Why auto makers are eager to partner with taxi aggregators

Mumbai: In September 2015, the question of how Mahindra Group could capitalize on the booming ride-hailing market prompted Anand Mahindra, chairman of the Mahindra Group, to slip into a philosophical mood.

For auto makers, “the age of access” has brought in its wake some uncertainty, Mahindra had said.

It’s been a year since Mahindra made the remark, and a lot has changed since then.

The “access” that Mahindra alluded to has only improved, and auto makers such as Mahindra and Mahindra Ltd cannot ignore the segment anymore.

That’s the main reason the Mumbai-based car maker has announced an agreement with ANI Technologies Ltd, which operates Ola.

The partnership with India’s largest taxi aggregator comes amid a growing demand for cab-hailing services in a country that lacks an efficient, integrated public transport system.

Moreover, increasing congestion on the roads of urban India is dissuading commuters from owning or driving a car. In a way, it also is a pointer to changing mindset in the boardrooms of auto firms. What was once perceived as a threat is now being looked at as an opportunity.

“Two to three years ago when we started selling to them (the taxi market), we were worried that we are selling too many cars to them. In retrospect, I’m quite happy as more and more manufacturers are going that way,” said Vikram Kirloskar, vice-chairman at Toyota Kirloskar Motor Pvt. Ltd, in an interview last week, adding that Toyota is one of the preferred suppliers to the segment despite its model Etios being 10-15% costlier than the rivals.

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“Even those with six cars at home call for cabs from aggregators. We are working hard to tap into the potential of the segment,” said Kirloskar.

Another reason car makers are warming up to the idea of shared mobility is that gives them an opportunity to push models that are not selling well among individual buyers.

Moreover, it also allows business groups like Mahindra and Tata to sell services and products from their other businesses such as finance, insurance, services and spare parts.

“It’s a win-win situation for both—they need cars and we need to sell them and create awareness about the brand,” says Guillaume Sicard, president of Nissan India operations.

In November, Mint reported that Nissan has entered into an agreement with Ola Fleet Technology Pvt. Ltd, the Ola unit which leases cars to drivers.

Since that tie-up, the local arm of the Japanese car maker, which had been struggling to sell its low-cost models Go and redi-Go under the Datsun brand, has seen a pick-up in sales.

Datsun Go sales have gone up from 696 units in August 2015 to 941 units in July this year, and redi-Go sales rose from 576 units in May to 3,940 units in July this year. Eight out of 10 Datsun models in India now sell in the app-based taxi market.

Encouraged by the response, Nissan has tied up with Chennai-based start-up UTOO Cabs Ltd, a tax-hailing app founded by ex-Aircel owner C. Sivasankaran, which will compete with Ola and Uber. Nissan is also in discussion with Ola to develop a specific technology solution for Ola. Sicard, however, refused to elaborate on the matter.

Over the past 12 months, the taxi industry in India has seen a rapid transformation, driven largely by massive investments into cab aggregation.

In July last year, Uber promised to invest $1 billion in India over the next nine months.

Uber’s announcement came ahead of a move to raise $2.1 billion in funds at a valuation of $62.5 billion.

Ola too has raised more than $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.

Mahindra is the second conglomerate after the Tata Group to forge a partnership with an online cab-hailing app.

In June this year, Tata Group announced its partnership with Uber to offer driver partners on the latter’s platform, a comprehensive vehicle purchase and ownership scheme. This allows owners and drivers to buy cars like the Indica and Indigo from Tata Motors Ltd and gain access to flexible and customized financing solutions from Tata Capital Financial Services and Tata Motors Finance Ltd, get insurance from Tata AIG General Insurance Co. Ltd and seek operational support from Tata Business Support Services.

Anil Sharma, analyst at IHS Markit, a sales forecasting and market research firm, says the trend in India is very different from that in the US and Europe.

“In the US, auto makers are making investments into the business; here, it is more transactional,” Sharma said, pointing out that it is a validation by auto makers of the ride-hailing business as an opportunity and a growth area. “They now believe they will get some tailwind into their businesses by tying up with Ola or Uber.”

Amrit Raj in New Delhi contributed to this story.