Cabs vs Car Debate, and who really wins?The “Own a Car vs Call a Cab” debate has been in existence pretty much since the start of popular cab services like Ola and Uber in India. While the arguments in favor of cab services have mostly been based on the financial benefits, owning a car still has a certain convenience factor that cannot be quantified and compared. But with recent decrease in prices of cab services and the extra services being offered, such as outstation rides, people might be tempted to switch sides and the “Car vs Cab” debate might just finally be at a stage where it might start to have a material impact on the automobile industry.

What exactly is the Cab vs Car debate?

There multiple approaches to dealing with this topic. The first one of course is the pure financial perspective. While at first the cab rates of 6-9/km on average might look costly, ₹when you start comparing it with the cost of running a car and the purchase cost of the car itself, you realize that cabs aren’t that costly after all. Add to that the annual insurance and maintenance cost associated with owning a car and the entire story changes. Let us understand this with some numbers. 

Assuming a budget segment car that costs around 5,00,000 and has a life of around 12-15 ₹years or 1,20,000 km with an average annual usage of around 8000-10,000 km. This gives an allocation of purchase cost of car at around 4 per km. The insurance cost of such a car is ₹usually over 15,000 per year. With time this cost will decrease but the maintenance cost will₹ start to increase, so we can take annual insurance and maintenance cost to be around 2 per ₹km. Finally, we have the fuel cost. A normal budget car in India runs for 20 km per litre of fuel in normal city conditions. This gives us a fuel cost of 3 per km. Adding all these costs ₹we get a figure of 9 per km as the cost of using an owned car, which can be easily compared₹ to the cab rates of around 6-9 per km₹  

So even with some conservative data, the cost of owning a car could potentially be more than cost of availing cab services. Not to mention the additional costs associated with parking the vehicle you own. While the daily parking costs might not be significant, in metropolitan cities, residential accommodation don’t come with parking and require you to pay extra amount for getting a parking spot for your vehicle, and it is very common for these parking spots to cost more than the car itself at times.

But that is not the entire story. For the past couple of years, the arguments in favor of car owners have been about matters that cannot be quantified. Cabs cannot match the owned car in terms of outstation travels or emergency cases. Also, owning a car still commands a social status in the Indian society. While cab companies have started offering outstation services, they are priced very highly, and no matter how big a fleet these cab companies operate, they still take some time to reach the user, which is not ideal in case of an emergency.

While these arguments are not exactly new, I personally feel that the biggest selling point of the cab services is the time you save not driving. In Delhi, for example, an average guy spends about 1 – 2 hours daily just for commuting to and from the place of work. That is a significant portion of the day just being wasted. In that time, you could finish 3-4 extra novels if you like reading, have more time on social media, read the news to keep up to date with the latest happenings, or watch a movie almost every day, and the possibilities are countless. For

a generation that is too busy, it sure seems like almost everyone could use an extra 2 hours that would otherwise just go waste being struck in the traffic.

Who is the real winner?

While we can all agree that the cab companies are losing a lot in the short term due to constant price war among the two big cab companies, Consumers seem to be the beneficiaries since they have more options than ever. While the simple analysis does give us good results, there is one party to this whole issue, that everyone seems to ignore, the car companies. While on the face of it, we may compare numbers and say that switching to cabs is more economical that owning a car, a deeper analysis though, reveals that the story from the car company's perspective is good. In fact, the emergence of cab services might just have been the biggest boon for an industry that was struggling to sell its products in a developing economy. Let us look at it objectively: If the people start shifting from owning a car to availing cab services, a conservative estimate would be that the demand of almost 4 families can be met by just one cab. That means the demand of cars being slashed to 25% straight away, which could easily put the automobile industry to bed in coming years. Not exactly.

First and foremost, the automobile sector in India can be subdivided into various categories. Luxury segment, higher mid-class sedans, High-end SUVs, compact SUVs, and finally the budget segment. While the budget segment accounts for bulk of the turnover of most automobile companies, it is fair to say that all the other segments of the market will probably remain unaffected by the Car vs Cab debate. Cars in India are not just a utilitarian asset. If people used cars only for travelling, you would only see budget cars on the streets but that is not the case and it is important to understand this concept to really understand which segment of automobile sector will be affected. You will not see companies like BMW or Mercedes breaking a sweat with arrival of cab services. At the same the recent demand of compact SUVs also won’t be affected much as they serve a different use case scenario than a cab would.  So, it is down to the budget cars, up against the budget cab options (which also use budget cars).

The car manufacturing companies have so far been selling cars that the end user would use for almost 8-10 year, maybe even more. With the amount of mileage that a cab must cover, the chances are that the life of car (when used as cab) is reduced to almost half. This means that in the same 10-year period where the car companies sold one car, they will now be selling two cars. That’s double the demand in the long run.

Based on the census report of 2011, there are just 18 motor vehicles per 1000 people in India, and this list includes commercial vehicles as well (motorcycles are excluded). Another website by the name of Chartbin.com shows that India has only 8 passenger cars per 1000 people. While countries like USA or most of the other European countries have well over 400 passenger vehicles per 1000 people. Assuming an average family size of 4, India has around 12 - 14 passenger cars per 250 families, whereas the developed countries have well over 1 car per family. While this number might look bad on the face of it, it also shows an opportunity for the car companies. Now for a moment, think about the people who do not own a car but use the cab services (students, young professionals). When this segment of the population that does not own a car starts using a cab, the demand of cars increases and forces cab companies to deploy more drivers and add more vehicles to their fleets, taking the statistical figure of 12 cars per 250 families to a higher level. This is where car companies emerge as

the real winners from this whole situation. A car company is least concerned with what drives its demands, as long as there is high demand.

Conclusion

With most car companies aiming to increase the market penetration, they sure won’t mind whether it is the person buying the car himself, or it is the cab company that deploys the car for use by its customers. The demand in this sector of economy is not going to slow down any time soon. Car companies can be happy with timely arrival of reasonably priced cab services in India, because the automobile industry that seemed to be going nowhere a few years ago, now has a clear path to the future, and it sure looks bright. As far as the consumer's perceptive goes, Car vs Cab debate still has some valid points from either side, but there is no denying that the difference between the two is getting narrower. One might not have to look too far in the future to see majority people choosing cab services over the option of owning a car, at least till Ola and Uber keep competing and not follow the path of Didi and Uber in China, who eventually merged to form a monopoly in the Chinese cab market.

Shubham Goyat

References / Sources:1.       https://en.wikipedia.org/wiki/List_of_countries_by_vehicles_per_capita (Wikipedia data

on per capita vehicles in countries based on local statistical data)2.       http://chartsbin.com/vipaew/1113 (chartsbin.com world map by passenger cars per 1000

people)

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