Vehicle Subscription Services Taking hold in India

By Simmi Sinha

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5th January 2021

Car subscription has never been a popular choice for private car buyers in India where many take pride in owning a car as an asset.

However, while car subscription and leasing has a penetration of less than 1% mostly driven by corporate fleet management, this trend could soon be changing driven by customers who need different ownership models such as car-sharing, says Ravindra Dolare, president at Ecozen Solutions. Emphasizing the growing affinity towards shared mobility and digital technologies, he said: “I believe that young customers in India will drive this, however, the current barrier is a level of awareness.” Young buyers are spearheading a trend from “owning” to “experiencing” and thus subscribing  to a car service makes driving easy and hassle-free.

Abhishek Iyer, research analyst new mobility at Frost and Sullivan, thinks the millennial consumer is shifting away from ownership to user-ship. He adds, mobility companies like Zoomcar are moving towards cloud-based platforms which offer a single connected platform enabling automakers and mobility operators to employ their technology stacks and derive new monetization opportunities.

Shashank Thakur, Indian Institute of Foreign Trade said, the Indian auto market, as the fourth largest in the world, has been receiving support from the government through policies like Automotive Mission Plan, FAME, GST etc. Now there is an inherent need to look for newer dimensions and models of business. Vehicle subscription is one such model. It aligns perfectly with India’s younger population that avoids large and long-term investments and commitment in acquiring a vehicle.

Hence, from new entrants like Revolt motorcycles to established players like Hyundai and Maruti Suzuki, every automaker is trying to get an early piece of the pie.

Amid the shift in consumer buying decision process, Sarthak Sharma, an automotive design consultant, believes that owing to the imminent decline of the ownership model, the subscription economy is expected to soar to meet changing consumer needs. The mobility as a service (MaaS) is closer to the software as a service (SaaS) focused on to customers who subscribe to them on a monthly basis, rather than individual transactions. For Example, a car subscription service provided by Hyundai Motor or other carmakers is not categorized into the sharing economy as users rent or lease their cars for a certain period of time.

On the similar note, Karan Rao, auto-tech professional from Gurgaon thinks, leasing and subscription is emerging as the most promising option to most of the commuters who are now evaluating their options for vehicle ownership. They are opting for lease instead of ownership to reduce the cash flow and increase their savings especially now many of them are now skeptical in using public transport or a cab in the pandemic. Leasing a vehicle has more flexibility than any other mobility solutions, with short-term leasing tenures and reasonable monthly payouts and involves minimum expenses since the user do not need to make any down payment, registration charges, maintenance costs, road tax or insurance since all of that is already factored in monthly rentals.

The shift

Speaking on this Iyer said, a number of carmakers, including Hyundai, Toyota, Kia, Maruti Suzuki, Tata Motors, Volkswagen and MG Motor, have already started to offer vehicle leasing and long-term vehicle subscriptions through partnerships with mobility providers such as Zoomcar, Revv and Myles and with traditional leasing companies like ALD Automotive. This can also be viewed as a potential strategy to drive greater traction for the peer-to-peer market segments and to accelerate the shift towards electric mobility in the near future.

Dolare thinks, auto companies such as Hyundai, Volkswagen, Mahindra, and Mahindra have already started a subscription services either directly or with third-party tie-ups. However, to scale up the model and make it sustainable, ecosystem has to be created in India and carmakers and dealerships have to come together to support banks and insurance companies to make car subscription a viable model.

According to Thakur, the accelerated adoption of the subscription model requires participation from the whole ecosystem while bringing tremendous opportunities. Automakers will have the chance to switch to MaaS model rather than a one-time sale, dealers and allied service providers can repeatedly gain from used or new vehicles, and technology players will have the opportunity to generate revenue through downstream services like predictive analytics, aggregated and integrated services etc.

Sharma talked about some of the major automotive subscription services market players like Volvo, BMW, Lyft, and ZoomCar. According to him, the automotive subscription services market size exceeded $3Bn in 2019 and is poised to register a CAGR of over 40% between 2020 and 2026. Growth drivers are stringent government regulations regarding emission control, lack of proper public transportation infrastructure in India. Therefore, challenges are tapping into new market segments, or entering new geographical territories and monthly charges for the short-term subscription is high.

Trend to stay

The micro-mobility segment is also gaining significant traction in this space with mobility companies like Bounce and Vogo and Electric vehicle manufacturers like Hero Electric and Ather are also offering subscription packages for individual and corporate customers. So Iyer thinks that, subscription models offer the much-needed alternative for this target population to gain access to new vehicles and experience different brands.

Millennials have felt the heat and impact of the pandemic first hand owing to cash crunches, job losses and pay cuts and the gradual decline of purchasing power, Rao adds. They are now looking at more practical and viable mobility options and consider leasing and subscriptions as the right choice to reduce their net outflow of cash and avoiding to block their savings and capital in down payments to purchase new vehicles.

Dolare concluded that, as the economy is slowing down, the car industry is also looking for innovative business models, subscribing to a car may be a smart choice for customers than buying a car and locking finances for four to five years. It’s certainly a trend whose time has come.