Car Leasing Market Trends
Car leasing is a modern concept that allows consumers to have the comfort of driving a car without actually buying one. It is a common alternative offered by car dealers as an alternative to vehicle purchase and is a more popular concept especially in ‘corporates’ which allows companies to have all the benefits having a fleet of vehicles to provide cab services for employees and not owning the fleet. Car leasing can be at the convenience of years the consumer wants to keep the car. It offers an advantage to the buyers too because the lease payments are much lower than the car loans offered by various banks and provide an additive advantage to return the car to the seller once the lease period is over and lease a new one. This adds to the convenience of driving new vehicles every few years without actually selling the old one.
From a seller’s point of view, the vehicle is still owned by him and generates income without even maintaining it. Once the lease period is over, he can then find a new buyer and roll this process on which makes his liability, of owning a vehicle, an asset.
What’s on the table?
Leasing a car can be as simple as renting a flat for a specific period. This period can be of a year or 2 depending on the mutual agreement between the buyer and the seller. There is no any down-payment required as during buying a car. The rent is based on the model of car, a brand new not to mention. For example, Hyundai offers its SUV segment’s brand new Creta at a monthly rent of Rs. 18,000 (inclusive of taxes) having a lease of 5 years. This cost would be inclusive of maintenance which is done once in a quarter of exceeding specific kilometers. Similarly, Mahindra and Mahindra offer SUVs from their portfolio for an amount ranging from Rs. 12,000 to Rs. 34,000, the cost may vary depending on the model and city. Once the tenure is over, the buyer can return the car to the company and get a new model or a new car. While taking a car on a lease, the consumer needs to pay the insurance costs to the car manufacturer, since they renew the insurance policies on behalf of the consumer.
Car manufacturers globally are finding this new trend as an innovative idea to generate revenue from their products (vehicles) directly from consumers, without investing much in the showroom install base and inventory of vehicles in showrooms. These companies are offering cars for a period ranging from a few months to 5 years, depending upon the type of car model and the city selected. According to a recent survey, car sales have dropped gradually by almost 28% by the end of 2019. For Indian markets, Mahindra & Mahindra, Skoda, and Hyundai have joined this league offering various models and segments on lease. As per a recent study, Indian adoption to car leasing would expand with a CAGR of 22% over the next 10 years.
Choosing an appropriate target audience is equally important to leverage the benefits of an innovative business model like car leasing. With the growing extent of urbanization and making the car available in reach of a nuclear family, car manufacturers are targeting salaried individuals, working professionals, public servants, and owners of small and medium enterprise with a special focus on millennials who tend to look for a change in every 2-3 years and are prone to accept any growing trend. In today’s scenario, Indian corporates are more tend to use car leasing hence the market penetration is less than 2% as compared to North America which has already adopted this concept and has a market penetration of 45%. The car manufacturers are looking forward to a better outcome when it comes to Indian consumers due to its convenience compared to buying a car and paying heavy EMIs and also saves maintenance costs.
Challenges for the car leasing market
Restricted kilometers are one of the challenges which flatten the happiness curve of a buyer in leasing a car. For Example, many car manufacturers offer a window of 1500 km to drive in one month over which the buyer would need to pay an additional charge for the exceeded kilometers which will vary based on the model of the car.