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 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.
One would argue that instead of petrol, they would prefer the CNG version. That will cost them Rs 5.5 Lakh (on road, Delhi) and Rs 6.5 Lakh after taking a loan. Since CNG has better mileage of 33 kmpl and is priced at Rs 47/ Kg, the running cost after 5 years would be Rs 56,000.
The final ownership cost would turn out to be the same= Rs 7.1 Lakh after 5 years.
Observations
While traveling 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.