Drive free I After M&M, Isuzu mulls hire-purchase model for those who do not want to make huge down payment and maintenance hassles
Car makers have started offering vehicles on lease in the retail segment to lure the millennial generation customers.
The financing model is likely to help millennials, who often find it difficult to make initial huge down payment and do not want to share the hassle of ownership, maintenance, insurance, etc, drive their own vehicles.
Japanese manufacturer Isuzu, which launched ISUZU mu-X in India on Tuesday, is toying with the idea of vehicle financing on lease. A few days ago, Mahindra & Mahindra (M&M) announced leasing model for its cars.
Analyst expects other players to come up with similar schemes.
Ken Takashima, executive vice-president and deputy managing director at Isuzu India Pvt Ltd (IIPL), told DNA Money, "Those kind (leasing) options are constantly being studied on the financial sides, so as to what can be done with our sales. There is a possibility of bringing it in the future."
For the time being, the company has come up with another financing scheme which provides customers the option to refinance the remaining loan amount after payment of 36 equated monthly instalments (EMIs).
Takashima, on the sidelines of Isuzu's latest launch, said he expects the total number of sales for his company to go up by around 40-50% during the current fiscal. The company has 37 retail outlets in the country and plans to add 4-5 this year. It has sold around 5,000 units in fiscal 2017-18 as compared to just 2,000 units in the previous fiscal.
M&M, which had announced its leasing model on October 10, expects this segment to add around 5-7? to its accrued sales once the market matures in the next few years. The company's automotive division sold over five lakh units during 2017-18.
The car leasing industry in India is around 1% of the total sales, and nearly all of it to the corporate sector. In comparison, over 30% of the new vehicle sales come from leasing in developed markets such as the UK (45%), the US (33%), Germany (32%) and France (15%).
The challenges in India are manifold as the wear and tear of vehicles is higher due to the road conditions and accidental damage. Higher repair expenses, unregulated and unorganised resale market and the changes in technology all add to the costs associated with mobility, an analyst said.
According to an industry estimate, the car leasing market in India is estimated to be over Rs 1,500 crore and is poised for 15-20? compound annual growth rate over the next 10 years.
Sridhar V, partner, Grant Thornton India LLP, said that leasing method is offers more variety and options to the discerning customer, who can change the vehicles more frequently, unlike in an ownership model. "Of course, the amount committed is also not as large as in ownership. However, this can turn out to be expensive if one were to lease any particular vehicle for many number of years," Sridhar said.
An executive from the foreign car making company said leasing of cars is as old as the industry itself, but it is catching up steadily after entry of self-driven and ride-sharing companies.
NO OWNERSHIP
- M&M expects this segment to add around 5-7? to its accrued sales once the market matures in the next few years
- The car leasing industry in India is around 1% of the total sales, and nearly all of it to the corporate sector
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