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Should Anand Mahindra Be Threatened By The Ubers & Olas?
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In the short term, apps like Ola, Uber and Taxi-for-sure will only give volumes to the auto car makers, says Neeraj Thakur
Sonali Jha travels between Gurgaon and Delhi everyday using Ola cabs, and does not feel the need to own a car. While Ola service sometimes suffers due to crackdowns by the Delhi government on taxi app services, yet, Sonali somehow manages and does not think of buying a car anytime soon.
There is an ever increasing population of young people in the metro cities of India who are not emotional about owning a car, even if they can afford it.
“People today are looking for convenience. Nobody wants to deal with the rush hour traffic. I do not mind spending Rs 700-800 on cab service every day,” says Sonali . While Sonali’s per day budget is on the higher end because of the distance she travels, there are people who use the app based taxi services for as little as Rs 200 per ride.
People like Sonali are giving industrialists like Anand Mahindra shivers down their spine. Mahindra, the chairman of the Mahindra and Mahindra group, in a press conference has flagged off the issue of Taxi hailing apps like Ola and Uber eating into the business of passenger car makers.
Buying a small car in India needs an upfront investment of Rs 1 lakh to Rs 1.5 lakh (rest in EMIs), beyond which a person spends the same amount of money per year on fuel, maintenance and insurance. What's more, the cost of the car depreciates at the rate of 15-20 per cent every year.
According to Abdul Majeed, an automobile expert at PWC, “The cost of the travelling by Uber or Ola is 40 per cent less than the cost of owning a car. This makes it possible for people not to consider investing in a vehicle".
However, Majeed also feels that the situation will not change overnight and in the short term apps like Ola, Uber and Taxi-for-sure will only give volumes to the auto car makers. “In the first 4-5 years, these companies will have to add more cars into their fleet so that they make sure that everybody gets a taxi within 15 minutes of booking. Once they reach there, only then people will comfortably look to rely on the app based tax services,” emphasises Majeed.
Who Will Win The Fight?
The situation is likely to become tight for automakers in the urban areas, as the urban markets are already saturated due to scarcity of parking space and traffic jams. “In cities and among the younger population, there is a shift in the mindset where people look at mobility more than they look at the product. Earlier people used to look at the product first. This will lead to shrinkage in demand in the urban areas,” says Rakesh Batra, automotive sector expert, EY.
However, there is a huge rural market available to the automobile companies where the market is still under-penetrated. According to data available at How India Lives, there are just 37,85,355 four wheelers in the rural India as compared to 76,88,232 units in the urban areas. Moreover, the rural consumers have no parking issues and have to travel longer distances compared to urban areas. A company like Maruti makes 31 per cent of its sales in the rural market.
In the urban market as well, Majeed feels the connected car can help automakers score over the taxi-hailing apps. “A connected car is a completely different experience where you can do much more than just travel. This is something one cannot get in a taxi”
However, Uber and Ola are challenging the idea of connected cars as well. According to Techcrunch.com, Uber and Ola are planning to offer free 4G services to their customers. If this happens, this would add a new dimension to the fight between the auto car makers and the app based taxi providers.
However, Batra feels that OEMs can deal with the rising threat of app-based taxi providers by acquiring them.” It has happened in other parts of the world in the past. Companies like Ford and General Motors also owned car renting companies in the US. So these OEMs may go for acquiring these companies” says Batra.