In September last year while I was moderating a panel discussion on the future of mobility, a young man from the audience stood up and asked one of the country’s best-known automobile CEOs on the panel whether Auto Inc in India had absorbed the enormity of the challenge posed by ride- hailing and ride-sharing companies like Uber and Ola.
The CEO’s response was revealing. “What challenge? Even if they prospered and grew they would still buy our products,” he said. I don’t remember the young man’s face let alone recollect his name, but that singular query from him exposed how clueless and hapless the auto industry has been in acknowledging the latent force represented by the shared economy. The only constant exception though has been Anand Mahindra.
When the 61-year-old, Chairman of the eponymous company that makes the Scorpio and the XUV, announced a unique strategic alliance with Uber’s bitter rival Ola in India on Thursday, those who have been following the company were least surprised. Earlier this year he had unambiguously presented a ‘shape up or ship out’ scenario for the auto industry while unveiling the company’s first petrol powered car, the KUV100. The age of access, Mahindra reasoned, presented the single biggest threat to the auto industry by potentially eating into auto companies’ sales and impacting demand. Uber founder Travis Kalanick’s war cry of getting ‘more people into fewer cars’ had become simply impossible to ignore now.
And for good reason. A recent report by Morgan Stanley has predicted that shared mobility platforms will see a vertiginous growth in the coming years, and India will be one of the key drivers of that growth. The report has forecast that by 2030 around 26 percent of the total miles covered globally will be met through shared cars – marking an over 8-fold jump from 2015. And, despite being a late adopter of the trend, India will be one of the largest markets, with 25 percent of miles travelled put down to ride hailing and ride sharing.
If more and more people start sharing cars, rather than using one for individual use, we are looking at a not-so-distant future where demand for cars could start tapering down. In fact, another study conducted by OECD reckons that with the rise of driverless vehicles coupled with the impact of shared cars, the demand for cars could fall by up to 90 per cent in the coming years!
We may quibble over the extent of ‘damage’ the shared mobility platforms may cause to the brick and mortar automobile industry, but it is indisputable that the underlying structure of the industry is in the midst of a churn. The rise of shared mobility and the fall of demand in cars, could potentially commoditize an industry which has long taken pride in differentiated product offering. The auto industry’s standard argument that lower car penetration in India would mean demand would remain perennially high is becoming anachronistic in today’s context. Heightened environmental awareness and excruciatingly long traffic jams together could tighten India’s embrace of shared mobility. In fact, Ola’s founder Bhavish Aggarwal hinted at precisely this on Thursday, when he said that while car ownership levels in India are “very low” it was “unlikely” we would ever reach China, US levels.
Though the threat to the auto industry form the shared platforms is real, it would be far-fetched to argue that common folks would simply stop buying cars. Especially in a country like India where car ownership is seen as a status symbol, manufacturers would still find ready buyers. Also, while everyday driving through the maze of traffic may be universally dreaded, long leisure drives over weekends will continue to excite and invigorate the spirits both for the drivers and carmakers. And while shared platforms are here to stay, the inevitability of their success is far from certain. Regulatory hurdles continue to confuse and confound. Cut-throat competition, worsened partly by low entry barriers, means that ride hailing taxis’ battle for market share would be based on aggressive pricing that threatens to turn this into a zero-sum game.
These trends portend a future where carmakers and ride sharing platforms will have little choice but to shed their ambivalence towards each other and collaborate to forge a tighter relationship. While globally we have already seen Toyota, General Motors, BMW and Volkswagen buying into ride hailing companies, Indian automakers have been slower to respond. Existing arrangements with Uber and Ola by companies like Nissan and Tata Motors are restricted only to providing cars at cheaper rates and easier financing options. Mahindra, however, has taken a giant stride by announcing a "strategic alliance" that will see its entire group chipping in to support Ola around areas from finance, used cars, IT, maintenance to insurance. At this stage, it appears Ola has a lot more to gain from this arrangement than Mahindra, but if this partnership provides Mahindra with the first mover advantage in a vastly altered world of mobility ten years hence, it could gain manifold. Yes, Mr Mahindra, the ‘click and brick’ model is unquestionably here to stay.
(Ronojoy Banerjee is Assistant Corporate Editor and Host of The Big Picture on CNBC-TV18)
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