India’s first domestic captive leasing company
India’s top 3 manufacturer, Mahindra & Mahindra, has surprised the small and competitive Indian leasing market by announcing the creation of a captive leasing company.
The company will be offering a traditional leasing product (maintenance, tyres, insurance and roadside assistance included) for up to 5 year contracts. According to M&M’s press release, the product will be flexible, with the opportunity to switch vehicles during the contract duration.The residual value risk will be borne by the captive.
The press release also states that M&M’s entry in the leasing market will be aiming at retail clients, which brings the product closer to a balloon finance with services, but it is, at this point, unclear whether Mahindra will be challenging the 4 major leasing companies in India (ALD, LeasePlan, Athlon and ORIX).
ALD & ORIX
Part of the answer to this question can be found in the partnerships with ALD and ORIX. Both will be supplying the leasing services to M&M, owning the vehicles and bearing the RV risk. Both companies have experience in providing white label services; ALD provides captive services to many OEMs and ORIX has been successful offering white label financial products for retailers.
Mahindra & Mahindra
The M&M group is a large, international and multi-disciplinary group, active in the automotive industry, financing, agriculture, defence and IT. Over 40,000 people work across the world for the company. The group has been booking more than decent results for the last years, reporting almost US$ 700 million of operating income (source: M&M Annual Report 2017-2018), up 15% from the previous fiscal year.
Mahindra is India’s number one agricultural machine producer and number 3 automotive manufacturer in the country, behind Maruti and Hyundai and ahead of Tata and Honda. The outlook of Mahindra’s sales success is positive, benefiting from a large range of SUVs, which also the Indians seem to prefer to sedans.
The size of India’s leasing market is not well reported, but is said to be between 80,000 and 100,000 units, which is a small share in relationship with India’s total number of cars of 25.6 million and over 3 million units sold annually.
Especially the 3 European leasing companies are working hard to socialise leasing solutions amongst corporate clients and they are gradually booking successes, but still with mainly Western clients. The domestic client continues looking at leasing as a “luxury” solution; nevertheless, an increasing awareness of risk mitigation should work in favour of the leasing industry.
Mahindra leasing will be commercialised via the Mahindra dealer network, which means that the company will have to spend a lot of time and money to educate the sales people, usually more focused on closing the sales deal rather can complicating it by proposing finance products.
In addition, it’s not sure that a leasing proposal will attract additional clients very fast. The market needs to get used to a new proposal. Mahindra is trying to convince the potential client with an attractive launch offer of under US$ 200 for the ultra-compact KUV100 SUV for people living in Delhi, Mumbai, Hyderabad, Bengaluru, Ahmedabad and Pune. Eventually, retail leasing will also be offered in 19 additional cities.