Life In The Fast Lane

Car Rentals In India Come Of Age

Growing demand from the business travel community has put the Indian car rental industry into overdrive. Neeti Chopra checks out the reasons for this increasing popularity and outlines the future of this segment

An important part of smooth business travel, indisputably, is efficient intra-city commute. If travelling to a meeting venue in an unfamiliar city becomes a hassle, chances are that the distress will ruin the business deal that you are going to cinch.

Corporate leaders, therefore, recommend renting cars while on business visits, especially if you are visiting a new city or country. The concept of car rentals, already a big hit in the West is slowly entering the business culture on the Indian shores as well. The concept of car rental has picked up in the subcontinent in the last couple of years and global giants in this segment are now stepping on the accelerator after crawling in the slow lane for more than a decade. Not just hiring of cars, these companies believe that the Indian market is now ready to get behind the steering wheel with self-drive options as well.

Vroom Boom

According to Hertz India, the total size of the Indian car rental industry today is pegged at Rs 4,000 crore annually. It is highly fragmented with an approximate 2,00,000 cars registered as taxis and the organised sector comprising a mere two per cent of the total and contributing 10 per cent in terms of value.

Drastic change in the Indian economic scenario, growth of tourism and the aviation industry, and improvement in road conditions in recent years have played their respective roles in fuelling the growth of car rentals in India. Rajiv K Vij, CEO of Hertz India, says, "With globalisation of the Indian economy and more Indians travelling overseas on business and leisure, this segment of the travel industry is heading north. Moreover, the value of brands in terms of quality and reliability of service is being appreciated today, which has also contributed to the growth of this sector. On the sidelines of these upswings, the infrastructure in the country is also developing and this will further boost the growth of this sector."

Capitalising On The Potential

The Indian car rental industry is predominantly chauffeur-driven and largely unorganised. Most operators have a fleet where some cars are commercially registered and some are not, some cars are insured and some are not, some chauffeurs are reliable and some are not. In most cases chauffeurs are not even paid minimum wages. Such companies are not completely legal but still continue to operate in the market.

On the other hand, there are only a few among the organised players like Avis, Hertz, Orix, Autoriders, Travel House and LeasePlan India that offer professional service and add-ons. For example, Hertz India offers a number of facilities to its clients including daily rentals, local usage, airport transfers, long term rentals (weekly, monthly and yearly), fleet management services, inter-city travel and one-way rentals. Its fleet includes a wide range of vehicles from Tata Indica to Mercedes Benz.

Considering the growing potential, Hertz International has major expansion plans in India. Present in the country since 1980s, it appointed Carzonrent India as its licensee in 2001. Starting with a fleet of 50 cars and single unit operations in three cities, Hertz today operates 25 units across the country and a fleet of over 750 cars in various categories. Avis India, another international car rental brand, claims that it is the first and the only car rental company in India that has an international partner with a strong hold in the country.

In India, Avis operates in a joint venture with Oberoi Hotels. With a fleet of 575 cars, a major chunk of its business comes from airport transfers, overseas and outbound travellers and mini-leases. Ravi Lamba, CEO of Avis India, claims that the company has a "cultured focus". "We are not hung up on what is the current scenario but focus on what it is going to be the future. A big part of the future is Avis' attention to services. Customers are looking for a complete network both in India and overseas, reliability, professionalism and strong infrastructure in their car rental partners. Slowly, customers are realising that they cannot compromise quality and reliability over cost," he adds. Avis India's car models start from a Ford Ikon which costs Rs 800 for an airport transfer to Rs 1,600 per day with a chauffeur for eight hours. If customers hire a car from Avis India for self-drive for six days, then the seventh day is offered free. If customers plan to hire a Mercedes for a day, then they must be prepared to shell out Rs 6,200. Unfortunately, these cars are not available for self-drive.

Both, Avis and Hertz, block a certain amount from the client's credit card as security. Customers are lent cars with full tank and are expected to return it with a full tank.

Technology Tactics

The Internet has opened the floodgates of opportunity for car rental companies and has helped companies remove barriers to customer acquisition, thereby simplifying the purchase process. It tends to foster transparency and greater the transparency, the less differentiation there is among rental companies and their products. Lamba explains, "Internet's influence has shifted markets and segments, transformed revenue streams, and improved operations and customer service. For smaller rental companies, e-commerce has also increased profit opportunities and promoted brand awareness that was previously off-limits." The role of customer loyalty has also started diminishing in such a market as a result of which, brands are becoming more price-sensitive.

