At a press conference, on Tuesday, Finance Minister Nirmala Sitharaman said that one of the major factors behind the slowdown in the auto sector has been the change in the mindset of millennials.
According to Sitharaman, the youth in India would rather opt for Ola, Uber and other cab services instead of paying EMI for a personal vehicle. This statement of her created an uproar among the millennial and industry specialists who said Ola, Uber and other ride-hailing services have nothing to do with the current industry slowdown.
India's largest automaker Maruti Suzuki contradicted Finance Minister Nirmala Sitharaman's claim- "Ola and Uber came into existence during the last 6-7 years. In this period, the auto industry also saw some of its best times. So, what happened only during the last few months that the downturn became so severe? I do not think it is only because of Ola and Uber," MSI Executive Director (Marketing and Sales) Shashank Srivastava.
But how true is this statement of Finance Minister is? Does travelling in Ola, Uber really make sense over buying a car? The only way to find is to do a comparative analysis of Ride-hailing apps vs owning a personal car:
1) There are innumerous ride-hailing apps, but for reference, we will take India’s own OLA cabs
2) Since most of the travellers prefer Micro cab for the cheapest rates, they are mostly Maruti Suzuki Wagon R. So it makes sense to compare Micro cab fare with owning a Wagon R
3) We will consider a time frame of 5 years, travelling for 22 days a month for a 30 km daily run
4) The calculations are based strictly on travelling from home to office and back. No weekend travelling or outdoor run has been included
5) Since the OLA operators mostly used basic vehicles, we will consider the base version of the Wagon R for comparison
Travelling via OLA
If you opt for Ola and the travelling distance is 30 km both side, you end up paying Rs 500 on an average (which includes a surcharge, MCD toll, parking, taxes, and everything).
On average, any employee goes to the office for 22 days, which means the monthly expense is Rs 500*22 days = Rs 11,000
5 Year expense would be = Rs 11,000*60 Months = Rs 6.6 Lakh
Travelling via Personal Car
The Maruti Suzuki Wagon R prices start at Rs 4.34 Lakh (Ex-showroom, Delhi) for the base LXI 1.0-litre variant. The on-road cost in Delhi is Rs 4.80 Lakh (may vary from state to state).
If one avails a loan for 5 years at 9% interest rate (current average bank rate), they will end up paying Rs 82,000 extra on the interest (Down payment of Rs 1 Lakh, Loan on Rs 3.34 Lakh, EMI of Rs 6,933). So the final cost of the car (excluding maintenance cost and service cost) will be Rs 5.62 Lakh.
A vehicle has to run on fuel and Maruti Suzuki Wagon R delivers 22.5 Kmpl mileage with the 1.0-litre petrol engine. The vehicle will run for 30km* 22days* 60months = 39,600 Km in its lifespan.
Considering Rs 75 as fuel cost (average petrol price in Delhi), the total fuel expenditure would be = 39,600/ 22.5 kmpl* Rs 75 = Rs 1.32 Lakh.
This is subject to change based on the driving style. In realistic conditions, Wagon R deliver 17-18 kmpl in city driving, which will increase the overall expenditure to Rs 1.6 Lakh.
Adding the cost of owning the Wagon R with the fuel cost, you will end up spending Rs 5.6 Lakh + Rs 1.6 Lakh = Rs 7.2 Lakh after 5 years.
On the other hand, one might argue that they would want to own a CNG-equipped Maruti Suzuki WagonR for better mileage (33 kmpl), the fact of the matter is. the initial cost of the CNG vehicle is higher than that of a petrol car which would be Rs 6.5 lakh on-road, with a loan.
So after all of this, the final cost ownership would turn out to be the same = Rs 7.2 Lakh after 5 years. for both CNG and petrol vehicle.
Then there's the insurance amount, which will be added for the rest of the four years which is Rs 60,000 (Rs 15,000*4).
There is also the maintenance cost which cannot be pointed out as a specific value as it depends on the driver's driving behaviour as well as the road conditions tackled during an everyday commute, locality of residence for the car and also, the daily average running of the vehicle for the entirety of its ownership period. But for the sake of argument, if we consider the first three services of the vehicle to be free and an annual expenditure of Rs 10,000 which includes things like servicing, damage repair and other consumables like brake pads and lubricants. This would take the five-year cost of maintenance to Rs 50,000 in the aforementioned scenario taken by us for calculation purposes.
However, the biggest positive of owning a personal car is the resale value which varies from model to model, year of purchase, the year of manufacturing of the car and also, the condition of the car. As per our research done on various used car platforms like Droom, the average cost of a 5-year old WagonR with 40,000 km on the odometer turns out to be about Rs 3 lakh.
So you end up spending Rs 7.2 lakh (ownership cost) + Rs 50,000 (insurance cost) + Rs 60,000 (maintenance cost) - resale value (Rs 3 lakh) = Rs 5.3 lakh.
While travelling using ride-hailing service is cheaper by at least Rs 50,000, it can’t be used as a daily mode of transportation. There’s a hassle of finding the cars during rush hours, the cars are not clean enough and there’s an effort to co-ordinate with drivers.
Also, our calculations are purely based on the daily run to office and back and don’t include leisure time on weekends. If you travel for the same and even an annual trip to nearby hill-station would make the personal car more beneficial.
However the biggest negative against using a ride-hailing app is the overall ownership cost of the car and as we have found out, owning a car is at least Rs 1.3 lakh cheaper.
So while Nirmala Sitharaman is not wrong in saying Millennial are increasingly preferring ride-hailing services for travel, she is wrong in saying that it is resulting in industry slowdown as
1) These services are mostly availed by residents of Metro cities, and
2) One will defer their decision of buying a vehicle for waiting for the perfect car to come and use a ride-hailing service meanwhile, but will not solely depend on the same.