Cabs make car firms rethink sales plans
With Uber, Ola and others reducing transportation to a commodity and technology redefining personal mobility, auto manufacturers have their task cut out to drive sales
Sometime in November, the leadership team of Tata Motors Ltd held a one-day off-site meeting on the outskirts of Mumbai.
The discussions, led by Tata Group chairman Cyrus Mistry, revolved around smart mobility at a time when the sharing economy is proving to be a disruption in personal transport.
The talks, said a person who was present at the meeting, remained inconclusive on the business model the firm could adopt, even as the executives debated whether Tata Motors should start something on the lines of Uber Technologies Inc, which links travellers with drivers, or if it should just stick to supplying cars for taxi aggregators.
More clarity on these, or other ideas, will emerge in next 12-18 months, said another person familiar with the development.
A Tata Motors spokeswoman declined to comment on the matter.
At Mahindra and Mahindra Ltd, another home-grown Indian automobile company, chairman Anand Mahindra made it very clear that taxi-hailing apps, such as Uber and Ola are the biggest potential threat to the automotive industry and it is pertinent that automakers must create new products that customers love to own and not just use as a means of transport.
“Since these app operators have made transportation a commodity, (auto) sales could be hit and volumes get impacted," Mahindra had said in September.
Hypothetically, if Ola has built a fleet of 350,000 cars across India and Uber around 150,000, and as per their claims, none of their cars are older than three years, then together they accounted for 9.25% of total 5.4 million passenger cars sold in the country in the last three years. And, since one cab gets utilized multiple times during the day, it became a concern for Mahindra. “A lot of youngsters who can own vehicles today don’t want to own one, but only need access to transportation," he had said.
The trend is likely to continue. The facts that underpin this trend are compelling.
The number of vehicles (not counting two- and three-wheelers) on the road is expected to be more than two billion by 2050, while more than 50% of the global population is expected to reside in cities.
In India, over the past 12 months, the taxi industry has completely transformed. And one of the reasons for that is the amount of money being invested into cab aggregation. In July last year, Uber promised to invest $1 billion in India over the next nine months—this allows them to further push services such as Uber Carpool in different cities across the country, and comes on the back of a move to raise as much as $2.1 billion in the latest round of financing (this would make Uber worth $62.5 billion).
“Uber is currently present in 26 cities, making India the third largest market already, after US and China," says Ruchica Tomar, communications lead, Uber India.
At the same time, Uber’s biggest rival in India, Ola (ANI Technologies Pvt. Ltd) has raised over $1.3 billion in different stages of funding (and is estimated to be worth $5 billion). Its portfolio of services includes cabs, shared rides, personal carpool services as well as shuttle services ferrying 10,000 people on 100 routes in Delhi-NCR every day.
“Ola currently operates in 102 cities, and sees over 1 million daily booking requests at present," says Anand Subramanian, senior director of marketing communications at Ola.
All this has happened because of a growing level of acceptance from the users—they no longer have to deal with stressing traffic jams and parking hassles every time they hit the road.
Apart from the changing mindset, the regulations that govern the taxi services in India are now pretty much in place. “The guidelines are a significant step in the right direction. They rightfully distinguish between taxi operators and technology platforms, and lay down sector-specific regulations for our industry," says Uber’s Tomar.
Other factors that tempt people to prefer taxis in overcrowded cities, such as Mumbai, Delhi and Bengaluru, are low cost of ridership coupled with the comfort of not driving a car in crazy traffic. Then, there are ride-sharing services like BlaBlaCar. There are also self-drive car rental services, such as Voler and Revv, which can effectively replace your car with something fancier (or more utilitarian, depending on what you want) for a specific duration of time. “You can choose to book the car by hour, day, week or month and have the freedom to drive a new car every day," says Vikas Parasrampuria, founder and chief executive, Voler. And there are the numbers to back it up too. “We believe this could be a $3-5 billion revenue market by 2020," says Anupam Agarwal, co-founder and chief executive, Revv.
While Uber is offering taxi rides at as low as ₹ 7/km (UberGO), there is a further 40% discount on tariffs, if you wish to take the carpool option. Ola on the other hand charges upwards of ₹ 8/km for standard booking. This makes a daily ride much cheaper than a car bought on loan.
“What one needs to see is how long can they sustain such fares," says I.V. Rao, technical adviser, Maruti Suzuki India Ltd, the country’s largest car maker.
“There will come a point when the money being pumped in from investors/promoters will come to a halt."
To be sure, when that happens, cab aggregators are likely to succeed in developing their business as a habit among Indians.
According to Abdul Majeed, partner and leader of national auto practice, Pricewaterhouse Coopers, the rise of Uber and Ola suggests individual ownership may not be the primary model of vehicle ownership in the future. “But, it is not clear how this will affect the sales and marketing models," Majeed says.
Globally, auto makers have already reacted swiftly to the development.
At the turn of this year, American car maker General Motors Co. announced that it is investing $500 million into Uber’s rival in the US, Lyft Inc.
But this raises a very important point: the more people use ride-hailing services, such as Lyft, the less they’re likely to buy cars made by GM. So why this move?
The answer: Driverless cars.
“We see the future of personal mobility as connected, seamless and autonomous. With GM and Lyft working together, we believe we can successfully implement this vision more rapidly," said GM’s president Dan Ammann while announcing the partnership.
This isn’t the first time a global auto maker is focusing on changing the rules of mobility. Ford is experimenting with projects such as car-sharing and Internet-connected bicycles around the world, including at Bengaluru in India.
While the big numbers put India on the map globally, the way this market works is very different. Carmakers in India aren’t yet directly involved in the process of transition. Here, Uber and Ola do not own any vehicles. Any one who wants to join the fleet are free to do so with any vehicle they own. Uber has categories such as GO and X, depending on the type of vehicle. While Ola has pretty much the same model for its fleet, it also has specific tie-ups with the likes of Maruti, Hyundai, Tata and Nissan, for example, which enable better loan terms, repayment options and other financial benefits for those who want to buy cabs through that channel.
According to Deep Kapuria, chairman of the Delhi-based auto components maker Hi-Tech Group, the world of automobiles is changing very fast. Indian companies will have to redefine themselves to become personal mobility companies. “On my last visit to the west coast of the US, I visited Tesla, Google and Apple, beside talking to some value-chain suppliers such as Covisint. It is starkly clear that the auto industry has entered into a defining era," says Kapuria.
According to him, autonomous driving could change the landscape and pave the way for technology firms to populate the space of autos.
“This concept is removing entry barriers from the auto business. Connected cars are changing business models for industries— from insurers to rental fleets," he says.
Cars of the future will be mobile communications platforms that talk to each other and the world around them to make driving safer and more efficient. They will be integrated into the transportation ecosystem in ways that optimize the entire system, with software that allows owners to increasingly customize features and functions.
“Such concepts won’t take much time to come to India," Kapuria says.
Maruti Suzuki believes India may still be some time away before such phenomena start to make an impact.
“There will continue to be people who would want to own a car," says T. Hashimoto, executive officer, Maruti Suzuki. “It could work very well in cities due to traffic and parking space crunch. But in rural areas, they would still need cars or bikes. So, we will have enough space to expand our business."
However, Maruti will start an investigation if it notices the emergence of such a trend, Hashimoto says.
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