The automobile industry is probably going through the worst phase of Indian economy. Passenger vehicles slumped 31% year on year while the commercial vehicles slumped 26% approx. Many economists have hinted at a slowdown in Indian economy and many have blamed the registration costs and the rising crude oil costs. However, to be honest it is neither of them. The real reason is the increase in demand for Ola and Uber. I will explain both the reasons how.
First: How has Ola/Uber affected the Automobile Industry
Let’s accept it. India is not 100% employed. The unemployment rate is alarming. The situation is such that people will do any jobs even it doesn’t match their profile or education. In any scenario the starting salary in any section in my experience is Rs 25000 (give or take) and in some cases even lesser than that. Mind you, this is the major chunk of working class of people I am referring.
Now not all people are employed in their home towns. Some of them are also in different cities and towns who stay on rent or as paying guest. So within a day they get Rs 25000 they are left with just Rs 15000. And of that amount a portion goes to their home as some contribution towards household. So within just week of them receiving Rs 25000, they are just left with Rs 5000-6000. Do you really think, this much savings they can afford automobiles or instalments even if they get a car loan. Moreover, they are not regular travellers. They are unmarried people who might want to travel to one place of a city to another once in few months. For this they wouldn’t get an automobile, any sensible person would get an Ola or Uber. Moreover, the instalment rate is nearly 10% on an average in India, this means that even if they get a car they would be left with nothing, even before they hit 15th of every month.
Even if you consider middle class or upper middle class people where more than two members are earnings, a major part would go towards home loan and school fees and personal loan instalments. Given such conditions, it is really not possible for them to get a new vehicle when they are barely making their ends meet. Else they would be out of savings. If you sum the salary of two people then it would be about Rs 80000. Paying a rent on a 2 bedroom flat would be around Rs 20000-25000, a personal loan would be about Rs 10000 and the school fees of children these days is about Rs 1.5 – 2L a year, not including expenses towards extra-curricular activities and shopping. After such expenses I highly doubt they can afford a car or an installment of it.
The cost of an average Uber ride in India is $3.00
Now let’s see why it has not affected US.
The major difference is this. The per capital income of India is just under $2000 a year and the per capital income of the US is $25000, f you want to calculate a monthly income, that would about $2000 a month. The rate of interest on a car loan is offered by US car company is nearly 4.5% on an average against India’s 10%. The maths is pretty simple here.
With a higher income and a low rate of interest a class 5 kid can see that getting a car in US much better and easier than getting a car having a lower income and high rate of interest.
Another point which you might want to consider is demographics. Any household you pick in India, will definitely have a grocery store within a walking distance of 500m. But whoever has been to the US will know that grocery stores are never in walking distances. They are usually mile or two ahead and unlike to us they don’t have a walking habit. They would simply take the keys and ride.
With such high income and low rate of interest, they can afford a car anytime. And they there is no way Uber can slowdown their automobile industry.
The average ride costs $13 in US, which is much expensive that in India.
The way I see it, the only way to revive the automobile industry is by lowering rate of interest and providing subsidies to the major auto companies in some form or another.