Passenger Car Sales Set To Decline On Rising Preference For Cabs From Aggregator Services

Passenger car sales could decline as much as 150 basis points (compound annual growth rate) through 2030 on rising preference for cabs from aggregator services, which typically clock more driving miles than personal cars, reveals a CRISIL study.

In India, personal cars are considered ‘old’ because of age than the distance driven, and typically such cars clock 100,000-120,000 km over a decade. However, in future, more cars will run for 180,000-200,000 km, which is considered as their full lifespan, because a majority of the incremental sales would be of cabs.Assuming passenger distance traveled remains the same, by driving cars farther, fewer would be required.Such higher utilization will reduce the demand for new cars and also stretch replacement cycles of personal cars. Indeed, as more people use aggregator cabs, it could even decongest parking spaces.

Says Prasad Koparkar, Senior Director, CRISIL Research “Among the factors driving up passenger preference for cab aggregators is the cost per kilometre. Our study shows the cost of hailing an aggregator cab is Rs 19 per km, compared with Rs 18 for a traditional taxi, and Rs 22 for own car. A shared aggregator cab is available for as low as Rs 11 per km, and offers the convenience of doorstep pick-up, chauffeur, and air conditioning. Reasons why we also expect traditional taxi operators to upgrade and become a part of the cab aggregator ecosystem in future.”

Further, when one looks at the cost of other modes of transport, there is a big gap between mass transport systems (buses and metro), self-driven two-wheelers that cost less than Rs 2.5 per km, and three-wheelers that cost Rs 12.5 per km. Given this, many are migrating to cabs for cost and convenience reasons.

Thus, alongside a shift of car owners and those traveling by traditional taxis, we also see some migration from three-wheelers to cabs and shared cabs, and from users of AC buses. That would cushion the impact for car manufacturers a bit. But the gain in modal share (from non-car modes) would not be enough to offset the decline in sales growth.

Consumer surveys have indicated that while a person will likely buy his first car anyway – since it is an aspirational goal – those who are planning to buy a second car would be more likely to defer their purchases.

“That seals the choice for car manufacturers,” said Binaifer Jehani, Director, CRISIL Research, adding “They need to adopt strategies that cater to cab aggregators, which are expected to account for 30% of total demand. This could involve making cars more fuel efficient, reliable and durable, and improving driver and passenger comfort. After-sales services could also be improved through better availability of parts and faster servicing times. Focusing on cab aggregators would also help car manufacturers bring down the cost of reaching out to customers.”

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