Incredible India, also with regard to fleet management
Incredible India is the strap line used by the Indian tourist board to entice tourists, but when it comes to the automotive business are the opportunities on offer in India incredible? Mike Curtis, Managing Director, Arval India, shares his thoughts and sees room for development.
With a population of 1.25 billion, a land mass of 3 million sq kilometres and 23 officially recognized languages, there's enough diversity to keep even the most adventurous tourist busy in India for a lifetime. Incredible India certainly lives up to its marketing strap line.
With a new business-friendly government coming into power last year could we also be about to hear the Indian economic lion roar on the international stage. “The automotive market is certainly on the up”, says Mike Curtis, Managing Director of Arval India. “Last year 2.6 million new cars we're registered; double the number a decade ago. And new registrations are expected to hit the 5 million mark in the next six to seven years”.
Small, yet promising
But what does that mean for corporate fleets and full service operational car leasing? “It's a small market today, growth is not necessarily a given, but there are many reasons for optimism”, says Mike Curtis.
“Last year, we believe just 300,000 cars were delivered to business customers and, of these, less than 20,000 were obtained through finance and operational leases.”
If the likes of Arval, ALD and LeasePlan, who all have a presence in India, want to make the country work for them they need to not just to ride the wave of growth, but up their market share.
Tool of the trade
Understanding the market is the starting point. So, what does the average leasing customer look like? It’s mainly small and medium companies that are leasing, whereas most larger companies just provide cash benefits unless the car is an essential business tool. “In many of the largest companies it's the employees that tend to buy the car themselves. The principle of a perk car is not yet well developed in India although interest is increasing. It's either a tool of the trade car or the individual who buys the car”, adds Mike Curtis.
Employees who lease cars through an employee car scheme do benefit from a very tax efficient system. The individual pays for the lease rental charges out of their pay packet, with the lease rental amount deducted from their gross pay. What this also means is the users and drivers of the cars behave like retail customers and are very cost conscious.
The average private car comes in under the 10K Euro equivalent; more often around the 6-7K Euro mark and may be kept upwards of 5 years. Mike Curtis says “Servicing costs are minimised and on old cars, it may not happen at all”.
In 2014, Mauriti - Suzuki commanded the market with a massive 44% share. Hyundai was the next OEM taking 16% share and then comes home brand Mahindra with 9%. Honda is fourth with 7% and Toyoya about the same and Tata fifth with around 5%.
So, what does the Indian client want to know today when looking at purchasing a car? “It's pretty straightforward; customers want to know how much it costs and what the finance repayment is, but there's little realisation of how much it costs to service and insure it or any consideration of the TCO models that we know in Europe”, says Mike Curtis.
India is a market in transition and Mike Curtis believes that there are clear signs of optimism. For a start organisations are becoming more sophisticated in their financing which, in turn, is helping to show the fiscal and operational benefits of full service operational leasing where the funding, maintenance, tyres and insurance are all taken care of by the leasing company.
Secondly, a rather significant, reform of the taxation regime is taking place. There's presently a hugely complex system of VAT and Service Tax where VAT varies in its magnitude and application in different states but service tax is applied nationally, , but come 2016 a more homogenous Goods and Services Tax will make its debut. This will level the playing field and could really open up doors for the leasing companies.
Moving to leasing
Change takes time, but Mike Curtis believes that with these changes multi-nationals will increasingly look to incorporate India into their global fleet deals. “There are also encouraging signs that Indian medium-sized businesses are putting the complexity of accounting systems behind them and will be more willing to move to the operational lease model.”
Industrial sectors on the radar of lease players are agricultural and pharmaceutical. With such huge distances to cover - and the preference for field sales representatives - it's a market that all the leasing companies will no doubt be eyeing up.
So what advice does Mike Curtis have to offer companies with a corporate fleet need in India. He says “it’s essential to understand the vehicle environment, understand the existing tax regime and remember what's accepted practice in one part of India may not be accepted practice in another”.
Focus on safety
Entering the country with a European mindset means you'll be wondering what on earth has hit you. Thinking in an Indian context but adopting European best practice where practical is the way forward.
And one final thing to comment on is road safety. “When taking to the road for the first time the risk associated with driving in India hits you pretty hard. Driving standards are pretty low and road infrastructure and traffic congestion is a problem in most metro locations.
"With some of the highest road death rates in the world, road safety, or the distinct lack of it, is a concern for any company. With the regular maintenance and tyre management included in full service lease agreements, companies can take some comfort that their employees are driving well maintained and well managed vehicles.”
| 15/07/2015 | Steven Schoefs