Hyundai Stake In Ola Signals Yet Again That Car Business Is Going To Change Forever

Hyundai Motor, India’s second largest passenger car company after Maruti Suzuki, is said to be negotiating an investment in ride-sharing company Ola for a possible 4 per cent stake. The rumoured investment size of $250-$300 million would value Ola around $6 billion.

This is yet another indicator of a shift in the nature of the car business, where demand is increasingly going to be influenced by fleet-owners and ride-sharing companies with the clout to negotiate big discounts on volume purchases. The individual car buyer will remain a key player in the foreseeable future, but even she will increasingly use shared mobility options in future. Multiple car ownerships will probably decline even among the relatively rich classes.

Before Ola, Hyundai had invested in a car rental start-up Revv, and Mahindra and Mahindra and Ford invested in Zoomcar.

Last November, Maruti’s senior executive director (sales and marketing), R S Kalsi, confirmed that urban sales of cars had slowed largely because of traffic congestion and the increase in shared mobility services like Uber and Ola.

If states had been willing to promote more such services instead of trying to protect normal cabbies’ monopolies, shared mobility would have taken off even faster.

For the automobile industry, this shift in consumer preferences will involve a lot of internal re-engineering. The industry will have to change the way it does business.

First, margins will grow thinner as fleet owners and ride-hailing services squeeze better price deals on the promise of sales volumes. This means less customisation, and more standard features.

Second, design will need to be more robust, as future cars will be more heavily used compared to use by individuals. Cars have to be built tougher in order to withstand increased wear and tear, and yet remain cheaper to maintain.

Third, selling and marketing strategies will have to change. Large dealerships may become less useful if fleet-owners choose direct negotiations with car companies rather than talking to dealers. Service shops and garages will also have to shift focus from individuals to more demanding cab drivers who can’t afford to pay heavily for servicing and spares.

Fourth, a significant part of shared mobility will come from electric vehicles (EVs) over the next decade, as the fuel will be cheaper and the vehicles less prone to wear and tear. This means investment in battery technologies and infrastructure for charging vehicles. While this may be facilitated by the state itself, car companies will have to do a part of the investing themselves to facilitate the shift.

Fifth, since EVs have far fewer moving parts than internal combustion engines, maintenance and care will be cheaper. Car companies will thus need to reduce the number of mechanics they train and focus on lower-skill servicemen and women who merely need to change modular parts and batteries. Car servicing will become almost like office maintenance work, involving fewer technically-skilled workers.

The biggest change will probably involve adjusting to the reality that most cities will privilege public transport and shared mobility over individually owned vehicles.