Why buy when you can Lease?

by Turra Mohammed 19 Jan 2022


Indians have traditionally prided themselves on their possessions, be it their homes or cars. Yet, this ownership mindset is gradually evolving in millennial India where leasing is becoming a preferred option.

Earlier, the concept of auto-leasing was restricted to the C-suite under corporate leasing and limited to luxury car brands. Gradually, there has been a paradigm shift and leasing is becoming mainstream as more private owners opt for leased vehicles.

Car leasing is widely considered one of the fastest growing segments within the automobile industry. Though it represents only 1-2 percent of the market share in terms of the absolute vehicle numbers as of now, it shows great promise. 

Leasing at an inflection point in India

Leasing penetration in India, at just over a percent of the total private vehicle market, is much lower compared with the rest of the world. The challenge is to convert this potential and leverage technology and changing buyer behaviour to tap the prospective customers. However, there are a number of factors that are creating significant tailwinds to drive the leasing market growth in India.

Changing consumption patterns is one such factor because consumer behaviour in India is shifting drastically as millennials seek greater freedom, wider choice, and the ability to upgrade without the baggage of ownership. This behavior is in line with global trends and there is a favourable mindset towards leasing not owning.

There is a considerable rise of the millennials and GenY in the workforce as well. India has become the largest millennial market with millennials representing 34 percent of the country’s total population. Since the median age in the country is 28.4 years, it makes India one of the youngest nations in the world. Compare this with the ageing populations and workforce of the world, and you see an untapped market ready for growth.

With market forces driving the economy, there is heightened competition with more sales-aid tools to tap into this growing market. Many original equipment manufacturers (OEM)s and financiers have tied up with financial institutions to drive the subscription-based or leasing model. Maruti and M&M and other OEMs have developed online portals and made their foray into this market. The finance sector is also taking a renewed interest in car leasing with dedicated leasing activity.

Along with the increased traction for subscription and leasing, there is also an ecosystem of the used vehicles market which is developing. This market is growing at an accelerated pace thanks to a thriving marketplace and new age start-ups. The modern consumer suddenly has a lot of choices and the benefit of price discovery tools like IndiaBlueBook.  The digitization of RTO records further drives trust in terms of ownership and hypothecation of records, making the transactions more transparent.

Moreover, the pandemic has acted as the trigger for impacting consumer behaviour and there is a noticeable change in the customer’s willingness to spend on illiquid or value depreciating assets. This is the reason why many customers now prefer to invest in more liquid asset classes yet enjoy the benefits of driving a premium vehicle through flexible leasing or subscription-based models.

The rising demand for electric vehicles is going to be the next big thing which is expected to drive the automobile rental and leasing market. In developed countries, leasing is already seen as a key method to drive EV sales. Consumer concerns around the electric vehicle cost and technology obsolescence are allayed to a great degree by offering competitive leasing rates and vehicle return options. The penetration of leasing in new EVs is expected to grow further, thus driving the market.

Car leasing is also gaining momentum as a result of new mobility concepts used by leasing companies. For instance, various leasing companies use telematics to make fleet management easier. Another technological development is the use of navigation and AI in the leased vehicle, making it convenient for the lessor.

All these factors combined create a favourable growth momentum for car leasing to take wings in India. Even with a 5 percent penetration, which is substantially much lower compared to the global counterparts, leasing amounts to 1-1.15 lakhs vehicles per year. This roughly translates into ₹ 8,000-12,000 crores per year.  Car leasing is at an inflection point in India and will take off strongly given the obvious benefits. Whether it’s in last mile delivery with electric vehicle leasing or more millennials choosing to lease cars instead of buying it, the opportunities are lucrative.

The writer is SVP & Head, Leasing & Subscription, Mahindra Finance