The Automobile Sector in India is under severe crisis after experiencing nearly a decade of high growth. The sluggish demand, along with liquidity crisis, has only added to this stressful situation. And as the market continues to lose its appetite for demand, the situation is unlikely to improve in the near term; thus, auto majors are finding this going difficult and are now adjusting to the new normal.

While most automobile companies are constantly cutting down their production to reduce the inventory on factory premises and at dealerships, they are now focusing on the alternate markets to make up for the losses in the home market.

As per the report of The Society of Indian Automobile Manufacturers (SIAM)

Passenger Vehicle sales declined by 24.07% to 1.39 lakh units in August 2019 over last year. According to the reports, August 2019 was the 13th consecutive month since July 2018, when the automobile sales have declined.

As shared mobility is now becoming an intrinsic part of the urban mobility and a segment of buyers are staying away from owning cars, auto manufacturers are now seen investing in shared mobility and offering leasing options to attract buyers.

Read on to explore the significance of auto leasing India in this market slowdown.

Vehicle Leasing in the Market Slowdown

Various automobile companies have started offering vehicle leasing services in India to its retail customers. In a vehicle leasing scheme, corporate car leasing companies like SMAS India give you a car on lease for a certain period of time. Unlike a car loan, where the customers don’t have to worry about the huge down payment.

Under the car leasing, the entire maintenance, insurance and registration cost is usually borne by the vehicle leasing companies. Here the minimum lock-in period of leasing is two years and maximum it can be up to five years. So in vehicle leasing, instead of paying for the vehicle, the customer only pays for its usage value which is based on the pre-decided tenure and kilometres.

As we have seen above that auto sales in India continues to decline. And the latest numbers released by SIAM shows that there is a continuous slump in the automobile industry. The decline in the sale of cars and SUVs was mainly due to factors such as a slowdown in the economy, tight liquidity, and job losses; all these kept the buyers out of the market. Also, it has been observed that despite new launches, buyers seemed to remain out of the market.

Vehicle leasing industry, on the hand, was seen flourishing. According to a newspaper report, “The lease market is currently worth Rs 1,500 crore & is growing at a 15- 20 CAGR. And as per the luxury car companies, currently, personal and corporate lease segment comprises of approximately 15 per cent of their total sales.”

However, vehicle leasing might have a penetration of less than one per cent in India. But with young and millennial consumers who prefer ride-sharing services, the market has a promising future. The industry analysts say that there has been a shift in the mindset of people and because of this car leasing option and it is expected to gain popularity in the future.

Choosing Vehicle Leasing over Buying

When you buy a new car, you need to pay for the entire price of the vehicle using cash, car loan, the proceeds of a trade-in, or a combination of all three. But when on the other hand you lease a car, you just need to pay for the difference between the car’s price and its expected value at the end of the lease, plus interest and fees. For example, you find the perfect SUV with Rs 30 lakh price tag, and it is expected to be worth Rs 20 lakh after three years. So, if you lease this SUV, you just have to pay for the Rs 10 Lakh in expected depreciation, plus the interest and fees. On the other hand, if you buy it, you have to pay the full amount, i.e. Rs 30 lakhs plus interest and fees.

When the lease period ends, you can return the vehicle to the vehicle leasing company in India from which you got it. There may or may not be some lease-end costs, depending upon how much you’ve paid as security deposit while signing the lease. You will then have the option of purchasing your leased vehicle, lease a new vehicle, or just walk away. Thus, leasing a car is a better option than buying it.

Takeaways

The automobile industry in India is currently undergoing major revolutions at both- supply as well as the demand side. While self-driving cars and other auto variants are bringing new challenges and giving fierce competition to the market players, the shifts in ownership patterns are also not easy to adapt to. But the winds of change have already surfaced, and automakers have started working hard to surf the rising waves. In view of this, market awareness and readiness to lease might just prove to be a game-changer for survival in this scenario.

Other than renting a house, the traditional mindset has always been to purchase it. And for big-ticket possessions such as cars, the purchase is always accompanied by a lot of fanfare and pride. But if you enter millennial India, you’ll see the concept of purchasing or renting has taken a back seat, and leasing is the new normal.

Who would have thought that leasing was even an option to enjoy the luxury of having a car? But with the world undergoing a paradigm shift, it untapped its energies into establishing and providing better services for its customers; thus, leasing has paved its way into existence. Most industries have adopted this concept, and accordingly, they’ve structured their services in order to offer the best they can to their customers. And this concept of leasing is not only limited to houses and properties, but with the advent of MNC’s, start-up companies, and (precisely) vehicle leasing companies they have widened the scope of bringing in the concept of leasing vehicles.

Status Of Vehicle Leasing In India

Earlier, the concept of auto leasing India was limited only to the senior corporate executives that were known as ‘corporate leasing’ and were mainly for the luxury car brands. But gradually, with time, it has trickled down and become accessible to commoners and to middle-income families as well. Companies like Mahindra & Mahindra made some of their models available for leasing. Following this concept, several other car brands, including the luxury ones like BMW, Mercedes etc. have also opened their doors to offering this leased facility.

Car leasing is one of the most lucrative and fast-growing segments of the automobile sector in India. Although it currently represents only 4-5% of the market in terms of the absolute number of vehicles, it holds strong future prospects.

The growth of the auto leasing market in India is to ensure manifold growth in its CAGR by 15-20% in the coming decade. Corporate car leasing companies like SMAS India have made the concept of vehicle leasing simpler. In fact, you will be surprised to know that most car making companies are making about 40% of their business by leasing cars. Therefore, this has significantly helped in changing the mentality of customers and imbibed the fact that ‘why buy when you can lease it’!

Why has Vehicle Leasing Services in India gained popularity in recent times?

Introduction of Goods and Services Tax (GST) comes out to be a source of relief in time of distress for the Indian markets. It was introduced on July 1, 2017, with the aim of bridging the gap between rich and poor in the long run. And since its introduction times have changed for the consumers, dealers as well as for the manufactures- it has helped to bring stability and balance in the economy by considering every person and their transaction at par.

To understand its significance in the automobile industry, let’s consider an example.

When you buy a car on loan, it requires an initial down payment to the seller which is followed by instalments on a monthly/quarterly/annual basis. This down payment creates an extra outflow on the part of the buyer on loan along with additional instalments. On the other hand, no down payment is required when you lease a vehicle from vehicle leasing companies in India. This makes its overall outflow on the lower side when compared to buying a vehicle on loan.

Also, in case of lease transactions, the lessor takes the exposure on the residual value of the vehicle; this eventually brings down the lease rentals per month.

Vehicle Leasing: The Promising Future!

The concept of Vehicle leasing in India is here to stay! In the coming years, the vehicle leasing market in India will be prospering as most automobile brands have now started to expand their services to leasing now, which wasn’t quite prevalent until the last 4-5 years. With this competitive spirit, more and more well-developed brands are expected to undertake this strategy for enhancing their customer base. Also, currently, the statistics of a number of cars being sold is going through a falling spree, and it is expected to fall further. But the auto leasing market will flourish in the coming years. It provides the ‘Best of Both Worlds’ by providing benefits to not just the customers, but to the owner as well they still retain the ownership of the cars and gain benefits out of it.