What is the scope of vehicle leasing in the Indian automotive market?
When a customer leases a vehicle, we [Mahindra Finance] own and maintain the vehicle. The customer doesn’t have to take the risk of residual value of the vehicle either. Why, as an individual, should one want to handle the risk of residual value, while we can always look for a second-hand buyer? Put all of this together, and we believe leasing is a great space to be in.
I think leasing is still taking shape in the country. The tax laws are still getting formed. So, for us, it’s the right time to enter the space. And then electric vehicles (EVs) are also coming. To start with, EVs will be a big hit with leasing because people are yet to understand it, the economics of it and the resale price of the vehicle.
Do you think there is a lot of opportunity for leasing in the commercial EV segment?
It’s a phenomenally large opportunity, especially when you have to attract someone to change from a diesel vehicle to an EV. The capital cost of an EV will always be higher, so fleet operators will be looking for somebody to partner their risk with, until they are convinced of the operating cost. Electric vehicle leasing will be a super hit on the commercial side, and once fleet operators see how they are earning on a daily basis, I am expecting that they will want to buy out the vehicle.
Going forward, how big is vehicle leasing going to be for Mahindra Finance?
I look at it in two ways. One, this is a great entry for us into the urban market, where we did not participate through regular loan/financing because that’s not a value proposition for an urban NBFC, it’s a very bank-dominated market. So, leasing will be our entry into the urban customers’ lives. The second is that institutions and people, especially youngsters, want to go asset light. So, in three years’ space, we should look at vehicle leasing to be at least 10 percent of our balance sheet of about Rs 1,00,000 crore.
How is the pre-owned vehicle segment doing and do you think there is good growth in that segment?
This is an extremely aggressively growing segment, but the supply is choked (due to the semiconductor crisis). Vehicle exchange programs are not happening because if customers don’t get new vehicles, then they don’t want to give away their old vehicles. So, supply is a big constraint, but there are absolutely no constraints to demand.
I am seeing some two-wheeler owners graduating to four-wheelers, and keeping their two-wheeler as an additional vehicle for the family. So, the demand is very high for the small four-wheeler range, both in the new and the second-hand markets.
Despite the economic challenges of COVID, higher priced models (SUVs) have done better and ticket size of loans has gone up. So are more customers opting for financing, instead of cash purchases?
In a scenario like this, only ‘genuine buyers’, who have to have a vehicle, make purchases. But when there is a general positivity, even ‘tryers’ will buy vehicles. So when things open up post the festive season and even vehicles start becoming available, a lot of first-time buyers will come in. This first-timers’ percentage is missing today, and that percentage will come back. This is why loan ticket sizes are higher – people want 90 percent (of the vehicle cost) as loans. They have a good track record of the past and, therefore, they ask for a higher loan amount at a lower rate.
Customers are now coming back to dealerships. But supply is a big issue because of the semiconductor shortage. How will that impact you?
Since sales volumes will go down, our monthly disbursements will also go down. But (buyer) sentiments have turned positive. So suddenly you may see a spurt in one particular month, where demand comes back and vehicles are made available. I’m hoping that month is October or November. The shortfall of September, then, could get covered between October-November. So, on a quarterly or annualised basis, you will see the number pan out to balance itself, but on a month-to-month basis, yes, we are seeing the pressure of low volume.
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