Maruti's car subscription scheme analyzed

After several car rental companies like Zoomcar and Revv launched car subscription service, India's largest carmaker, Maruti has entered the game. In tie up with partners like Myles and Orix, Maruti cars are available on a subscription model in several cities. How good is this? I spent sometime studying their pricing, fine print and finding out if there are merits in paying monthly subscription fee instead of EMI.

Subscription model's claimed benefits are as below

• No need to pay huge amount to get a car, just be ready to pay a monthly fee (almost at par with EMI)
• Flexibility to change cars, cities etc (at the end of subscription period, penalty applies otherwise)
• No need to spend on insurance, maintenance (do check fine print-there will be some exceptions & limitations)

How much does it cost to subscribe to Maruti Suzuki cars?

Maruti's car subscription fee depends on following factors;

• City
• Whiteboard/Blackboard (Black board is like taxi- owned by Myles, costs about 10-15% more, interstate permit fees and speed governor applies, while white number plate is car registered in your name, but owned/hypothecated to rental partner)
• Subscription period (if you can commit for 48 months you can pay 16k onwards per month, but for 24 months, about 19k per month)
• Car model, variant (cheapest is Swift LXi MT, while you can have XL6 AT Alpha for 35k per month)

Below image gives you an idea. Check on their website for exact price for city, model & duration of your choice. Click on image to view in detail.

Buy vs subscribe - cost comparison- Swift VXi MT Petrol (On road price close to 8 lakhs)

	Subscription Model (White, 48 months)	Purchase (loan)	Purchase (no loan)
Initial spend	0	1,00,000	8 lakhs
Monthly rent/ EMI	19000	16300 (for 4 years)	0
Total rent/EMI	9.12 lakhs	7.83 lakhs	0
Maintenance cost (4 years, approx)	20000 (claimed zero but there will be fine print and exceptions)	80000	80000
Own damage Insurance cost Year 2, 3, 4 total (3 yr 3PL is included in on road price)	0	60000 approx	60000 approx
Total amount paid in 4 years	9.4 lakhs	10.5 lakhs	9.4 lakhs
Resale Value	0 (Net loss=100% at 9.4 L)	4-5 lakhs (50-60% loss)	4-5 lakhs (40-50% loss)
Yearly expense to continue owning the car after 4 years	1.2 lakhs	30-40k insurance  & maintenance	30-40k insurance  & maintenance

Note: Loan amount, EMI can vary depending on down payment, tenure and interest %. Insurance amount can vary by varying IDV- you can even skip own damage cover. Maintenance cost not possible to calculate precisely, just a guess work.

Financially, the subscription model is not viable for long term. You pay a monthly fee more than your EMI and end of subscription period you get nothing. In traditional model once you clear the loan you can use the car for very less expense (only insurance & service) for 10-15 years or even more. But with subscription model you've to pay hefty fee every month. Subscription fee is more than EMI because of multiple reasons

- Partner firm (Myles/Orix) have to get a cut, cover their expenses and make a profit

- Cost of maintenance, insurance etc needs to be built into subscription fee

- What to do if no one else subscribes to the car after current subscription ends? Companies need to keep a buffer for this risk

- 18% GST that needs to be paid to Govt on every subscription fee collected

Subscription is also bit complicated process than owning the car- owning a car is one time process and you have full control over the vehicle- you can sell it, drive as much as you want, customize as per your need, ignore fixing minor dents or scratches and so on. Subscription car often comes with rules and restrictions- monthly usage limits, items not covered under maintenance, penalty for pre-closure, amount to pay in case of damages and so on. Subscription is offered by another partner, so now there is one more company that needs to make profit. So subscription fee is more than EMI. Initially you will get new cars but later same car will be allotted to others- so many subscribers will get used cars.

My personal thought- if these cars were available on just one month rent instead of having to commit for 12-24 months, I would have loved to try a few of them.

You can check this website to know more about Maruti's subscription scheme

https://www.marutisuzuki.com/subscribe

To promote subscription model car rental companies should do the following

• Allow short term subscriptions- like 2 or 3 months- so people can test the model without committing lots of money
• Keep subscription fee lower than EMI- else there is no motive to try subscription
• Reduce subscription after few years- like if I have paid 9 lakhs over 4 years as subscription fee I should have an option to own the car for a token amount (say 1 lakh) or renew subscription for much smaller amount- like 3-4k per month instead of 18-20.
• Keep your rules public. I don't want to pay a hefty subscription fee and then realize that car has speed governor, there is monthly usage limit or other rules and restrictions.
• Give some tempting offers- like subscribe to a hatch but get free upgrade to an SUV for 1 or two weekends per month, free change of cities or upgrade in case of transfer, promotion etc

Leasing works very well in many countries around the world- like USA- mostly because of nice roads, well educated drivers which ensure longer life of a car, allowing lease companies to keep their offer economically tempting. In India given road conditions and the way people abuse rental cars, companies can't be very sure if cars will survive beyond 5-6 years- so they have to price it such that they recover car's price, cover operating expense and make a profit all within this.

Because of pricing that doesn't make economical sense, car subscription model hasn't been huge success in India. Maruti sells lakhs of cars per month, but hardly a few opt for subscription. Media reports say Maruti got 6600 enquiries on its subscription program in first few months- assuming a 5% conversion rate, may be 300-500 people would have actually subscribed to their cars so far. That is a drop in the ocean. Zoomcar had only about 9000 customers for ZAP subscribe despite years of intensive marketing.  Good pricing and terms are crucial to convince consumers to try subscription instead of purchase.

Do share your thoughts.