The news pages of International Fleet World and its sister title, the International Fleet World Confidential monthly electronic publication – may be filled with announcements of carmakers establishing new plants and launching new models in India to cash in on soaring car sales but it wasn’t that long ago that there were really only two players in the market – the Ambassador replica of the Morris Oxford from the 1950s and the Premier Padmini, perhaps better known as the Fiat 1100.

However following the country’s economic liberalisation in the early 1990s the Indian automotive industry has benefited from relaxed restrictions, leading to a huge rate of growth. According to the latest figures from the Society of Indian Automobile Manufacturers, car sales over the April-August 2010 period grew 34%, aided by lower borrowing costs and the introduction of new models.

And the influx of new models looks set to continue – only last month Ford announced plans to launch eight models in India by 2015 while Toyota is to introduce its Etios hatchback by December 2010.

But according to the “Recovery from Recession” survey published by Datamonitor early this summer a shift in consumers’ mindsets is also playing an important role in driving car sales – as comfort, luxury and a hint of class dominate buyer’s tastes, more and more Indians are willing to stretch their budgets while purchasing cars.

The report added: ‘Cars are no longer a luxury. The entry of the middle class in the consumer circuit has changed the automobile landscape. With a wide range available in the market and external factors which influence purchase decisions improving, consumers have a lot more options to explore and they are willing to invest, highlighting the fact that this upward trend is predicted to continue.’

The Society of Indian Automobile Manufacturers is also upbeat about the continued growth of the market and says that annual sales may reach three million by 2015.

But it’s not just the car market that’s growing but also the corporate car market, particularly in the operational leasing sector, according to a report released at the end of last year by Datamonitor.

Currently it is estimated that there are around 30,000 cars on operational lease in India in a marketplace occupied by six main players – ALD Automotive India, LeasePlan, Arval, Oryx and Trans Lease.

However, in its report on “Company Car Market in India 2009: Market Size and Competitive Landscape”, Datamonitor predicts that the operational leasing market in India will grow at an average rate of 28% a year until 2013 to reach a total fleet of around 100,000 units.

According to Datamonitor, less than 10% of all cars used by companies in India are funded by operational leasing. However, this figure will rise to least 25% by 2013, driven by the continued growth of the corporate car fleet.

The report explains that a number of factors are fuelling the growing demand for operational leasing.

‘Alongside the rising levels of foreign direct investment, an increasing number of local subsidiaries are being set up by multinational corporations,’ it comments. ‘Foreign companies find it easier to subscribe to leasing, given their familiarity with this concept in developed markets. Additionally, the commercial sector in India is becoming ever more competitive and consequently more companies will look to implement employee retention measures, such as those that provide tax benefits. And with companies also looking to maintain healthy financial records, operational leasing becomes a particularly attractive option as it reduces the number of depreciating assets on a balance sheet.’

For ALD Automotive India, the second biggest player in the operational leasing market after LeasePlan, growing awareness of the benefits of leasing and an increasing influx of multinational companies into India mean that there’s big business in fleet.

The company is a wholly owned subsidiary of ALD Automotive Group operating within the Specialised Financial Services of Societe Generale. 

ALD Automotive India was established in February 2005 and became fully operational in July of that year.

The firm is headquartered in Mumbai with offices in New Delhi, Bangalore, Hyderabad, Pune and Chennai – a set-up that, along with its supplier tie-ups across the country, means that it is able to service corporate vehicle requirements in any town or city in India, according to the company.

ALD Automotive India currently manages a fleet in excess of 6,500 vehicles with a corporate base of over 400 customers in over 150 locations across India.

The company is run by managing director Sujit Reddy, who has a wealth of experience in the financial services and leasing industry. Mr Reddy started off his career in the Audit Department at PricewaterhouseCoopers before moving onto Hertz Rent a Car and then Hertz Lease Europe, where he became group financial controller. Following the acquisition of Hertz Lease Europe in 2003 by Societe Generale he assumed the role of group financial controller at ALD Automotive in the UK before taking on the position of MD at ALD Automotive India in 2005.

As a wholly owned subsidiary of ALD Automotive, ALD Automotive India plays a key role in assisting with the leasing giant’s global clients who are either moving into India for the first time or are looking to harmonise existing fleet operations there with their global operations. But the company also deals with large local firms too.

Mr Reddy comments: ‘Typically our clients are the larger multinationals who may have a small or large presence. For example we have a fleet of 500 cars with Monsanto India, but on the other hand we have a European-based company that has just started up operations in India and has just a handful of cars. But we probably have a lot more of the 5-10 cars spread amongst the larger group of multinational companies.’

He adds: ‘Out of the Indian corporates, we’re dealing with the medium to large firms because on the credit side we want to make sure we’re dealing with strong companies.’

Mr Reddy explains that there are many benefits to corporates looking to move into leasing – these include the tax breaks for both drivers and the company as well as obviously the saving on initial capital for the firm and the protection from the risk of fluctuations in asset values.

