Indian commuters today have experienced over 8 months of lockdown in multiple forms. During this period, commuter habits altered significantly, traversing from 'No Commute - 100% work-from-home' to 'Limited Commute'. Though the COVID-19 situation is seemingly stabilising in a few states, when will normalcy return and what the new normal will look like remains obscure.
While trying to analyse the scope of the new normal in mobility and identifying when the industry will revive, here are a few insights about the Indian mobility landscape.
McKinsey & Company recently published an article on the global mobility scenario titled 'Why shared mobility is poised to make a comeback after the crisis'. Global business models like those listed in the article are unlikely to succeed in India as the country is unique, and Indian market dynamics even more so. Consider these:
1. India is one of the biggest markets for public transportation. Low car penetration levels make government subsidised public transportation the backbone of Indian mobility.
2. India houses one of the highest number of enterprise hubs in the world. These hubs are unique to our country as many of them provide mobility services to their employees as part of employee perks. This trend is witnessed in certain developed countries as well.
3. India is one of the few ride hailing markets which provides primary earnings to more than 90% of drivers. In advanced markets like the US, ride hailing is largely a supplementary earning.
Mobility consumers in India can be broadly classified into three categories:
The 'Full Share' segment is where commuters hire a single seat in a vehicle. This mode is serviced by public transportation buses, trains, metros and shared pool rides. Most commuters in this segment either do not own any vehicular assets or own two-wheelers (2W).
The 'Partial Share' segment is where commuters hire the full vehicle. This mode is serviced by three-wheeler (3W) autos, and hatchbacks and sedans aggregated by Uber, Ola and Meru. This segment has an equal proportion of car owners and non-owners.
The 'No Share' segment is where the commuter owns the vehicle, and it is either self-driven or chauffeur driven.
Predictions of experts on the timeline of return to the new normal (80% of pre-COVID-19 demand) differ and are contrasting. So,let's have two possible scenarios - one where normalcy returns by January 2021 and the other where normalcy is restored after June 2021.
New Year bonanza by January 2021
In this scenario, no structural changes to mobility are expected, though increased car sale opportunities may emerge during the transition period.
In the 'Full Share' segment, price sensitive commuters will revert faster to shared mobility, and safety conscious commuters will join after a quarter.
In the 'Partial Share' segment, non-car owners will quickly return to pre-COVID-19 habits, whereas car owners will switch over a little later. 'Partial Share' segment operators will witness a faster market recovery by January 2021 - around 80% - 90% in three-wheelers and around 60% - 70% in ride hailing cabs - but full recovery will take one more quarter. This segment will revert to the new normal by Q1 FY22.
The 'No Share' segment will expand temporarily leading to short-term sales growth but is likely to stabilise only by June 2021.
Monsoon moolah from June 21 onwards
In this scenario, we can expect to see a few structural changes. Safety-conscious consumers are likely to trade up, leading to increased car ownership. Recovery in mobility will likely be a prolonged U-shape one.
The 'Full Share' segment will experience structural changes. As a reaction to safety concerns, commuters are likely to pursue two courses of actions - trade up to 'Partial Share' segment or shift to driving two-wheeler/pre-owned cars.
In the first case, the trade up behavior will exponentially expand the three-wheeler market. As the permit regime for three-wheelers is fading in most markets, this segment will emerge stronger post COVID-19, leading to more vehicle sales and job opportunities for migrants.
In the second case, time convenience and affordability will drive a portion of commuters to switch to their own two-wheelers and used car segment respectively. This will enhance the growth of both markets. Growth in the pre-owned car segment has already been noticed in the past few months.
With the right policies, the government can positively impact both these segments towards electric vehicles (EV). I believe and hope that this will be one of the bright spots that can transition India from a global leader in 2W and 3W internal combustion engine (ICE) vehicle manufacturing to a global EV leader in 2W and 3W manufacturing.
The 'Partial Share' segment, typically serviced by 3W and 4W, will experience heavy stress. Most of the driver-cum-owner segments will face utilisation challenges until normalcy returns, and as a result, vehicle loan defaults might increase. The B2B contract market (ferrying employees from home to office for call centers, global business centers, etc.) will be comparatively less impacted. Due to safety concerns, car owners will refrain from participating in the 'Partial Share' segment, further straining the ride-hailing segment.
Further, due to safety concerns, the 'No Share' segment will expand in India leading to higher passenger vehicle sales, as witnessed in China. The share of vehicles priced below Rs 7 lakh have been decreasing for the last five years - this trend is likely to start reversing. The used car market will see huge positive momentum.
Both scenarios depend on when the vaccine will be approved and available in sufficient quantity, and its accessibility to all citizens. Early positive signs are emerging about drugs in the final stage of approval. I am sure the process will be accelerated, and the requisite quantity will be made available within a short timeframe. Based on trends from the last quarter, I see strong acceleration across segments. With COVID-19 cases going down, the strong tailwinds will tip the markets and give us a new year bonanza indeed.
The ingenious and enterprising nature of Indians has always pushed them to turn crises into opportunities. Regardless of which scenario does play out, I am sure Indian entrepreneurs will discover and possibly invent new business models to emerge stronger post COVID-19.
(The author is President, Mobility Services Sector and Member of the Group Executive Board, Mahindra Group.)