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Automakers bank on buyback option to tackle slowdown

Good ideas are born out of desperation, say carmakers, many of which have launched buyback options.

Updated: Aug 31, 2019, 05.04 PM IST
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Nilanjan Banerjee of New Delhi bought Mahindra’s premium luxury SUV, Alturas, this month. No big deal, except that he will keep the vehicle for three years, or 30,000 km, after which he is assured a buyback at 57% of the original value.

“Initially a bit hesitant, this buyback option by Mahindra gave me the confidence to buy a Rs 35 lakh product,” said Banerjee.

In Mumbai, Pranav Lalit, who typically changes his car every three years, found a buyback scheme on the Honda CR-V diesel (52% after three years) very attractive.

“No hassle and no fear that the car won’t sell after three years. And there is this ease in returning the car to the manufacturer in the buyback scheme,” he said.

Most good ideas are born out of desperation, say automakers, many of which have launched buyback options for certain models as they seek to overcome low consumer confidence in the Indian market. The buyback option, which is an industry standard in developed markets, is currently more popular in the luxury segment in India.

With job loss concerns outweighing discounts and other rebates, such initiatives may give automakers the push they need as they battle one of the worst slowdowns, which saw passenger vehicle sales fall by 31% in July.

In the luxury car industry, it is of paramount importance to be innovative, often working at a disaggregated level to create a package to enhance value for the customer through such financing, maintenance and buyback services, said Rudratej Singh, president of BMW Group India.

The buyback is applicable to Alturas G4 in the passenger vehicle segment, said Veejay Nakra, chief of sales & marketing at the automotive division of Mahindra & Mahindra. It helps customers reduce the cost of ownership of premium products and enables them to experience luxury with a guaranteed resale value, Nakra said.

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FOR THE CONSUMER
The tenures of buyback options range from one to five years, mileage from 10,000 to 30,000 km and return value from 52 to 60%. At the end of the tenure, customers can upgrade to a new vehicle of their choice within the family, refinance the buyback amount or retain the existing vehicle. Manufacturers say these buyback options enhance value proposition, reinforce trust and provide peace of mind to customers.

It also helps in customer retention as the buyer returns the vehicle to the manufacturer, with a greater chance of upgrading to another of its models.

The aim is to have a customer for life, and customers are looking for a complete solution towards ownership rather than just buying a car, said Rajesh Goel, Senior Vice President and Director, sales and marketing, Honda Cars India.

Millennials have also been bitten by the buyback bug – they are typically averse to owning a car for longer periods and like to upgrade their vehicles at frequent intervals. The buyback will also be a big boon for the usedcar business as it benchmarks prices through a formal mechanism.

NEW MODELS ON BUYBACK
It’s not just the established companies that are offering this facility but also the new ones. MG Motors assures a buyback value of 60% at the end of three years for Hector, its first car in India.

“We are giving one of the industry-best residual values for a new car brand as part of our long-term commitment to customers here in the Indian market,” said Rajeev Chaba, President & MD of MG Motor India. “Once buyback schemes become more popular in the market, we may also see different type of financial packages being offered for different ownership tenures.”

The programme is an effort to understand customer needs while providing them with a hassle-free ownership experience, said Zac Hollis, director (sales, service and marketing), at Skoda Auto India.

Mercedes-Benz has a key-to-key buyback programme for its GLE, GLS and S-Class cars, ranging from Rs 67 lakh to Rs 1.35 crore. Martin Schwenk, MD of Mercedes-Benz India, said with its scheme, customers don’t have to postpone the purchase while waiting for a new vehicle. They can buy the current model and later upgrade to the new model without paying additional EMI. It entails an assured buyback programme where the customer gets to drive two cars with one down payment and the same EMI for 4.5 years.

Toyota in India offers the scheme for all its models. Christened Key4Key, this enables its customers to exchange their existing Toyota vehicles in their U-Trust facility and upgrade to the next Toyota vehicle. The resale value of a vehicle is assessed by the used-car division and a wellmaintained, five-year old Innova can fetch up to 60% of its original value, said N Raja, deputy MD of Toyota Kirloskar Motor.

Experts said when a car model has poor resale value compared with the competition, companies offer the option to buy back the vehicle at a prefixed rate. Three years is the optimum time, taking into consideration depreciation, resale value and the tax component. The return on investment is best protected after a period of three years.

“It takes away a pain point which may have otherwise deter red the customer from making the purchase,” said VG Ramakrishnan, managing partner at Avanteum Advisors, a consultancy firm.

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