But in a country with 28 states – each with their own level of VAT – where prices of cars also vary from location to location and even within the same city and there are complex car registration processes, outsourcing car purchasing to a leasing firm can significantly save on companies’ administration time and costs.

Mr Reddy also highlights how operational leasing can help fleets deal with running cars in different geographical areas – a key consideration for a country that measures 3,214km (1,997 miles) from north to south and 2,993km (1,860 miles) from east to west.

He comments: ‘We might have a company that we sign in Bombay but they may have vehicle requirements in 20 or 30 cities, so we have to register those vehicles in each of those cities and get the documentation they need to register. We have to renew the insurance and manage the cars inbetween and then collect them at the end of the contract and dispose of them in those locations. A lot of companies – especially the ones that are running vehicles as a tool for the trade –don’t want to get into these kind of activities. They want people who are specialists.’

He adds: ‘There is a growing perception of the benefit of leasing. We’re getting a lot of clients who are coming to us talking about leasing. Rather than us going into them, they actually know about leasing.

‘But we still have a category of companies who are untapped – who still purchase their cars outright because they feel that it offers a tax benefit in terms of the rate of depreciation that they could get as a tax deduction. However, the rules have changed and actually it is more beneficial for firms to lease and have the whole lease rental chargeable against their income for tax purposes.

‘One other area where we come up with resistance sometimes is that there has been a traditional tendency for employees to want to own the car at the end of the leasing agreement. In our view that that’s more like a finance lease and typically not the kind of product that we want to offer. We tend to take a risk on the resale value and with that provide the full services.

‘However, as companies get more into the mode of thinking that a car is just for three years after which it is disposed of and you get another one, then the concept of operational leasing will probably gain acceptability much quicker.’

In terms of its services portfolio, ALD Automotive India offers the usual range of products, such as maintenance, as well as some that are more unique to India, including a product to cover for disallowance on insurance claims.

Mr Reddy explains: ‘In India there is a concept of a depreciation when it comes to insurance. So if a car is brand new and it has an accident, the insurer will replace everything. But if the car is a year old, they apply some depreciation to certain parts, so you don’t the full settlement. We offer a product that covers such disallowance – a bit like a self-insurance on the parts that are not covered.’

Also being offered is a “pick up and drop” service where if a client’s car has to go in for a service, ALD Automotive India will send one of its drivers to pick up the car, take it to the dealer and then return it to back to the client. Typically this can be built into the contract.

Another product in the portfolio is a chauffeur service, which tends to appeal to ex-pats who don’t want to source their own driver.

Mr Reddy also says that the firm will develop new products as the market in India matures. As an example, he points to the company’s current partnership with Mondial, which recently entered the Indian market, enabling ALD Automotive India to offer breakdown cover on a national basis without having to use hundreds of different, local suppliers.

He continues: ‘As the national infrastructure develops and more big players enter the market, this immediately increases the services that we can provide.

‘One area that is not so well developed is fast-fits and tyres, as we don’t have a Euromaster type of operation. If we had a provider that could carry out work on tyres, batteries etc across the country, it would improve the kind of service we offer – we currently have to tie up with various different suppliers and operators. In fact one of our main challenges is the number of suppliers that we have to deal with – they’re into the thousands.

‘If these kind of national players come in to work alongside the leasing company that obviously takes us to another level.’

Another area where ALD Automotive India is set to improve its current set-up is with car disposals – currently the leasing firm utilises a process of inviting bids from brokers for the car and has also used eBay to dispose of cars. But it’s looking to draw upon the expertise of its parent company and implement ALD International’s ALD Carmarket online-based international platform for selling cars in the next year.

As well as improving its services as the Indian car market develops, where else does Mr Reddy see future growth coming from?

‘We have a number of opportunities for growth – the opportunities are the growth in the car market. The car market is one of the few car markets that is growing quite rapidly. The reason for that is we have small penetration of vehicles per head of population and obviously we have an economy that’s growing 9% per year – so a growing number of opportunities are being created for companies to grow.

‘And as a car becomes more and more an important factor in recruiting and retaining talent, we will expect to see companies having to provide cars; obviously the options they have are to buy the car outright or to get the employee to take a loan – or take an operating lease.

‘An operating lease has a number of benefits, which corporates are realising. It’s something that they can add as a benefit without them having to do a great deal of work– they just have to bring us in. And what we do with a lot of companies is help them develop a car policy – a lot of them don’t have one so we help them to develop one and to implement the policy.’

He continues: ‘We’re in a strong position in that we’re a relatively early entrant in that we entered the market in 2005 and we do have a strong position, being the number two player. Clearly our objective is to maintain that and to grow with the market.

‘Our objective is also in large part to tap into more clients and explain to them the benefits – obviously that was more of a challenge earlier as it was a less well known concept while leasing has been around for more than ten years now so there’s far more awareness of it and the benefits that it offers.

‘Our role is largely to educate and show companies the benefits of leasing and help them to develop the policy – again we have that experience now from having done it for other companies.’