Faced with declining sales, auto firms see room for growth via rent-a-car

Subscriptions, once the selling model of only newspapers and magazines and lately over-the-top platforms like Netflix, are becoming a revenue proposition for car companies in India
Maruti Suzuki, India’s largest carmaker, recently expanded the scope of its car subscription facility to new cities — Hyderabad and Pune — from five announced earlier.

The company is aiming to expand the business to around 60 cities in the next two-three years. It had rolled out its subscription plans on September 24 with the promise of offering the flexibility of driving without having to own the car. It had announced while this was available in select cities, it had planned to cover many more in the country.

“Over the next five years, we expect to garner nearly 3-4 per cent of our car sales in these cities through a subscription programme. We expect traction by providing competitive products to customers by leveraging our large dealership network and strong brand recognition and trust,” said Shashank Srivastava, executive director, marketing and sales, Maruti Suzuki.

For a company that sold 1.7 million vehicles in 2019, a 3 per cent sale from the subscription model is something that would change the face of such a business plan, considered nascent in India.

According to market research done by Maruti in 2019, nearly 25 per cent of the respondents said they would prefer to rent a car rather than buy one, and that potential addressable market for subscription is around 2 million in India.

The model has been widely used in developed countries with marquee carmakers such as GM and BMW offering such services.

Subscriptions, once the selling model of only newspapers and magazines and lately over-the-top platforms like Netflix, are becoming a revenue proposition for car companies in India, which have been grappling with the worst slowdown in more than two decades, beginning even before the pandemic came.

Peers like Hyundai Motor India, MG Motor India, Toyota Kirloskar, Tata Motors, and Volkswagen India have dabbled in car leasing and subscription-based models in the past two years. Tata Motors offers the Nexon EV through its subscription service. Toyota even set up a vertical — Toyota’s Mobility Service (TMS) — for the business.

Faced with declining sales, carmakers are targeting salaried individuals, working professionals, small and medium enterprises, companies, and public sector consumers. In these categories, they focus more on millennials since they are more prone to changing cars every three-five years.

“Our primary customer segments for the subscription programme are people who prefer convenience and don’t wish to have long-term commitments. Some of the sample profiles are young millennials aged 25-35 years, people looking for a second car for a short term, and self-employed professionals as well as owners of small and medium enterprises,” Srivastava said.

The attraction point that car companies are offering is lower upfront investment. For Maruti’s popular model Vitara Brezza in Gurugram, monthly subscription varies from Rs 23,636 to Rs 27,611, whereas the on-road price is around Rs 9.65 lakh.

However, dealers and experts who have been advising customers on the subscription model say that unless a person is passionate about driving a new car every two years, the additional cost of leasing makes it a costly proposition.

“Car leasing or subscription is an expensive proposition now,” said a Delhi-based showroom owner who has been addressing customer queries on the model.

He said for a four-year subscription period, the cost of leasing would increase vis-à-vis ownership, keeping in mind resale value, or switching to cab aggregators like Ola and Uber.

A second dealer said a customer needed to pay the first year’s insurance and the first month’s rent. After one year, the monthly rental is reduced. However, during the lease tenure, you need to pay insurance costs to the car-manufacturing company every year since they renew the policy for you.

“There is also a lock-in period which comes in such leasing arrangements. The lower the duration of leasing, the higher the cost of lease. It is suitable for people who frequently change cities,” he said.

A Hyundai customer has to give the commitment to take the car on lease for at least 12 months. In case the customer returns the car before completing the lock-in period, the company charges a penalty of Rs 20,000.

Company executives say it is challenging for traditional car companies to shift to a different business model.

“Most companies don’t have the pricing, billing, monitoring, revenue management, and other monetisation systems to support these complex selling models,” said an executive of a four-wheeler company.

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