Car Wars

This question has been bugging me since the past couple of days. Will Ubers and Olas drive car sales or kill the market for cars owned by individuals? 

Uber, Ola and other cab aggregators who are in the business of technology driven transportation and commuting are doing phenomenally well. Both in terms of revenues and in terms of achieving excellence in service quality. Their business is booming, losses are under control and customer acquisitions are on track. In metro cities they have enough number of cabs under their model to ensure that the average waiting time for a cab hailer is shorter than 10 minutes. Tiered II cities and smaller towns too are catching-up rapidly. Their acceptance is on rise and so is their ability to pool good drivers into the new system. Smart marketing is not only appealing targets who do not own a car but is also attracting those car owners who should skip driving once in a while to enjoy a carefree ride. Drivers (in fact the true owners of cars) are well paid. The reward system is decent and the work timings are flexible. I think it’s working. I also think that number of people have delayed ‘owing’ a car for it’s far too easier to book a hassle free ride at much lower cost. 

So, the question is what happens to car companies and their sales targets if several prospective buyers decide to go the Uber way? Will the sales fall because of lesser and lesser individual buyers or will they rise thanks to more and more cabbies willing to strike a great deal with these aggregators? Are Ubers and Ols threats of they are the next big opportunity waiting to be leveraged? Will the new wave last long enough to shake the car manufacturer’s tried and tested model or will it fade away giving way to better car sales in times to come? Who will bear the losses of customer acquisition and for how long? And finally, will loyal Uberists prefer to hail a cab at double the rate in years to come or will they then prefer to buy and own a car for equivalent running cost? 

There have been quite diverse and wide ranging reactions from auto majors on this issue. Anand Mahindra said, “The age of access being offered by taxi-hailing apps like Uber and Ola is the biggest potential threat to auto industry. Since these apps operators have made transpiration a commodity, (auto) sales could be hit and volumes get impacted.” On the other hand RC Bhargava, the chairman of India’s largest carmaker Maruti Suzuki said, “Taxi aggregators such as San Francisco-headquartered Uber and its Indian rival Ola, instead of being a threat to carmakers, would drive their sales in the country.” 

Where is it going then? I feel the taxi business is here to stay. It is like people shifting from landline phones to mobile handheld devices. Except for the fact that this time the transition is much more smoother and cheaper. Many may choose to opt-out of car ownerships and retain the ‘real option’ of choosing their car as and when they want to ‘hold’ it. It may not make much financial sense (or maybe it does!) but it will continue to make a lot of non-financial sense to be able to avoid locked-in ownership and yet enjoy similar benefits of owning the asset. Will this then affect car manufacturers in long run? Yes. They have to get ready for alternative business models. They have to be prepared to offer something which taxi-hailers cannot or will not want to offer. Maybe they soon have to consolidate or redesign their operations to match the market dynamics. There can be a new segment of manufacturing cars only for cab aggregators (customised for short city trips/fuel efficiency/ergonomics/comfort).

Well, these are random thoughts with little or no substantive ‘data’ about how things are shaping-up. We need to wait for some longitudinal view. But it might be too risky for Mahindras and Marutis of the world to ‘wait and watch’. Steering through this bumpy landscape will need strategizing without speed limits.


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Author: anilkshatriyablog

I work as Assistant Professor in the area of Accounting at IMT Nagpur. I love teaching, writing and cycling. I follow a simple principle, 'Help ever, hurt never'.

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