He adds, "Avis is very strong as far as infrastructure and network is concerned. Being the only car rental company to have invested in the Indian market through a joint venture, it is committed to a long-term investment in the market. We are using technology for our reservations and delivery to provide convenience and consistency to our customers. We have also refurbished our website and will be investing Rs 50 to 60 lakhs for front-end reservation systems."

Avis India offers reservations on the Net with a secure payment gateway that enables delivery of the car at any of its 5,400 locations in 174 countries worldwide. Nearly 35 per cent of the reservations come through the Net or Global Distribution Systems (GDS) such as Amadeus and Galileo.

Hertz has also tried to make bookings in India easier for the end user. Carzonrent India, the sole franchise for Hertz International in India, is the first car rental company to launch a toll free number and a single landline number across the country for reservation of its car rental services. The company has also announced the launch of its website (www.carzonrent.com) for better customer interaction.

Such services will help independents compete in the marketplace until they can update their own Web capabilities. Ultimately, the goal must be to provide customers what they've come to expect - a Web page with drop-down menus that give customers the kind of information they want, when they want it, from a central database. Those who refuse to integrate technology within their business model and pursue a niche Web strategy will perhaps risk the viability of their business.

A Drive For Self-Drive

The self-drive market and medium term rentals are the latest trends witnessed by the industry. However, according to Lamba, few people opt for self-drive since the difference in costs between this and chauffeur-driven cars is not much due to cheap manpower available in India. "But this trend is now picking up," he adds as an afterthought.

According to a study conducted by Hertz, the concept of self-drive is at a nascent stage but has a lot of latent demand. Vij says, "Self-drive rentals in India is one area where there is tremendous growth potential. This market in cities like Bangalore is quite active and we are looking at expanding our user base in Mumbai and Delhi as well." To hire a Hertz self-drive car, one has to be above 25 years with a minimum of three years driving experience. Customers are also required to fuel on their own expense. Rates for hiring depend on the car model, time frame and the city.

However, the challenge is to create awareness among travellers about its availability. Vij says, "We conducted a survey among corporate executives in the age group of 25-35 and found that 90 per cent of them had no clue that self-drive was available in India. An equal percentage said that they would love to have the facility." Hertz is, therefore, planning to introduce a special programme for self-drive in the high-end SUVs and cars segment that would come with a number of value-added services in related areas. It is also working towards developing the growing leisure market both with chauffeur-drive and self-drive more aggressively, with particular emphasis on the latter.

Alternatively, car rental companies are also exploring other avenues. They are tying up with tour adventure companies and offering cars for jeep safaris. For instance, Avis has tied up with Mercury Himalayan Adventure and provides its cars on self-drive to groups conducted by the adventure outfit. Lamba says, "This year, we have done trips from Manali to Leh in Ladakh and Srinagar. The vehicles are used on self-drive basis and the group members are allowed to drive in the countryside and get a taste of some off-road driving with a sense of adventure."

Another industry trend is a move towards radio cabs. Vij says, "This trend is bound to pick up in cities like Mumbai, Delhi, Hyderabad, Bangalore and Chennai where it already exists but in a fragmented manner. Some large players need to enter this particular segment and set up GPRS-based infrastructure, which will boost radio cab operations." Services like fleet management and vehicle leasing for corporates by international players is also catching on in India. As of now, there are 50,000 cars that are bought by corporates, of which only 5,000 cars operate on lease and fleet management.

Brands Or Non-Brands?

Provided that India will continue to witness a strong economy, the car rental industry is expected to register an annual growth of 24 per cent over the next three years. According to industry experts and global operators, the focus will be on international standards with the branded segment all set to have a larger share of the expected growing pie.

The concept of car rentals has gained credibility and this is in no small terms due to the advent of the large global players. While smaller players still primarily dominate the market, there has been a visible shift by both the corporate and the leisure segment to use branded services. This is all the more prevalent in companies who are looking at consistency in products and services across the country. Hence, the credibility factor will be even more important in the near future and companies will need to ensure that their cars are well-maintained and safe. Users do not merely see cars as a mode of transport between two points but look for security of a trusted name.

Traditionally, a large percentage of car rental contracts continue to be directly signed by corporate companies. However, looking at the shift in service expectations from travel agents and operators where there is more emphasis on them being a complete travel consultant rather than just acting as agents for airlines, there would be a lot more interaction and joint presentations so as to help expand the distribution parameters. All said and done, the sheer ease and comfort of the car rental system beats the disadvantages, if any. Today, business travellers can choose from any vehicle, from an SUV to a Mitsubishi Lancer, and it would be just a phone call away.