After the Ubers and Olas of the world, there’s some more competition to car ownership. The latest disruptor in this space is Hyundai Motors-backed car rental company Revv, and how. The three-year-old start-up lets you take a brand new car on a long-term subscription— that is, pay a monthly ‘subscription fee’ for the duration of use of the vehicle, and hand it over when you are done with it.
Called OPEN, the service offers a choice of 25 odd models ranging from the Honda City to the Maruti Suzuki Alto and the Hyundai Creta. The user gets the car delivered right from the OEM (original equipment manufacturer) and keeps the vehicle for at least 12 months and maximum up to 48 months under the rental plan.
While analysts backing the auto rental model said long-term subscription would allow a consumer to escape hefty down payments as well as other liabilities like insurance, taxes, and maintenance that come with the purchase of a new vehicle, others argued that cost may be key to its success.
The rental price varies. A standard hatchback for example is available on the platform for Rs 18,000 to Rs 20,000 a month. A mid-range model (LXi Petrol) of the Maruti Suzuki Swift goes for Rs 20,484 a month (inclusive of GST). This totals to Rs 240,000 in a year and in three years Rs 740,000— almost Rs 70,000 higher than the current on-road price of a new Swift LXi in New Delhi.
Revv co-founder and Chief Executive Officer Anupam Agarwal said OPEN was a culmination of insights from the company’s short-term car rental business.
“Two trends are obvious. People don’t want to hold on to assets and they don’t want to save a lot of money—it’s going towards a consumption economy,” said Agarwal, a former McKinsey & Co associate partner.
The product will go live in six metro cities on Thursday, the company said, and will roll out in another nine cities next week.
The Revv journey started in July 2015 when Agarwal teamed up with his McKinsey colleague Karan Jain to launch the start-up. Earlier this year, the start-up raised Rs 1 billion in a series B round led by Hyundai Motors.
Others too are getting into the segment. Last month, Mahindra and Mahindra, the nation’s third-largest car maker, launched a leasing plan on similar lines, offering its models on monthly rentals ranging between Rs 13,499 and Rs 32,999 plus taxes.
Cars are depreciating assets. Depreciating 5 per cent in the first year, 20 per cent in the second and 25 per cent in the third and so on, a back of the envelope calculation shows a Swift LXi bought for the current ex-showroom price of Rs 590,000 will be valued at Rs 360,000 after three years. On the other hand, if purchased on loan, the return on investment is a lot sounder in the long run. Here, about 15 per cent of the ex-showroom price (of Swift LXi), or Rs 88,000 along with the first year’s insurance and taxes of about Rs 100,000 is paid up front. The remaining Rs 500,000 is put on equal monthly installments for three years. Given the rate of interest on car from a typical private bank is 9.5 per cent per annum, monthly installment comes down to about Rs 16,000.
That, according to Agarwal, is a competitive figure vis-à-vis monthly subscription charge for Swfit LXi on Revv. It provides a compelling case for a segment of customers wanting to stay away from car ownership, he said.