MUMBAI: Taxi market has gained prominence over last 2-3 years, in the backdrop of entry of app based aggregators which has not only disrupted auto-rickshaw and traditional taxi market but also forced automotive OEMs to revise their growth and marketing strategies.
A report released by ICRABSE 1.09 % stated that the Indian passenger vehicle industry is likely to ride on the strong growth potential of domestic taxi segment in the near term, whereas medium to long term growth will be supported by low car penetration level and increasing income level.
“Considering strong demand and increasing penetration of such players in smaller town, Indian taxi market is poised for robust double digit growth over next 2-3 years. In FY2016, fleet sales (including cab aggregators) accounted ~9 per cent of Indian PV sales, which is expected to reach 15 per cent-17 per cent level by FY2020,” stated the report.
Indian taxi market is still in nascent stage, with huge scope for growth given low car penetration level and poor public infrastructure. OEMs have also realized the market potential and have dedicated sales team to cater fleet operators.
The entry of aggregators like Ola and Uber has changed competitive dynamics of taxi market which till now has largely been fragmented and has lacked bargaining power with OEMs with even larger organized fleet operators typically having less than 500 cars. However, the aggregators like Ola and Uber have over 25,000 cabs in NCR market alone. Consequently, this segment within PV industry now enjoys a significant clout, with some OEMs setting up dedicated team to address aggregator market,” observed the report.
The rise of taxi segment however is expected to the hit the second car purchase in India in the near term, only in the medium term, the subsequent replacement demand for taxis will offset such a loss.
ICRA segregated the car buyer three key segments i.e. first time buyer, replacement car buyer and additional car purchase.
The first time car buyers accounts for 40-45 per cent of Indian car market, and given low car penetration in India, they are likely to remain a potent force. Similarly, replacement segment is also expected to grow at robust pace given shortening replacement cycle of a car in Indian market. However, cab aggregator and taxi market poses real challenge to the additional car buyer segment.
Considering that customer segment already has a car, and can rely on taxi for short run/limited usage. Given increasing traffic woes, there is also a customer segment which will shift towards taxi usage due to additional comfort of chauffeur driven car without paying out for driver salary.
“However, loss of additional car buyer segment will be more than compensated in the initial years by taxi fleet and replacement fleet (after few years) without having major impact on overall demand,” the report added.
On the challenges ahead for the app based aggregrators, ICRA says considering most of the radio taxi operators as well as the cab aggregators (Ola and Uber) are currently incurring losses, current tariff levels, with an eye to increase market share, may not sustain for long.
Further, driver incentives are also likely to dry up with possible pressure from investors in these firms. Hence, in the near term – there are likely challenges both from drivers (due to incentive cut) and riders (due to higher tariff).
Nevertheless, convenience like easy accessibility and availability will outweigh these short term concerns over the long term.