Why India’s car-makers are hailing the cab revolution

New strategy Car-makers have entered into tie-ups withUber and Ola to sell cars through attractive financing rates and other benefits

Rising popularity of app-based aggregators is reflecting in demand for vehicles

At one point in time, it was considered the infra dig segment for carmakers to unleash their models. Today, the taxi market in India is the best bet for them to grow their business. Where manufacturers were coy about being associated with cabs, they are now competing with each other to grab a share of this rapidly growing pie.

Clearly, the revolution has kicked off with the Ola and Uber, which are proliferating across the Indian landscape. It was Mahindra group Chairman, Anand Mahindra, who had first spoken of the reality of disruption with these app-based aggregators. It was over a year ago when he said that car ownership would be under threat with the emergence of flexible mobility alternatives such as Uber and Ola.

Newer alternatives

In addition, realities of urbanisation have led to clogged cities and overcrowded roads where there is really no compelling reason to buy a car and then plan other overheads like drivers’ salaries and parking charges. Unlike the distinctly uncomfortable traditional cabs, the newer alternatives are cool, comfortable and clean.

Rating agency, ICRA is bullish on the taxi segment where aggregators will spread their presence across India to boost demand. The cab market is projected to post double digit growth over next 2-3 years with the share of fleet in overall passenger vehicle sales on the rise. From about seven per cent in 2014-15, their component has grown to nearly 10 per cent last fiscal and expected to reach nearly 17 per cent by the end of the decade.

Maruti Suzuki, Tata Motors, Mahindra & Mahindra, Toyota and Hyundai, are among the leading players in the taxi segment. “Models such as the Ritz, Dzire, Wagon-R as well as Hyundai Xcent and Grand i10 have made the most of this growth in the taxi segment,” says Subrata Ray, Group Vice President – Corporate Ratings, ICRA. “Other models such as the Datsun GO, Toyota Etios and Tata Zest/Bolt have also benefited from the robust demand.”

Growth story

Maruti Suzuki sold over 60,000 cars to cab aggregators between April and December 2016, which, in turn, accounted for nearly six per cent of its retail sales. For the entire fiscal, it delivered nearly 50,000 cars to this user segment. “In the first nine months of FY ’17, we have seen nearly 67 per cent growth over the previous year in sales to cab aggregators,” says a company spokesperson.

In the case of Toyota, the taxi segment has always been an important part of its business as it represents a true test of product durability. The Tab Cab initiative was a key start in this space and became the best piece of news to commuters in big metros.

“We take pride in the fact that fleet operators across India have appreciated the value proposition of our products,” says N Raja, Director and Senior Vice-President (Sales and Marketing). “From Qualis and Innova to Etios and even Corolla and Camry have been liked by the taxi segment for their quality, durability and reliability. Toyota taxi segment contributes 11 per cent market share of the overall fleet industry.”

According to him, aggregators are here to stay for the long term and the negative perception associated with a car model becoming a popular taxi, devaluing its brand, is almost gone. “Even popular personal car models that have seen good traction from fleet operators are appreciated in the taxi segment,” says Raja.

New tactics

OEMs (original equipment manufacturer) are now setting up dedicated teams to cater to this growing business. Some have entered into tie-ups with fleet operators and cab aggregators to sell cars through attractive financing rates and other benefits. Clearly, the idea is to leverage on the growing demand for taxis and push slow moving models in the product line up.

Maruti Suzuki, for instance, works closely with Ola and Uber by offering driver training. It has committed itself to training 40,000 Ola drivers in safety skills over three years. In the case of Uber, this involves nearly 30,000 drivers across the same timeframe.

Toyota, in its turn, is looking at long term collaborative engagement programmes with taxi operators. M&M has partnered with Ola to provide 40,000 vehicles, which could translate into potential of over ₹1,700 crore for its financing arm. Likewise, Tata Motors has an agreement with Uber to provide vehicle purchase and ownership solution.

Since running cycles of cabs are more than personal vehicles, companies are assured of consistent demand as owners will go for quicker replacements. Some will even buy larger fleets as the business grows. How will this affect the personal space is the million dollar question. But this may not really matter in a country where car penetration levels are still less than 20 per thousand people.

In addition, there are enormous aspiration levels in India though the biggest challenge for carmakers is to provide the value-for-money quotient and ensure that people still queue up at showrooms. This is typically evident in the case of models like the Renault Kwid, which have hit the right note in the market.

The other case for ownership is the growing base of youthful buyers who have more money to spend. Now put this along with the craze for SUVs and it is clear that people are not going to give up buying cars in a hurry. Yet, there is no taking away the fact that manufacturers cannot be inure to the reality of the growing pressure from cabs. And this is where the tug-of-war will become even more interesting in the coming years.

Published on March 16, 2017

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