Indian Carmakers Test Subscriptions For The Netflix Generation

Maruti Suzuki India Ltd., the nation's largest carmaker, last week launched a long-term subscription programme. “Car ownership in India is considered a status symbol but the rising cost is changing customers’ mindset,” Shashank Srivastava, executive director (marketing and sales) at Maruti Suzuki, told BloombergQuint. “We are witnessing ‘subscribing’ trend.”

Peers like Hyundai Motor India Pvt. Ltd., MG Motor India, Toyota Kirloskar Motor Pvt. Ltd., Tata Motors Ltd. and Volkswagen India have also dabbled with car leasing and subscription-based models in the last two years. The push towards leasing comes as Indian automakers, grappling with the worst slowdown in more than two decades even before the pandemic, try different ways to drive growth. The Covid-19 pandemic unleased an economic disruption like never before. And they are betting on the ease with which the young rent or lease everything from a sofa to an air-conditioner.

Still, it's not new with several rent-a-car startups. But it's a tiny market. Of the 28 lakh passenger vehicles sold in India in the fiscal ended March 2020, less than 1% were taken on lease, according to Vinkesh Gulati, president of the Federation of All India Dealership Association. Auto companies, however, are hoping that social distancing during the pandemic will prompt more people to look at personal mobility.

The model, offering leases for a year and more, allows customers to get vehicles without making an upfront payment and allows them to change models. They don’t have to worry about insurance, maintenance and road tax. At the end of rental tenure, customers get the option to return the vehicle, extend the period or even buy the car.

Still, buying a vehicle might be the cheapest option available.

'Expensive Proposition'

A few startups have made some headway in shared car ownership such as Zoomcar, Myles and Revv. Bengaluru-based Zoomcar, which began nearly eight years ago, offers cars under the self-drive and subscription-based models. Co-founder Greg Moran said short-term subscriptions have jumped 3-4 times to about 1,000 cars a month.

But he is not optimistic about long-term leasing just yet. The unit economics, he said, don't make sense. Buying a vehicle is still the cheapest option available.

“Car leasing or subscription is an expensive proposition right now,” Hetal Gandhi, director at the research firm Crisil, told BloombergQuint over the phone. Gandhi, who assessed the pricing for a four-year subscription period, said it costs at least 50% more than owning a vehicle, keeping in mind the resale , or switching to Ola and Uber.

“Lower the duration, the cost of lease goes higher,” she said, adding over the last two years the market has only grown 15-20% despite a low base. Until the plans are viable for customers, she said, whatever OEMs are offering may not lead to much growth.

Srivastava of Maruti Suzuki said current service providers only focus on metros, leaving out rest of the country. OEM-promoted options could make vehicle leasing more affordable, he said.

Maruti Suzuki has received nearly 3,500 inquiries for the service—which has been introduced in Delhi-NCR, Pune, Hyderabad and Bengaluru, but didn’t disclose how many would actually opt for it. It plans to expand to about 60 cities in two years and targets 3-4% of car sales through subscriptions.

The maker of the Dzire sees a potential subscription market for about 20 lakh vehicles in India. Nearly a fourth of the respondents in a study it conducted in 2019 said they’d prefer to rent than buy.

Why Now?

Vehicle leasing services are popular in developed markets such as the U.S. and Europe. According to data on Statista, more than a third of the new vehicles sold in the U.S., the world’s largest market for automobiles, is through leasing.

While it's not new in India, what's different is the focus on the consumer: the individual car buyer.

It was never targeted at individuals, Pankaj Jhunja, head of mobility services at Tata Motors, said in an emailed response to BloombergQuint. Onboarding and deboarding terms and conditions would act as a deterrent resulting in a poor offtake, he said.

Tata Motors said the shift in consumer behaviour is proving to be a driver. They are looking at consuming the service and not having to own the asset, Jhunja said, dubbing it "usership vs ownership" choice.

Tata Motors offers the Nexon EV through its subscription service. Orix Auto Infrastructure Ltd., the country’s largest car leasing firm, has leased out seven Nexon EVs.

“Need of the customer is slowly changing from 'to have the car' to 'drive the car',” said Sandeep Gambhir, managing director at Orix. “Car is becoming a commodity now. You use it and pay for the service,” he said. For Orix, short-term subscriptions have gone up by 150% on a smaller base.

Volkswagen India, too, expects the market to grow. Given the financial challenges during the pandemic, work from home and struggling MSMEs, the automaker sees conversion for the lease products growing "slowly but steadily".

Yet, it’s early days. Gulati of FADA said at his dealership for Mahindra and Mahindra Ltd. in New Delhi, only two cars were leased in the past year.

M&M and Hyundai did not respond to BloombergQuint's email seeking comment.

According to Sunil Gupta, managing director and chief executive officer at Avis India, a car lease and rental service provider, automakers don't want to be caught napping as the future of the leading market will be decided once the pandemic stabilises. “Whichever way it moves, companies want a headstart.”

For Gulati, the toss-up is still the same. “Anyone who wants to live life with no strings attached will go for the leasing model. Anybody who wants to take the pleasure of ownership won't."

Yet, the pandemic has forced automakers to provide this option. Earlier, it was nice to have the choice, he said. “Now, it's becoming important—a necessity.”