Braking ownership

By: |
August 30, 2021 6:52 AM

Will car subscriptions find favour with Indian consumers?

In India, vehicle subscriptions could remain a niche revenue channel for manufacturers.In India, vehicle subscriptions could remain a niche revenue channel for manufacturers.

While car rental and subscription services have existed in India for a few years, the pandemic has brought them under the spotlight again. Maruti Suzuki and Tata Motors joined the likes of Hyundai and Mahindra & Mahindra by launching their subscription offerings last year. As per industry estimates, 80% of all passenger cars bought in India are via financing options. Car subscription, meanwhile, offers an asset-light model of ownership in the consumer segment. “The subscription model serves the need gap of owning a vehicle without having a high financial commitment,” says Som Kapoor, partner, automotive sector, EY India.

Hitherto, car leasing, which is similar to car subscription, has primarily been limited to commercial use in India. Could Indians opt for subscriptions over traditional financing-based ownership of four-wheelers?

Convenience over commitment

Maruti Suzuki has expanded its subscription service to 19 cities over the past year, and has made 10 car models available under this offering. Shashank Srivastava, executive director (marketing and sales), Maruti Suzuki India, says the company receives about 7,500 queries every month. The subscription service by Tata Motors for Nexon EV (introduced in August, 2020) is available in Mumbai, Delhi, Pune, Hyderabad and Bengaluru.

Car manufacturers like Maruti Suzuki are in direct competition with car rental services like Revv and Zoomcar, whereas some others have partnered with them instead. Hyundai, for instance, has tied up with Revv and put up Santro, i20, Aura, Venue and Creta, among other models, for the subscription service. A user can opt for either a brand new car or a used car.

One can subscribe to the Tata Nexon EV for Rs 28,999 per month or a Hyundai Creta for Rs 29,530 per month, without making any down payment. The minimum duration for subscription for cars is 12 months.

Subscribing to cars for a short term allows consumers to reduce the costs associated with owning a car. “The subscription service is aimed at working professionals who move often, those who want to skip the hassle of insurance, maintenance and reselling, and young professionals who may find it hard to get a car loan,” says Srivastava.

Rahul Mishra, partner, Kearney, says with the duration of car ownership reducing over time — from 10 years previously to four-five years now — the trend of vehicle subscriptions could become popular, as it allows users to experiment with newer models and upgrade sooner.

Early days

While there is interest in this new model, conversions are low. Srivastava says only 1-2% of enquiries turn into subscriptions. The demand is mainly coming from the metro markets, industry insiders say. “Software hubs like Gurugram, Bengaluru, Hyderabad and Pune, where people shuttle between countries and have a young workforce, form a big chunk of our target audience,” informs Srivastava.

In India, vehicle subscriptions could remain a niche revenue channel for manufacturers. For the moment, subscription is more likely to be a channel that manufacturers can use to encourage trials. “This is a good way for buyers to experience different kinds of products and technology (EVs). Once they get used to it, chances are they might want to shift to an ownership mode,” says Ramesh Dorairajan, head, network management and trade finance, passenger vehicles business unit, Tata Motors.

Subscriptions could work better in the premium car segment, say analysts. “When it comes to the mass market, better cost economics and value proposition will be critical for the adoption of the subscription model,” says Kapoor of EY. He believes that in India, vehicle ownership through financing will be the preferred mode of buying for consumers who intend to use the vehicle for more than five years, since resale value of vehicles is reasonably high.

Read Also: Why it is important to protect consumer interest in a digital world

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