On an asset - light drive
How rental companies are changing business models to stave off regulatory challenges
India’s first self-drive car rental firm Zoomcar is aiming to shift to a marketplace model by early 2018. The first-mover has pioneered the assetlight solution in a fledgling space in the auto industry where regulatory constraints have emerged as a major challenge for all players.
Greg Moran, co-founder and chief executive, Zoomcar, says there is overwhelming demand for self-drive cars in India and a bulk of the time and energy is spent in resolving supply constraints. “A lot of the regulations for self-drive is heavy-handed, and licensing, permitting constraints hinder growth from a supply standpoint.”
A workaround it has found is the marketplace platform which allows individuals to share a newly bought car on a part-time basis or list existing cars similarly. Zoomcar gives flexibility to an individual allowing her to offset monthly fixed costs. The four-year-old start-up has focused on customer experience, claiming to have invested a large portion of money from its funding into building technology and product-oriented solutions. Going forward, Moran identifies a continual involvement with Internet of Things as critical. He adds, “We have managed 70 per cent occupancy across the board which is very high, and so our focus has never been that much on demand, but more on supply and customer experience which are our focus areas.
Among the regulatory roadblocks facing the companies are developments in the last two years including restrictions on diesel and compulsory use of speed governors for commercial vehicles, a category self-drive cars are clubbed in. Interstate taxes are another deterrent, while the time taken to avail of a self-drive licence too varies from state to state.
“Today, the major challenge is supply, because the demand is huge for self-drive cars. You have to get licences from the government and state authorities. There is a requirement of having a minimum number of cars in different cities, which makes it difficult for start-ups,” says Vikas Parasrampuria, founder and CEO of Voler Cars. He adds the company is trying to engage the regulatory authorities to help with asset-light solutions, while working with vendor partners and other service providers to improve supplies. “We are largely putting in our own money to buy cars and seeking help from large financial institutions with auto loans.”
Voler Cars flagged off with 11 cars two years ago, and now plies 400-plus cars with presence in all the major metros. Parasrampuria says there are no operational challenges for companies in this space due largely to evolved systems that allow scanning of all relevant information regarding car rentals, fraud checks, verification of licences or linking of accounts for proper monitoring, etc.
Eco Rent a Car, a bootstrapped company with a fleet of 85 self-drive cars, is focused mainly on its chauffeur-driven segment. Self-drive cars make up only two per cent of the business, but managing director Rajesh Loomba points out that it is growing every year. While admitting that unclear policies are discouraging road tourism with the hurdles for self-drive cars, Loomba also lists the absence of a culture of renting self-drive cars and inconsistent business with low occupancy on weekdays as compared to weekends as challenges for the sector. Anupam Agarwal, co-founder and CEO, Revv, argues what was viewed as a possible challenge initially has emerged as a support for the sector — user behaviour, which belied fears of Indians turning out to be unruly with a product that demands responsibility.
“We are working to create a marketplace model where people who have private cars that are idle can monetise them by sharing on the platform,” he says adding that it is more practicable in the West. “The process of converting from private to commercial vehicle, and within that a self-drive car requires a series of steps that are onerous right now in India.”
Revv has maintained a 25-30 per cent contribution margin since its inception, as its focus has been on building a sustainable business rather than burning capital upfront and hoping to turn profitable at a later stage.
The rise of cab-hailing apps in the last few years has also been a big tailwind for car-sharing rental firms, according to Agarwal. “The overlap between the needs that we serve and that cab-hailing apps serve is quite thin, but what they have done by making access to cars extremely easy is to disincentivise car ownership.” He explains that there is a growing pool of customers in the age group of 25-30 who are postponing or avoiding car purchases. Their needs present a great opportunity for companies to tap into.
Restrictions on diesel vehicles and use of speed governors are major roadblocks