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Branded car rentals take on taxis

india Updated: Oct 13, 2006 18:57 IST

Those black-and-yellow taxis are heading for nostalgia zone, as smart car rentals gather pace.

With the entry of more organised players like SIXT and Europcar, the country's car rentals business is in for a shakeout. The last 10 months saw three organised players entering the business: Sona Group's Sanjay Gupta brought in German car rental major SIXT while Naresh Goyal's Jetfleet introduced Europcar's rental services in India last month. In July, fleet management major LeasePlan, which mainly leases out cars, also entered the car rentals business.

What is driving these branded firms in an industry traditionally associated with small taxi services is the growth in travel and  hotel stays that form part of a buoyant economy. 

Somewhere between 90 to 97 per cent of the Rs 9,000-crore car rental market is dominated by unorganised players and that could change soon.

"The travel space is evolving as a whole and this is a great opportunity for the organised sector. Travel into India as well as within India is on the rise and the customer is looking for a secure and reliable service," Sunjay Kapur of Sona Mobility Services, the national master franchisee for SIXT, told Hindustan Times.

There is an emerging demand from multinationals entering India who are used to dealing with car rental majors in other markets. "With infrastructure improving, there are more motorable roads today. In business, time is the essence. There's a huge opportunity for car rentals. Even a city like Dubai has 25 to 30 organised players," says Pankaj Jain, head of car rentals at Orix India, a joint venture between Orix Corporation of Japan and Infrastructure Leasing & Financial Services (IL&FS).

Multinationals also have global contracts that need to be serviced in India—a corporate giant like Siemens, for instance, has a global contract with Europcar.

Also, inbound tourists, who use car rental services when they travel abroad, would like to make use of these services when they visit India, says Gautam Nath, country manager in India for Jetfleet which is a master franchisee for Europcar. 

While branded rental firms gather momentum, the government is also tightening regulations: it plans to introduce 2,000 radio taxis in Delhi that will replace the black-and-yellow cabs and make it tougher for private cabbies.

To start with, the organised players are focusing on the corporate segment, which industry officials say accounts for a tenth of the market. Here, established players like Hertz, AVIS, and International Travel House already enjoy half of the corporate business; the other half is with the less organised players, who compete on price.

But corporate clients are beginning to see the benefits of working with a single vendor. Airtel, for instance, was using a local vendor till January when it moved all its businesses to SIXT.

Similarly, advertisement firm Ogilvy & Mather has started using Europcar. If that works out, Europcar could get business from other WPP Group companies.

The organised players are also pushing corporate clients to lease out vehicles from them, which could be cheaper and provide them more flexibility.

In a lease, the corporate gets the re-sale value of the car upfront. So, for a Rs 10-lakh car, the re-sale value could be as high as Rs 3 lakh. The monthly instalments would be lower as it pays back only Rs 7 lakh of the principal (though it pays interest on Rs 10 lakh).

This allows the corporate to go for a better vehicle at the same monthly-instalment level, without the hassles of buying or selling cars.

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