India's car leasing market is revving up

Arval, the leasing arm of BNP Paribas, has announced that it is to procure 10,000 vehicles in India over the next five years, and, as a result, the country's car leasing industry is set to witness significant activity. In India, Arval currently operates 125 vehicles in Delhi, Mumbai, Chennai and Bangalore. In a bid to capture a major share in new markets, the group intends to expand further in Pune, Hyderabad, Kolkata and Ahmedabad. Despite the fact that car leasing giants like LeasePlan and Orix have been in India for over a decade, the car industry is still in a nascent stage. The used car market in India, which is disorganized and has a dearth of channels for used car sales, acts as a major impediment to the growth of leasing, as companies find it difficult to dispose of their vehicles for a reasonable amount. Another major deterrent is the traditional mindset of companies in India's corporate sector. As a result, organizations usually own vehicles rather than hiring them. However, Indian companies have recently begun to follow the example of foreign multinational corporations (MNC) by realizing the benefits of car leasing over owning a fleet of vehicles. Simultaneously, leasing companies appear determined to boost their operations in India, and earlier this year, LeasePlan announced that it was to invest $500 million in expanding the size of its current fleet of 17,000 cars to 30,000 cars by 2013. Car rental major Hertz looks set to follow suit, with plans to increase its fleet of 2,500 cars tenfold to 25,000 cars through an investment of $250 million by 2011. At present, the major opportunities for leasing companies in India lie with the foreign MNCs which are also their existing clients abroad. This is because, unlike Indian corporations, these MNCs are hiring cars in India rather than buying them. In addition, as MNCs are creating jobs in India, particularly in the IT/ITeS, hotels, pharmaceutical and retail sectors, this is also leading a more competitive commercial environment. Thus, in order to retain talent and to provide better compensation, companies are offering cars as a perk to their employees. As a result, leasing companies in India are working hard to cash in on this opportunity. Furthermore, the gradual move toward organization that is being witnessed in India's used car market will also offer leasing companies the opportunity to expand their operations further. However, in order to establish a stronghold, leasing companies must educate Indian corporations of the benefits of hiring over owning vehicle fleets.