Owning a car is no longer a necessity, subscription a cheaper option

If you use the car for more than 2,000 kilometres a month, there will be additional charges

Owning a car is no longer a necessity. While Ola and Uber have made it easy for everyone to travel in an air-conditioned car, car companies are also taking the rental and subscription route to increase their sales. 

And getting your hands on a new car was never this easy. A customer can get a four-wheeler of his choice without making any down payment or opting for a loan or worrying about maintenance, servicing and insurance. Hyundai is the latest manufacturer to join this trend. The company is offering its cars on a subscription basis through the website www.revv.co.in. Earlier, Mahindra & Mahindra (M&M) had launched a leasing programme for its retail buyers. 

Though these alternative channels like leasing are not new to India, till recently only luxury car companies like Mercedes Benz and BMW offered them. And they were specifically targeted at businessmen or foreigners coming to India for short tours on an assignment. 

With Hyundai and M&M entering the segment, even B-segment hatchbacks costing below Rs 10 lakh are available for hire. “Millennials want to consume a lot more. But they don’t want to own assets. Manufacturers have realised this trend and are aligning themselves accordingly,” says Karan Jain, co-founder and chief operating officer (COO) at Revv. 

The company’s Chief Executive Officer (CEO) and Co-Founder Anupam Agarwal adds: “Manufactures are also under pressure due to the slowdown in sales. It’s making them look at alternatives ways to get the car in the hands of the customers.”

On offer: M&M started with two cars and six cities for its leasing programme. It has been adding more models and cities. The company has partnered with Orix and ALD Automotive to offer the service. The leased vehicle is available for a period of up to five years, depending on the city and model selected. Hyundai provides almost all of its product portfolio on subscription.

In both cases, the customer can pay an all-inclusive monthly price that takes care of the maintenance, insurance and servicing.

Leasing vs subscription: In many aspects leasing and subscription overlap. Leasing is mostly targeted at corporate clients. In case of leasing, an individual has to select the tenure for which he needs the car and the kilometres he will clock. The company then does the backward calculation of the monthly cost. In case of a lease, the minimum commitment is two years or more. The person has to keep the car for the entire duration. Giving up on a leased car carries a hefty penalty. 

The subscription-based model is new to India as well as in developed markets. A subscription is more like renting the car. In the case of Revv, a person can take a car even for a month. There is also a long-term subscription, where the customer needs to commit 12 months to the company and can use the car for up to four years. But after 12 months, a customer can discontinue the subscription any time. The long-term subscription comes with a brand new car whereas for those seeking a lower period of keeping the car, get a car which is used for up to two years. A subscription, therefore, is more flexible than leasing a car. However, there is a limit of 2,500 kilometres per month. After that, the company charges between Rs 7 and Rs 13 per kilometre, depending on the car model. 

In the case of a lease, some companies also check the credit score of the customers and ask for income-tax returns and other financial details. In case of subscription, too, companies check the salary slip, but it is only to gauge the repayment capacity.

Alternative models can be cheaper: Leasing and subscription can work out to be cheaper than buying a car on loan. Take the example of Hyundai Grand i10. The on-road price of the car is around Rs  7.04 lakh in Bengaluru. An individual can take this car for an upfront payment of Rs 24,300 and then pay a monthly subscription fee of Rs 17,300 for a short-term subscription (below 12 months) or Rs 12,100 a month if he keeps the car for 12 months or more. If you consider the road tax, interest payment, maintenance, and insurance, leasing proves to be cheaper than buying outright (see table).

The same goes for leasing, especially if you are a business owner. “If the vehicle is used for business, the owner can claim tax deduction on the rentals, making it way cheaper than owning a car. As there are no initial costs, the capital which the person would have used for a down payment can be used in business,” says Sunil Gupta, MD and CEO, Avis India. In both cases, the customer has the option to either pay a specific amount and buy the car or return it to the company. In both cases, the car is registered in the name of the company offering the lease or subscription. If the owner decides to buy, they do help with the transfer process. 

When to buy: In a car that is leased or taken on subscription, an individual cannot make modifications to the car. For every accessory, he needs the approval of the company. If you are a car enthusiast, these alternative ways are not for you. “In India, we have realised that car buying is not on top of the priority list, but consumers still want to buy a car later in life when they have a family and have purchased a house,” says Gupta. Do calculate the costs before you buy.