Cover Story

A smooth drive

The car rental market in India is highly unorganised with innumerable players enjoying a share of the pie. Chetan Kapoor finds out what is driving this business

According to industry sources, almost two-thirds of the car rental market lies in the unorganised sector. This makes the segment highly susceptible to lack of quality and standards. Any individual can offer rental services as long as they have a spare automobile.

Nonetheless, it is the corporates that have primarily driven the organised sector of the business. Still, it'll take years before the industry sees some drastic changes. Ashwini Kakkar, executive vice chairman of Mercury Travels, which partners with Avis in India, says, "Both, corporate and leisure markets are growing strongly. The corporate market is growing at 15 per cent per annum while the inbound leisure ground transportation is growing faster at the rate of 20 per cent, and foreigners rely more on these services than the locals."

India has a huge potential for car rentals with over four million travellers making way to various parts of the country. Arjun Nijhawan, director of Nijhawan group of companies that operates Thrifty, says, "The market for car rentals is very upbeat. The boom in the aviation and the hospitality industry has created a need for safe and reliable ground transportation. Also, upcoming events like the 2010 Commonwealth Games followed by the cricket World Cup in 2011 will only evolve the industry."

Shifting gears

With the rise in economy and infrastructure in the country, more corporates are making way and building a base here. The BPO and the aviation sector have given rise to thousands of cars being rented across metros for the convenience of their employees and cabin crews, respectively.

One of the aspects of the Indian tourism policy of 1982 was to provide opportunities to the locals through tourism, and car rental service is indeed an opportunity to be exploited. Unfortunately, it has made the industry unorganised and in turn has made it difficult for customers to get satisfactory service.

Even players like Hertz, SIXT, Avis, Orix, Thrifty and Euopcar that have more structured operations and services, lose out on a chunk of the market over reasons like higher prices. For example, there is an incredible amount of potential for these companies to tap the pilgrimage market. With many religious shrines in the country - Shirdi, Tirupati, Vaishnodevi - renting cars to pilgrims has proven to be a successful venture, and the organised players, because of their high costs lose out on the masses.

However, the big players have their own USP. Branded services are gaining prominence amongst the inbound tourists and corporates. They offer a variety of services and cars as compared to the unorganised players. Since most of the branded services are part of a greater global alliance, their deep pockets allow them to buy and even import better vehicles, conduct regular maintenance and servicing of the vehicles and train their drivers. Rajiv K Vij, CEO of Hertz India, says, "Car rentals have gained enormous significance in the hospitality segment and the industry in India is dominated by chauffeur-driven options. High-end car rental services/self-drive and corporate fleets have more potential in urban centres and regions with high concentration of business establishments and major tourist locations."

As a matter of fact, realising the growth and opportunity in the segment, even travel agents have decided to steer their way into the market. While they may not own cars, they are never a step behind to have tie-ups or lease and provide their customers with the cars of their choice - standard, mid-sized, or even luxury sedans.

Infrastructure

The golden quadrilateral, greenfield airports and even opening up of some military airports will only increase the number of footfalls in the earlier inaccessible regions. This increased passenger traffic not only in the leisure segment, but also the corporates will need land transportation and car rental is the way to go.

Infrastructure needs investment and players in the market strongly believe in having an extensive and upgraded fleet, training drivers, parking and garage facilities with mechanics at its disposal for servicing of their vehicles. To attain this, companies need to have administrative systems and processes to keep a check on its assets. Kakkar adds, "More important than the investment is the management of the investment. Administrative efforts such as recruiting and training good drivers, spare units, time schedules, providing bottled water, wet towels for the customer, managing fuel and servicing of cars need to be available at hand. Unless these systems are in place, it is quite easy to mess up this business."

The presence of infrastructure, followed by a market will always drive this industry. Akbar Travels started its car rental company by focussing on the south Indian population working in the Gulf. Since not many could afford travelling by air to Mumbai, Akbar Travels started its bus service from south India to Mumbai. With the success of this model, it expanded this to more cities, especially at the airports for clients who preferred branded taxis over other modes of transportation.

Trends

Overseas, driving holidays is catching up big time with the Indian traveller who is increasingly realising the fun of travelling by road. "Although it is a challenge to drive in Europe and the United States where road and traffic conditions are very different, most people who try the self-drive option once always come back for more. This has heralded a new beginning for the car rental industry in India and signifies the importance of the car rental business as a core component of travel, tourism and civil aviation industry," believes Vij.

However, in India chauffeur-driven cars are more popular. This is primarily because India follows the left-hand drive, which makes it difficult for most tourists to get used to. Furthermore, slower speeding rates, poor quality roads, dominance of regional languages over English adds to reasons why self-drive isn't as popular. Car rental companies are now installing global positioning systems, satellite radio and other attractive means like introducing eco-friendly vehicles.

Breakdowns

Because of its unorganised nature, lack of quality human resource is a major hindrance. Instances such as employees stealing fuel, spare parts, not arriving on time, and improper handling of vehicles is quite common and becomes an added liability to the company. Vijay Kesavan, CEO of Akbar Travels, says, "Even though we have decent returns on investment because of the volume we serve, the car rental business in all its reality is not a very profitable business as it involves a lot of costs - finding drivers, training them, maintaining cars, keeping a check on how they drive, etc."

Another drawback is lack of common consensus over industry standards. There is no fixed base hiring charges (irrespective of different regions and accessibility), in case of small scale car rental houses the drivers may not be adequately paid or even be insured. A lot needs to be done to let this industry drive smoothly on the fourth gear.

Sources even believe that the industry is not receiving enough attention from the government to address the issues related to high level of taxation, difference in interpretation of the Motor Vehicles Act in different cities, the practice of border taxes, challenges of parking, insurance regulation, besides availability of trained manpower. Vij suggests, "The state of the infrastructure of airports, highways, road signage, etc is a major challenge. Recognition of the industry as a critical component to tourism and formation of a study group by the government to address our core problems is the need of the hour."

Future

From an industry's point of view, the car rental industry definitely needs to be organised and consolidated. Rising infrastructure will only see more branded players entering the market only to consolidate - in terms of national consolidation not assets consolidation - since they are depreciable. Thus, the unorganised (local, small) players will either be compelled to offer strategic tie-ups or still worse, go out of business. An organised sector will bring in stability in prices. Rajen Singla, director of Club Travels in Delhi, believes, "Offering fixed prices and no hidden costs at the time of reservations can attract more customers - all details must be clear and there shouldn't be any bargaining which will otherwise hamper business."

Sham Nijhawan adds, "Drivers must be educated and presentable. They should be able to make the journey a pleasure, not a pain. Keeping this in mind, we plan to open a driving school soon where we can train drivers according to our needs, and emphasise on skilled labour and upgrade the drivers to 'car managers'. Such a revolution will force the unorganised sector to take a backseat."

Another interesting aspect that may be witnessed is the probable rise in driver unions. This will bring the industry come a full circle. Even alternative business opportunities - such as offering insurance, using satellite telephones for the travellers to make calls, wireless internet - may get a boost and ultimately the companies will expand to a full-line service company by providing vans, pick-up trucks, mini vans that are popular in Europe.

With inputs from Praveen K Singh and Anupama Sushil