Citing 'millenial mindset', or Ola, Uber for car sector woes is self-defeating; purchasing power, consumer confidence are ebbing

Are millennials killing the traditional car market switching to Ola, Uber? No, that theory doesn’t hold water. This writer listed five reasons explaining why in a previous article. Here’s a follow-up piece to further understand why Ola and Uber aren’t the villains in this story. For beginners, this was a theory highlighted by Union Finance Minister Nirmala Sitharaman. She suggested that the millennial mindset is tuning to app-based car rental services mainly Ola and Uber and that is one of the major reasons for the ongoing auto sector crisis. Evidence suggests that clearly is not the case here. In fact, it is one of the weakest excuses the government can put forth to justify the slowing of sales. The following figures and statements from the car sellers itself is proof to negate this argument. Consider this: According to  Economic Times which has compiled information from industry analysts and company insiders for both Ola and Uber, business growth has slowed to 20 percent in 2018 from 57 percent in 2017 and 90 percent in 2016.

For six months of 2019, the number of daily rides has grown by just 4 percent. In absolute numbers, the number of daily rides has inched up from 3.5 million to 3.65 million. What does it tell us? Uber and Ola (the bigger ones in the shared car market) haven’t grown enough to make a huge, unprecedented dent to the new car market hammering the sales down to a two-decade low.

Still in doubt? Ask the largest carmaker in the country, Maruti Suzuki India. “The Ola and Uber factor may not be strong to contribute to the current state of slowdown. I think we need to watch and study it more before arriving at such a conclusion. 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," Maruti Suzuki India Executive Director (Marketing and Sales) Shashank Srivastava told PTI in an interview. [caption id=“attachment_185436” align=“alignleft” width=“380”]  Representational image. Reuters[/caption] Why do cab aggregators suffer from lower growth? There could be multiple reasons. These could be because of the relatively high fare compared with public transport. The prices escalate during peak hours when office goers hit the roads. These fares might have gone up further over the years making the rides unaffordable to many. Lower incentives to drivers could be another reason. Traffic snarls in metros, which is the major area of operation for app-based cab aggregators, could be a third reason. But the main point, as Maruti Suzuki India’s Srivastava pointed out, Ola, Uber has been around for last 6-7 years. The question is why is car sales plunging only over the last year and in particular in the last six to seven months? One should ponder before coming to hasty conclusions. Another major point is Ola, Uber-like car renting services are largely restricted to metros and in the best scenario, of tier-II cities. Try booking an Uber in a rural town anywhere in the country. These services are not a factor there yet. But people in these areas too used to buy cars before which is not happening now, at least going by the reported sales numbers. There is no direct correlation one can draw between the use of car renting services and a decline in car sales of this scale. It doesn’t pass the test of basic logic. Similarly, other reasons cited including BS VI norms aren’t a good reason why an entry-level car buyer who constitutes nearly half of the car market has stopped buying now. There must be a set of serious, fundamental reasons contributing to the slowdown in car sales. It is important to understand that a thorough study is required to understand the gravity of the issue, instead of making hasty comments at a time the auto sector slowdown is hurting a significant chunk of stakeholders taking away at least 3.5 lakhs jobs in the recent months in related sectors. Of all those reasons, it is likely that purchasing power and consumer confidence of people have taken a hit on account of the economic slowdown. People are postponing purchases. Just by looking at bank lending data for vehicle purchases one can understand this. Vehicle loan growth contracted by 4 percent in the four months of 2019 till July as against a growth of 1.1 percent in the comparable period of last year, according to Reserve Bank of India data. For the twelve months till July 2019, vehicle loan growth was 4.9 percent as compared with 11.2 percent in the 2017-18 period. In absolute terms, between March and July this year, total vehicle loan outstanding stayed nearly flat to Rs 2.013 lakh crore as compared with Rs2.022 lakh crore. Meaning, there is no real lending taking place for new car purchases, even by cab owners.

The other argument is that people who used to drive cars to office before are now boarding buses and trains. That theory could be partially true too but not strong enough to explain why domestic car sales went down by 41.09 percent to 1,15,957 units as against 1,96,847 units in August 2018.

According to data released by the Society of Indian Automobile Manufacturers (SIAM) on Monday, this is the worst-ever fall for both the categories since SIAM started recording the data in 1997-98. So based on the above evidence, we now know that the Millennials new-found love for Ola, Uber isn’t the villain in the auto slowdown story. Finance Minister Seetharaman would do well to look at a more fundamental answer to the problem.