to owning a car.

Going by the trend and millennial’s consumption pattern, automakers have come out with car lease and subscription programmes for retail customers and boost up their volumes. Car companies such as Maruti, Mahindra, Hyundai, Skoda is currently offering this service to customers. Apart from automakers, self-drive car rental platforms like Revv, Zoom Car are also providing this service.

This leasing of vehicles is not new for India and was seen mostly in the commercial vehicle segment and among corporates. But, change in circumstances has made vehicle leasing attractive in the retail space also.

How Does Car Lease Work?

A car lease lets you drive a new car for a contracted period of time, without even making down-payments or paying a large sum of money to take the car home. Car lease requires you to pay the monthly rental plus insurance cost in order to use the car.

For example, Revv, the self-driving car rental platform is offering its customers two options, either lease a brand new car or an unboxed car which is less than 2 years old.

Enter your city, and select the car brand and car model. The platform will then show you the estimated monthly rental and insurance cost for different periods.

If you select, unboxed Maruti Swift Dzire for Hyderabad location, the monthly rent for 1 year period will come at Rs 16,200 and Rs 2800 per month as insurance. For three years period, the monthly rent will come down to Rs 13,500 plus the insurance cost.

 

Maruti and Suzuki have more comprehensive leasing terms and conditions in place who want to take the benefits. Like in Maruti, after customer enquiry, the company will collect necessary documents, undertake credit appraisal, signing of the agreement and then the delivery of car will take place.

Hyundai has made its entire product portfolio on lease offer, starting at Rs 7673 per month plus insurance and other costs for a five year period.

Benefits of Leasing a Car

There are many hassles related to owning a car like periodic maintenance and repairs, high insurance costs and resale risk. But, leasing a car takes away all such hassles and added benefits like zero down payment, easy upgrade of the vehicle after a certain period of use acts as a bonus. As a result, leasing is gaining acceptance in the market as it provides a great deal of value for money.

Apart from benefits, there are few disadvantages like, the user loses the opportunity to pocket the resale value of the car. And, in case of early termination of the lease by the customer, he/she need to pay certain sum depending on the time left for the lease to end.

Market Opportunity in India

For automakers, this leasing and subscription-based model can provide a huge boost to their dwindling sales number. Overall, this segment is completely new in India, with current market penetration is less than 1 per cent, and of which, mostly is powered by the corporate fleet.

Now, if we look at other developed markets like the US, UK, Germany and France, the market penetration is around 30 per cent. According to research done by Technavio, the global car leasing market is estimated to grow at 14% CAGR between 2019-2023, with key drivers will be the personal leasing and corporate leasing.

This makes a strong case for automakers in India to pursue the business model aggressively. Given that, the market is at nascent stage and is a largely untested business model in India, there will be issues while scaling up. However, as more players pour in, the affordability and acceptance will be at highest.

Shashank Srivastava, Executive Director (Marketing and Sales) at Maruti Suzuki said:

“The segment is big in many countries. In India, this segment has started witnessing a positive trend. Once it reaches a certain threshold, it will become very interesting. We will have to see how it develops here. We are keeping a close watch and will gear up accordingly.” 

Bottom Line

When every sector of the market is witnessing disruption due to changing consumption and behavioural pattern, then the auto sector is also no different. The personal car lease programme by automakers is the next disruption in the market and companies are also looking bullish.

Skoda Auto India, which has partnered with Orix to offer leasing solutions to customers expects their incremental sales volume to rise 5-10 per cent in the medium to long term from this segment.

Ather Energy, an Indian EV company founded by Tarun Mehta also looks bullish on personal vehicle lease programmes, he said:

“We only started lease a few months back, but we are seeing good interest. He added: “When we open in Chennai, this will pick up. I expect as much as one-third of our sales to come from leases by the end of this year, increasing more later next year.” 

So, how much automakers succeed in this plan, only time will tell but is going to be a very interesting watch. Also, they need to bring in India specific strategy to tap the potential, because how much the behavioural pattern is influenced by western culture, India is still a different country. Even e-commerce platform had to introduce COD to drive sales, which was a unique strategy then.

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