Two auto industry stalwarts cannot agree on whether Ola and Uber are a major reason for the auto slowdown.
Ever since Finance Minister Nirmala Sitharaman’s comment about the “millennial mindset” of preferring Ola/Uber for commute was made, many including millennials themselves have weighed in with their viewpoint.
While views have differed on how much of a factor the rise of app-based cab aggregators has been, it seems that even car company bosses cannot agree on it.
Here's a look at what industry stalwarts like Anand Mahindra (Group Chairman - Mahindra & Mahindra) and RC Bhargava (Chairman and CEO - Maruti Suzuki) have had to say on the subject.
High prices & low finance to blame, not aggregators: RC Bhargava
While around 8 percent of Maruti Suzuki’s cars were sold to taxi aggregators, it is not alone, as by 2016 itself a third of auto sales were from cab operators. According to estimates prepared by IHS Markit, a research firm, cab aggregators will account for 12 percent of its new vehicle sales in India by 2030.
Sitharaman’s opinion on the issue also included the fact that millennials do not want to take up EMIs. But Bhargava points out that cars have become expensive, and so have the insurance premiums on them, which in turn significantly drives up the EMI amount.
Bhargava has also acknowledged that car prices have put a damper on the market, especially post GST, high fuel tax, and the updated Motor Vehicles Act, which now mandates airbags and ABS systems.
As such prices of the low range Maruti offering Alto too has increased, with sales plunging 50 percent. “Entry-level four-wheelers have become unaffordable to buy and maintain for the common man,” Bhargava told TOI.
He has been consistent in his views on Ola and Uber, stating that effect of “structural shifts” is negligent compared to the strain from other mentioned factors, namely the “risk-shy” banking sector with “paralysis of decision-making” as the biggest issue.
In fact, Maruti has been among the front-runner in joining hands with cab aggregators to create an alternate demand source. The company’s stripped-down Alto H1 variant and electric vehicle (EV) offerings specifically for sale to Uber, Ola.
In an interview with Moneycontrol, Bhargava emphasised the economical element that aggregators bring to transportation, especially in terms of comfort and safety as compared to two-wheelers.
“People, who can’t afford to own a car of their own because it is too costly, will still use a car for journeys where they have to take their family because they can do that and they can afford to do that using cab aggregators," he said.
Bhargava’s reasoning is simple. He said while a common car user drove the vehicle for 8,000 to 10,000 km a year, a vehicle with a cab aggregator rode anywhere between 60,000 km and 100,000 km in a year.
“So, the usage of a vehicle is much higher. The number of people using a cab becomes much higher. And that’s all good for us. So I welcome cab aggregators,” he said, adding, “If something improves the economics of the customer, it has to be good for the manufacturer. The more value you give to the customer, the more value you get in your company,” he said.
Dramatic shift in customer segment: Anand Mahindra
Identifying Uber, Ola as the “biggest potential threat to the automotive industry”, Anand Mahindra has often reiterated the need to create “new products that customer love to own and not just use as a means of transport.”
"The age of access being offered by taxi-hailing apps like Uber and Ola is the biggest potential threat to the auto industry. Since these apps operators have made transportation a commodity, (auto) sales could be hit and volumes get impacted. A lot of youngsters who can own vehicles today don't want to own one, but only need access to transportation," he said.
He, however, said that it would be up to automakers to provide innovative products that people would “love to own”.
In line with this vision, M&M entered the ride-sharing space with Glyd for which the automaker plans to provide in its first batch 10 e-Veritos. It is looking to expand in the electric vehicle (EV) market and take on cab aggregators.
For this, the company also tied up with Ola to provide over 10,000 e-rickshaws and electric auto-rickshaws. In 2018, M&M had supplied over 40,000 cars to Ola in two years, earning the group a business of Rs 2,600 crore.
Commenting on the moves, Mahindra said their entry into the market with electric cars would be one of the 'solutions and not just products' in the industry.
Mahindra’s view of cab aggregators as a threat has made his company one of the more proactive ones in an industry that is witnessing dynamic changes.
Speaking about how congestion in cities has changed car usage patterns, especially among young people, Mahindra said that people wouldn’t stop buying cars altogether, but would simply buy cars for purposes other than getting around cities.
“Intercity transport and recreational transport is going to explode in India. As affluence grows, people will buy vehicles for travelling between cities, for their lifestyle and recreation, and for expression of their own individual personality” he said.
Mahindra also said that introducing people to electric cars via Ola, Uber would familiarise them with such vehicles."Fleets are the best way to familiarise people to speed up adoption. So in some point, if see all these charts converge that's the time that people will start using it for personal mobility. Mahindra will be ready (for it) with some options which are both affordable and exciting," he said.Get access to India's fastest growing financial subscriptions service Moneycontrol Pro for as little as Rs 599 for first year. Use the code "GETPRO". Moneycontrol Pro offers you all the information you need for wealth creation including actionable investment ideas, independent research and insights & analysis For more information, check out the Moneycontrol website or mobile app.