6 juin 17

The Indian summer of funding

Painting a decent and transparent picture of the availability and popularity of vehicle fleet funding methods in India is really hard because there's a lack of good data.  Nevertheless there are some clear trends towards outsourcing appetite.    

An Indian buyer, like fleet counterparts in other parts of Asia, or in Europe or the Americas, is a cost conscious creature. But questions about whether to buy or to lease vehicles, and exploring the relative merits of each option, are only just now starting to be asked by pioneer buyers in the Indian fleet market. 

"Back in the ninetiesleasing was practically unheard of in India" says Anisha Mukherjee of LeasePlan India. "With leasing companies entering the market in early 2000 the companies had to focus on generating awareness about operational lease and educating the market about its benefits."

Indian fleet market

There are two distinct fleet sectors to think about when it comes to corporate vehicles.  Firstly, cars offered to employees as part of their remuneration package, a perk or a tax saving device.  Secondly, there's the business need car which an employee needs to do their job. It's is also worth noting that many field staff in India that are expected to provide their own mobility. 

There's not a company car culture. “Although there are many companies with large field forces that need to travel, most corporations do not offer cars to their employees”, says Suvajit Karmakar, CEO ALD India. This is slowly changing with some multi-national companies breaking rank and starting to offer small cars to their field staff.  It's a practice being deployed by a few corporations to attract and retain the best talent.  A car is an attractive bargaining chip.

How are vehicles funded?

So what about the funding opportunities on offer when it comes to acquiring a fleet of vehicles?   There's a number of options on the menu that buyers can choose from.  But again, with uncertainty about the data, it's hard to analyse what's popular and what's not, and really understand the reasons on which buyers are basing their decisions.


Full service or operating leasing, finance leasing, loans and cash are all used to get the fleet cars Indian corporations need. 

Mike Curtis, Managing Director of Arval India, says “many companies in India prefer to buy cars as a traditional preference rather than take objective assessment of the most efficient method that is available in the market.” Car leasing companies - as you would expect - are keen to engage the market and educate buyers about the benefits of leasing.

"While the leasing concept has gained acceptability in Tier 1 cities (metropolitan cities), Tier 2 and 3 cities are also fast becoming focus markets for leasing companies", says Anisha Mukherjee of LeasePlan India. "Large corporates offer immense untapped potential for operational lease. But in a country as vast and diverse as India, Small and Medium Entreprises play a crucial role in the economy. A study conducted by the Ministry of Micro, Small and Medium Entreprises indicates that there are about 1.5 million companies across the lentgh and the breadth of the country. This sector presents a huge opportunity for growth for lease companies.

Subsidised financing is held aloft as a great opportunity.  This financing method sees drivers fund part of the cost of a vehicle from their pre-tax salary.  It's hugely popular with employees because of its tax efficiency.      

This type of financing helps accounts for more than 70% of the total corporate fleet, according to ALDs Karmakar. 


So who's buying the vehicles and from whom?


The average Indian fleet size is estimated at somewhere between 50 and 100 vehicles, but it is the larger domestic based companies and MNC's running bigger fleets that are regarded as the leading lights in fleet business and the drivers of innovation. 

Corporations in IT, Business Process Outsourcing, banking, construction and agricultural are the ones that are making change happen.  They are formalising fleet policy and working with dedicated funding providers to move fleets onto financing models that are more familiar to buyers in Europe and the Americas.

The major players in the market offering full service leasing are ALD Automotive, LeasePlan, Orix, Arval, Carz on Rent, Avis and Tranzlease.   But there's also GE Auto Leasing, Magma, Car Club, Citi Corp in India too. In addition, Raligare, Kotak Mahindra and Tata Capital, all local providers, offer finance leasing.

Most corporates however, don't have fleet policies or practices which they follow.  It means most fleets are going unmanaged and opportunities for efficiencies are being missed. It's no wonder leasing suppliers are eager to educate the market and showcase best practice examples that demonstrate what is possible.

Authored by: Steven Schoefs