Photo courtesy of Wikipedia.

Photo courtesy of Wikipedia.

The Indian car market, which saw some encouraging growth in the first half of 2012, slowed down in the second half of the calendar-year.

Sales for 2012 were 2.75 million compared to 2.51 million in 2011; however, January 2013 saw a negative growth of 3 percent over January 2012.

“The main reasons for the slowdown in growth were falling consumer optimism, high inflation, a sharp rise in fuel prices, and lower gross domestic product (GDP) growth rate,” said Suvajit Karmarkar, managing director for ALD Automotive. “In particular, there has been a shift toward a preference for diesel cars, which still benefit from a greater degree of government subsidy.”

Overall, the state of the Indian economy stalled the automotive market in 2013, according to Stefano Berlenghi, managing director of Arval India. “The automotive market is currently in a stagnant phase with GDP growth at a rate of 3.4 percent, increasing cost of car ownership due the depreciation of the Indian rupee and continued high fuel costs," he noted.

"However, automotive market new registrations are expected to grow by 5 percent in 2014, while the operating lease market should reflect a similar growth pattern.”

India has complex regulations with regard to vehicle pricing, taxes, registration, and usage. The rules for each differ in its 28 states and seven union territories. “In each state, there are different value added tax (VAT) rates and rules applicable and there are complexities in the formalities required for registration, transfer, and sale of cars,” Karmarkar said. “Unlike Europe, leased vehicles must be registered in the name of the lessee, since the lessee has physical possession of the vehicle during the lease term, whereas the legal ownership continues to be with the lessor. Furthermore, a car registered in one state must ideally be used and sold in the same state to avoid double taxation and other complexities.”

The car leasing market is, to a large extent, not proportional to the growth of the car market, which is largely a result of sales in the retail sector, according to Karmarkar. “The corporate fleet market has not grown to the same extent as the retail market in prior years, and in the current environment, is also not expected to show signs of high growth.”

The Indian car leasing market is about 15 years old with nearly 10 players operating in the market. While global players like LeasePlan, ALD Automotive, and Arval offer the full-service operating lease product, companies such as ORIX, GE, Raligare, Kotak Mahindra, Tata Capital, and L&T Finance offer finance lease products.

LeasePlan is the No. 1 operational car leasing company in India, with an active fleet of more than 13,000 cars leased to more than 1,400 corporate employees. LeasePlan has a strong presence across India with offices in Delhi/NCR, Mumbai, Pune, Bangalore, Chennai, Hyderabad, Ahmedabad, and Kolkata that service more than 200 cities.

The corporate car market in India can be broadly divided into two segments: first, where the car is provided as a perk or as a tax-saving device and, second, where the car is a requirement for staff to carry out their duties efficiently or as “tool for trade.”

“The perk segment today occupies the major part of the corporate fleet market where the company primarily facilitates a structure whereby an employee can take a car and save tax as the cost outflow for the car comes from the employee’s pre-tax salary,” Karmarkar noted. “The 'tool for trade' segment is a comparatively newer and smaller segment, but provides a strong opportunity for growth, especially for leasing companies.”

In India, for most companies, field staff still rely on their own methods of transportation, such as public transportation or personal vehicles, including two-wheelers and cars.

“This segment is one where corporations can benefit significantly from outsourcing the complete activity of procurement, registration, fleet management, including maintenance and insurance, and car resale — often where this is done in-house, it can cause many issues in terms of efficiency, supplier payments, and corporate governance,” Karmarkar said.

“As more companies become conscious of providing better working conditions and improving productivity of staff, we believe companies will start offering better mobility solutions through leasing options to its field staff. ALD Automotive in India has been one of the foremost companies in developing this segment particularly amongst companies in the agricultural sector where staff need to have mobility solutions in remote rural areas. We are continuing to talk to other companies in the pharmaceutical, fast-moving consumer goods (FMCG), and engineering sectors to adopt such mobility solutions for their field staff.”

Data Box

● Capital: New Delhi
● Population: 1.2 billion 
● GDP: $4.96 trillion
● Total Vehicles (incl. private 
fleet): 115 million