Car rental business in India- Growth market for future?

Car rental business in India is growing rapidly at a CAGR of around 12% in a market that is currently dominated by the unorganized sector. The organized sector has a small portion of the pie and is expected to grow in the future. The organized sector differentiates itself from the unorganized sector in terms of its service parameters like quality of service, reliability, etc. and charges an upfront premium for that. A whole range of start-ups have sprung up in the recent past and they are now on a fund-raising spree. OlaCabs, a popular car rental agency recently raised fund from Tiger Global.
Most of these companies are more than just mere car rental companies. They use technology to create value at every portion of the value chain. A Global Positioning System, or GPS, helps the driver reach the destination easily. The most notable point of the business model of these companies is that they do not own a car, which helps them to reduce their capital expenditure drastically and has helped similar firms to reach the even playing ground quickly. These companies mostly rely on the fleet of the existing operators and bring them on board with proper training so as to deliver a consistent service experience. They charge service premium from the high end customers who do not mind paying for a flawless service.

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What makes a good car rental business standout?
While several players have already entered the market, unless a company differentiates itself from the existing players, it is just another car rental company. Here are some good differentiating points that have helped companies like Savaari to reach a pan India scale while crafting a unique space for itself in the market.
i. While choosing the fleet, one should be extremely judicious. Fleet decisions should not only be based on a good deal, but also whether there is customer demand for those cars
ii. Appropriate time and money should be dedicated to sales and marketing.Let your value proposition stand out clearly and let this be communicated to the customers. This will increase the customer footfalls and repeat sales
iii. Look for marketing tie-ups. For example, tie-up with a good hotel nearby.  Have them refer business to you.
iv. Try to cut costs on the fleet financing. It will make a big difference to your bottom line.
v. Use technology to increase your vehicle utilization. For example, OlaCabs tells you how far is the nearest cab from you.
vi. Combine your car rental business with tour packages to nearby cities. This is  an emerging trend among many car rental companies in India and can increase the vehicle utilization
 
Challenges of the industry
i. Training and Support- Educating your partners and bringing them on par to provide unique and consistent services to the customers is a challenge
ii. Expansion ahead- Securing funds to continue expansion into tier-2 cities is also another challenge. The dynamics of the industry are such that once few players enters the market, a new player has to give huge promotional discounts along with significant spends on marketing. In such a case, a company which expands rapidly will have a fast mover advantage
iii. Supplier relationship- Building a long term relationship with your car owner partners and encouraging them to continue doing business with you when more players enter the market
Going forward
Car rental business in India is estimated to be worth around 15000 crores. The challenge, though, remains to ensure a smooth and consistent pan India service. The car owners should be willing to upgrade their fleet technologically and provide vehicles 24/7. There is also an increasing need to move from cars like Indica to newer ones like Honda driven by customer expectations. From a strategic point of view, different models should be used for retail and corporate customers. Corporates mostly rely on car rental companies for intra city transfer and work on credit. Hence, the pricing and marketing strategies should be different for these segments. Going forward, the players which give a unique and consistent service will rule the roost. Proper attention must be given to branding like dress-code for chauffeur, car bills, newspapers and water bottles inside the cars etc. These services will make the customer experience delightful and will encourage them to not only use but also refer the services to others. A few players have also come up with promotional schemes like loyalty points.

It is likely that this sector will have significant investment in technologies to ensure seamless integration of services encompassing all the partners. So it has significant potential for investors to make a mark. As many tier-II cities are still untapped, companies which remain lean and manage their suppliers well can ensure both top and bottom line growth.
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Car rental business in India- Growth market for future?

by Asit Arunav Mohapatra time to read: 4 min
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