Facts, numbers and economics they all belie finance Minister Nirmala Sitharaman’s unique – if not bizarre – explanation to the slowdown in the country’s automobile sector. She blamed the proliferation of cab aggregators like Ola and Uber and the change in the mindset of millennials who prefer to use them instead of buying cars for the decline in sales.
“The automobile and components industry has been affected by BS6 (emission norms) and the mindsets of millennial, who now prefer to have Ola and Uber rather than committing to buy an automobile,” she said in Chennai on Tuesday.
This has set the cat among the pigeons as the industry saw in the statement an excuse for not slashing excise duties to prop up sales -something the government has been hinting at for a week at least.
For one, sales to all cab companies account for between 8-10 per cent of overall passenger vehicle sales across companies. Sales to the entire taxi segment at Maruti, India’s largest carmaker, are between 5-6 per cent and it has not changed in the last one year, implying that sales to cab aggregators have fallen in proportion to the decline in overall car sales. At Hyundai, it is at 3 per cent.
In this fiscal year so far, passenger vehicle sales have declined by almost a quarter from a year ago. Sales have declined for 10 straight months so far and in 13 of the last 14 months. The industry has been clamoring for a 10 per cent GST cut to tide over the crisis. But a number of states opposed a cut and with little elbow room for the Centre as well on fiscal mathematics, Ola, Uber and the quirky millennial present a good excuse.
Prima facie, the number of cabs and radio taxis on the road has gone up. Ola for example had 850,000 cars on the road and another 50,000 in the lease model. The numbers have gone up to 15,00,000 and 100,000, respectively. That is an addition of around 800,000 units. Yet, this does not mean all these are new cars — a substantial number of Ola and Uber vehicles are pre-owned and are often registered on both the platforms. Hence, they may not be displacing a private car that a millennial would have otherwise bought.
WHAT CAR FIRMS SAY
“The jury is still out on this. We cannot say anything conclusively,” says Shashank Srivastava, head of sales and marketing at Maruti Suzuki India. “The status symbol is still very much there with a new car purchase. Shared mobility maybe having some impact in bigger cities but the broader effects need to be studied further.”
Mahindra and Mahindra managing director, Pawan Goenka, also said the impact has not been very significant so far. “But it may become big in future.” he added.
What is even more interesting is that the slowdown has impacted the business of Ola and Uber this year as well. The aggregators’ growth in daily ridership has come down substantially from over 80 per cent in 2016 to just 4.5 per cent in 2019. The two companies cumulatively undertake about 3.65 million trips everyday today against 3.5 million trips in 2018.
PERSONAL CAR VS CABS ON APPS
Even car ownership economics does not favour the cab aggregators vs owned car argument. On a unit cost metric basis from an economic standpoint, using shared mobility over owning a car on a regular basis makes sense only for shorter trips of less than 40 km or upto 1,000 km in a month.
Taking in account the cost of maintenance, ownership, mileage and the salary of the driver, a 20 kilometer trip every day would cost Rs 740 in a personal car against Rs 540 in a cab.
The monthly bill for the same trip in a cab will be Rs 13,500 against an expense of Rs 18,160 in a personal car. In the event of a 25 per cent surge in price of the trip for a cab, which is not very uncommon during peak hours, the cab bill escalates to Rs 16,875. Beyond trips of 40 km, however, owning a car makes all the sense. Somebody who travels long distance of 100 km every day or 2,500 km every month would run up a cab bill of Rs 44,000 (Rs 55,000 in surge pricing) against Rs 26,802 in a personal vehicle.
This isn’t the first time though that the government has used Ola and Uber as a shield to protect itself from sticky topics. In February this year, while countering a leaked National Sample Survey Office (NSSO) report that highlighted India’s unemployment rate had hit a 45-year high, Niti Aayog CEO Amitabh Kant had countered it saying Ola and Uber alone had created about 2.2 million jobs. When the NSSO report was finally released in May, it only corroborated the earlier leaked report.
The claim of cab aggregators creating 2.2 million jobs remains unsubstantiated till date. Just like the cab aggregators causing a slowdown in the automobile industry in the country.
Sitharaman is not alone in her belief though. At the annual Society of Indian Automobile Manufacturers conclave last week, one of India’s top private sector bankers, Uday Kotak, also said cars have lost their status symbol and owning them is no longer attractive to the youth.
“A car was a status symbol when I started my career. But my son is more comfortable with Ola and Uber which is a classic example of capacity utilisation,” he said.