Disruption in Indian Auto Industry: Rise of Cab Aggregators and Ride Sharing platforms

by Ketan Salhotra

Urban mobility landscape in India has completely transformed over last 3 years. It is now led by a breed of new age startups – cab aggregators like Uber and Ola; self-driven rental car services like Zoomcar, Voler etc and ride sharing services like Ryde and Bla Bla Car. These ventures are endeavouring to organize the highly fragmented Indian transportation sector and ensuring quick, reliable and smart service for the customers. All these companies have one thing in common- heart of their business is in their technology. With a few clicks on the app of a cab aggregator like Uber or Ola, a customer can connect with a verified nearby driver and be driven to their destination at pre-decided rates. Business model of most of these startups are asset light, since in most cases the cars are owned by the drivers and not the company. Growth of these start-ups has also been ably supported by over a billion dollar funding from investors across the board.

cab aggregators

Initially, many of these ventures ran into regulatory hurdles since unlike traditional radio cabs, there were no specific regulations covering on-demand transportation platforms. But now, many state transport departments are amending their policies to accommodate these mobility platforms to operate.

The growth of these ventures has been a win-win for both the customers and the cab drivers. Air conditioned taxi rides are conveniently available to the customers for as low as INR 7/ km. On the other hand, drivers affiliated to the cab aggregators report higher number of rides per hour and reduced idle time between trips. This has spawned a new breed of professionals who are becoming taxi drivers to earn a decent income (net income upward of Rs 30k-40k per month for Uber and Ola drivers). Ola also has tie-ups with the likes of Maruti, Hyundai, Tata and Nissan which enable better car financing terms (loan & repayment options) for those who want to purchase cabs under Ola channel.

But how is this on-demand mobility frenzy impacting the central ingredient around which these ventures are based- “The Cars”.

Short Term Impact on Indian Passenger Vehicles Industry

Spurt in these ventures (especially cab aggregators) has led to growth in sales of passenger vehicles in the cities due to increased sales to taxi owners. As per analyst estimates, close to 1.5 lakh cars were purchased by cab services providers of Ola and Uber in FY16. Cab aggregators are further looking to expand their fleet beyond the metro cities and this will provide further fillip to passenger vehicle sales over next 2-3 years. Maruti Swift Dzire, Hyundai Xcent, Tata Indica and Toyota Sedan are some of the popular brands among cab aggregators. These models have especially seen uptick in demand for commercial use over last couple of years.

Long Term Impact on Indian Passenger Vehicles Industry

There is an increasing concern among automakers that easy mobility option for customers could discourage them to own a vehicle in the future. The reasons for the same are not hard to understand. Expensive parking space & traffic jams in metro cities, rising cost of ownership of vehicle, high fuel bills and car maintenance costs are some of the relevant factors which may shift preference of consumers to “hiring the car when required” rather than “owning it”. This is especially true in case of existing car owners who are likely to cancel buying second or third car.
Chairman of Mahindra and Mahindra had said in September 2015 “Since these app operators have made transportation a commodity, (auto) sales could be hit and volumes get impacted”.

There is a crucial factor which is being ignored in this pessimism around vehicle sales in the future. The life expectancy of an average on-demand cab is expected to be just around 3 years due to heavy utilization; this high rate of turnover will ensure steady rise in sales volume of cabs. Also, each cab travels more distance compared to the cumulative passenger vehicles it replaces on the road, since these cabs besides providing rides to passengers also have to travel from one passenger to another. Hence, roads are expected to have lesser number of private vehicles and substantial number of on-demand vehicles going forward. However, a significant rise in ride sharing could dent this analysis substantially.

Other Emerging Global Trends

1. Global OEMs acquiring stake in ride-hailing/ ride-sharing companies

Global OEMs have recently formed partnerships with cab aggregation and ride sharing apps to cash in on the growing market of on-demand transportation. General Motors (GM) invested USD 500 mn in Lyft in January 2016, the second largest cab-hailing service provider in US. In May 2016, Toyota has entered into a strategic partnership with Uber where it has not only acquired a small stake in Uber, but will also offer leases to Uber drivers. Volkswagen has also invested USD 300 mn in Israel-based Gett, another taxi-ordering company. BMW has also announced becoming a shareholder in the carpool platform Scoop.

Similar initiatives may be taken by Auto OEMs in India as well to capture the increasing popularity of on-demand aggregators and ride sharing apps in the country.

2. Advent of Autonomous On-Demand Vehicles

Autonomous vehicle technology has reached a pivotal point. Google, Apple and Tesla are not the only companies working on building Autonomous vehicles. Most of the global Auto OEMs are investing heavily in building fully self-driving cars. GM has purchased self-driving technology start-up Cruise Automation for more than 1 billion USD in 2016. In May 2016, BMW had announced that it would launch a self-driving car within next 5 years. Ford plans to provide mobility services with autonomous self-driving cars by 2021.

Cab Aggregators are not staying behind either. Uber is conducting field-trials of self-driving taxis around Pittsburgh with a human backup driver. Its rival, Lyft is also testing autonomous cars in San Francisco and Phoenix in partnership with GM.

It is estimated that within next decade, majority of rides by ride-hailing service providers in US will be through self-driving cars. It is not long before this phenomenon will start making an impact in India as well.

This is an Aurum Original article. No reproductions allowed without written consent.

1 reply

Leave a Reply

Leave a Reply

Your email address will not be published. Required fields are marked *