By Rajat Mahajan
India’s economy is expected to grow within the range of 6.9ꟷ7.2 percent in FY24, followed by about 6.4 percent to 6.7 percent in the subsequent year. Despite this positive outlook, high retail inflation is affecting the cost of living and fueling economic uncertainty. This volatility is affecting Millennials and GenZ, accounting for 52 percent of India’s population. They are emerging as the primary consumer segment with higher disposable incomes.
The younger generation of customers is becoming more frugal with their purchasing because of the current state of economic instability. According to a Deloitte consumer insight study, consumers between 18 and 34 years allocate only 8 percent of their income to savings and 63 percent (January 24) are worried about upcoming payments, up from 60 percent in January 2023. As a result, they are more likely to postpone bigger purchases, such as cars.
The average selling price of passenger cars increased by more than 50 percent from Rs 7.65 lakh in 2018–19 to Rs 11.5 lakh in 2023–24. About 43 percent of buyers choose the top model, up from 27 percent a year earlier. These trends indicate that the automotive sector is likewise moving towards premiumisation. Customers are expected to switch to a different brand for their next purchase, driven by a desire to try something new, upgrade to more premium brands, and influenced by the gradual decline in the average age of automobile ownership.
These trends reflect the changing consumer environment amidst uncertain economic conditions, raising concerns about their ability to pay. Customers are researching and assessing various car ownership alternatives available to them. According to Deloitte’s GACS 2024 poll, a growing number of Indian consumers (18–34 years old) are in favor of a car subscription model, with 67 percent expressing this desire of giving up vehicle ownership. In the passenger car market, a car subscription model as an ownership alternative to traditional ownership is more common. Cost control emerges as the top priority for vehicle subscription consumers, with 47 percent emphasizing the importance of clear and fixed fees. In addition, 45 percent value convenience and flexibility.
Top vehicle subscription firms have plans of growing their fleet by 25 times, and some have doubled their business post-COVID-19, indicating the gaining popularity of vehicle subscription. The idea of car subscriptions is likewise appealing to Original Equipment Manufacturers (OEMs), who are stepping up their efforts to tap into the subscription market.
As SUVs comprise the majority of the subscription providers’ fleet, these providers are informed of their client preferences and expanding their fleets to include Electric Vehicles (EVs) to guarantee vehicle availability. According to a top subscription player, 60 percent of their fleet comprises SUVs (that number is expected to rise), while 25 percent comprises EVs.
To ensure positive growth, subscription companies must address customers’ concerns regarding subscription services. For this, adequate knowledge and education would be necessary. Concerns about the total cost of ownership for products and increased monthly prices for subscription services are shared by 38 percent and 40 percent of consumers, respectively. When comparing car subscriptions to financing the purchase, average savings are found to be between 9 and 10 percent across a variety of vehicle classifications. The financing option opted by the consumer, potential earnings from upfront downpayment if invested and the perceived cost benefits of owning a car through a subscription all contribute towards this savings.
| # | On-road price | Regular financing (4 years, @ 9%) | Vehicle subscription (4 years) | % benefit | ||
| Loan EMI | Monthly expenses | Total | Subscription cost | |||
| 1 | 9,77,277 | 19,456 | 4,795 | 24,251 | 22,099 | 10% |
| 2 | 14,78,277 | 29,429 | 8,451 | 37,880 | 34,599 | 9% |
| 3 | 25,13,316 | 50,035 | 15,116 | 65,151 | 59,999 | 9% |
Note: 20 percent down payment of ORP is considered, monthly expenses include (insurance, maintenance, RSA) and the potential earning from the down payment amount if invested at a 10 percent return
Consumer interest in EVs continues to grow. In 2024, 48 percent of consumers preferred them as compared with 40 percent in 2023. However, since the cost is a major concern for customers, EVs, and subscription services could work well together to generate momentum. The ability to test-drive new cars for a predetermined amount of time, at no extra cost, is a major factor for 40 percent of consumers to subscribe to a vehicle plan. As they require less maintenance, EVs may be priced competitively, which may serve as a motivator for customer adoption. In addition, customers do not have to worry about range anxiety, pricing premiums, or the cost of replacing the car’s battery because they can return it to the manufacturer/service provider.
The core value proposition of subscription providers should adhere to the following:
- Ensure a seamless digital experience without typical breakpoints in the conventional process.
- Provide customers with peace of mind while operating the vehicle.
- Offer easy and simple package configuration with complete transparency of information.
- Extend the option to modify subscription requirements based on mobility needs.
Ensure the availability of new vehicle models and expedite delivery/pickup, reducing the waiting period compared with traditional new vehicle purchases.
Today, car subscription is becoming a more urban phenomenon. Millennials and Gen Z are emerging as the primary audience who are more interested in exploring new ways of living, rather than owning assets, such as vehicles.
The author is Partner, Consulting, Deloitte India
Disclaimer: The views and opinions expressed in this article are solely those of the original author. These views and opinions do not represent those of The Indian Express Group or its employees.
