Covid-proofing with Indian Car Subscription services
Car manufacturers count on steady YoY growth, especially in countries with a low car per capita (CpC) ratio, to keep their global businesses profitable. India’s CpC is below 50 per 1000 inhabitants and its + 1 billion people market presents huge opportunities for OEMs.
This has led to 2 different OEM strategies, depending on the region: in high CpC countries, car manufacturers are reinventing themselves to become mobility suppliers and/or EV suppliers, whereas in emerging markets, focus remains on volume sales and penetration.
India has been hit hard in 2020, not only by Covid, but also by extreme weather conditions. Monsoons have been harsher than in the previous years, leading to even more people losing their homes, jobs or suffering from diseases. Especially the Indian workers, who returned home from the major cities to protect themselves and their families from the pandemic, are in a difficult place.
As an immediate result, unsurprisingly car sales are down, and Indian people are hesitant to take public transport, which impacts directly many business operations, as most Indians rely on public transport to reach their place of work.
2 birds, one stone
Most of the Indian car brands have already launched car subscription services pre-covid; Mahindra, for example, has launched its subscription product back in September 2019, aiming to attract SMEs and professional workers with a flexible 1-to-4 year “lease” that includes an option to acquire the vehicle at the end of the contract.
Subscription services give more people access to new cars at an affordable pricing and, at the same time, act as a new sales channel for car makers in search to recover some of the losses incurred during the first 6 months of the pandemic.
Maruti and Toyota
Maruti-Suzuki, the country’s largest brand, and Toyota are now jumping on the bandwagon as well. Maruti announced recently (August 28th 2020) its ZEE5 product, a flexible and all-inclusive lease with 6-month flexibility on durations from 12 to 48 months. ZEE5 includes maintenance and insurance and requires no down payment. Customers can select any car from the Maruti range of vehicles. Maruti has not yet launched the product nation-wide, piloting first in Pune and Hyderabad.
Toyota has reached out to Sumitomo (SMAS) and ALD to support its own financier (Toyota Financial Services) creating a subscription program for retail and professional clients. Toyota will be using its global mobility services brand, KINTO, to market the subscription offer, which will available from 24 months to 48 months.
The right question to ask is whether this type of offer is really a subscription or rather a (private) lease. Car leasing as such is not popular in India; even though all the major leasing companies (ALD, ARVAL, LeasePlan, Sumitomo, Orix) are present on the market, their penetration remains very low.
This comes from the fact that leasing, in the eyes of Indian customers, has a reputation to be a “luxury” product, i.e. expensive and not suitable for the normal, cost-conscious client. The leasing industry has invested a lot of time and money in educating its potential clients about tax benefits and TCO, but has never truly managed to get the traction it needs to achieve high volumes.
Therefore, going to market with a “subscription” service might very well be the right approach. The tech-savvy Indian consumer is used to subscription to buy e-commerce and telecom services, and will be more open to consider new offerings under the subscription umbrella.
If successful (figures are not available at this point in time), car subscription will reflect positively on the Indian leasing industry, giving it the push it has been aspiring for.
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