Sumit Chhazed, Co-Founder of OTO Capital chats with Sanjay Swamy, Managing Partner, Prime Venture Partners about Automotive leasing industry in India.

On this episode, they discuss how OTO Capital is disrupting Automotive industry, how customer mindset on purchasing a vehicle is changing and OTO's future plans.

After leading CredR for 3 years serving over 100K customers in used vehicles segment, Sumit took an exit in July last year from an operational role and have decided to go ahead with a mission to reinvent the concept of vehicle ownership with his new venture OTO Capital.

Listen to the podcast to learn about

1:10 - Recent trends in automobile ownership. What has changed?

3:20 - What role OTO capital is playing in the automobile ownership space

8:00 - Bringing leasing to retail

11:15 - What is OTO selling to people? Savings or Dreams?

Podcast Transcript:

Sanjay Swamy  0:21 

Hi, this is Sanjay Swamy managing partner at Prime Venture Partners. Welcome to the podcast series by Prime. As you know, Prime is an early stage VC fund investing in technology and product focused initiatives and businesses. Today I'm pleased to have with us Sumit Chhazed Co-founder and CEO of OTO Capital. Sumit, delighted to have you here. Welcome to the show.

Sumit Chhazed  0:42 

Thanks Sanjay, I'm very much delighted to be in conversation with you right now.

Sanjay Swamy  0:46 

Sumit, I'd like to cover three broad areas. One is of course, the recent trends in the auto-motive industry and particularly around vehicle ownership. Second, would be a little bit about OTO capital and how you got started and what the company does. Thirdly, how do these trends in India compare with, some of the trends in other markets. So, let's start with the recent trends in auto ownership and what are you seeing?

Sumit Chhazed  1:09 

Yeah, so Sanjay, typically what we're seeing, as the millennials are becoming the decision makers. And somewhere, the whole interest for the millennials is more about the experience more about the access to the better and better options. And that's where the trend in auto is also showing that the consumers are now probably changing, upgrading faster than ever. And, optionally, they are using a lot of financing options being available in the market. The old age way of owning an asset keeping it for yourself for 5,6,7 years is gone long back. And I think the auto industry is facing interesting challenges, as well as interesting opportunities are being created where somehow players like us feel like it's a innovative opportunity to come out with something interesting in this year.

Sanjay Swamy  1:52 

So to give an example of two wheelers, right, that you guys do a lot of work in, say five years ago. What was the mindset in terms of buying a two wheeler and how is that different today?

Sumit Chhazed  2:03 

Yeah, exactly. So what we've seen in last one decade, the average tenure for ownership of vehicle has probably gone down by 40-50%. So, probably earlier people were changing vehicles like in and around five to six years. But now, the average tenure for which a consumer uses the same vehicle has gone down to two and half, three years, that has been a pretty interesting change in the consumer mindset.

Sanjay Swamy  2:26 

And is this because people are seeing, you know, new models in the market? Or is it they want to quickly upgrade? Or are people moving up from two wheelers to cars? What is the trend there?

Sumit Chhazed  2:36 

So what interesting is that what we believe is the customer needs have evolved a lot in the last one decade with the whole rental economy coming up in place, the ability and also the need to fulfill that desire is more than just what we can afford. And interestingly, on the other side of it, we see from options perspective, you have a stone age bank loans option is the only available opportunity. So while the customer needs have evolved, we strongly believe the options are still very much limited and that has constrained a lot to the customer.

Sanjay Swamy  3:04 

So that's a good segway into what OTO capital is about. Can you tell us one option that's always there is buying a vehicle outright paying cash or one time payment and we're all familiar with the bank loans which is the other option where you put a down payment and a monthly EMI and after three to five years you own the vehicle outright. Tell us about OTO capital and your innovation in the space.

Sumit Chhazed  3:24 

Yeah, that's an interesting point Sanjay, so one more change we are seeing over the market is that more and more people are opting for financing as an option. So that is also becoming interesting factor that whole option to own an asset by your own cash is just going down. So how OTO exactly is bringing the value out here is that, with OTO the ownership of vehicle ownership of bikes becomes much more affordable and flexible. So, where as in the normal bank loan, a customer has to pay EMI over a period of two, three years and then he's the one who has to worry about the resale the effort of resale the risk of value resale, insurance, maitainance, here when it comes to OTO financing Plan, he just needs to be pay a monthly installment which is almost 30% less than any bank option, because he's paying only a fraction of the cost of the vehicle he's owning for a certain tenure, so he's very much assured of a certain resale value, which OTO is ready to commit on day one to him, which makes sense that for example of Activa, which cost you 80,000 rupees. Earlier, the customers was paying 3000 a month now he's paying 2000 a month and can own the same activa. Comes with more flexibility that he can upgrade whenever he wants, he can move out off the, he can extend the tenure if he wants to. And at the same time, he's paying less EMI. So, it becomes an option which basically fulfills the need of the present customer.

Sanjay Swamy  4:39 

So you're saying a customer who wants to buy a vehicle in even in lieu of a bank loan through OTO Capital pays a lower down payment pays a lower monthly EMI and still has the option at the end of two to three years to pay a balloon payment and own this vehicle or just walk away from the vehicle?

Sumit Chhazed  4:57 

So, basically what OTO brings in a kind of flexibility that a customer needs today, so he has an option to own it completely whenever he wants. With a kind of flexibility that he has. If I want to walk away OTO is there to take care of me. With the whole changes in industry coming in where BS-6 is coming and EV's we are talking about, the industry has its own uncertainty and what we're seeing is the backing of OTO brings a lot of comfort to the customer. Customer now feels at least assured at least for next two years I want to use this probably if I want to keep using it I'll do it, else OTO is ready to take up my vehicle, so that actually is helping a lot to customer to actually take that decision take that step to, okay I want to own it today. And I'll worry about things later because OTO is there to back me up. So that is something very interesting phenomena even though our seller partners, showoom partners working with us, they are finding it very interesting that yes, customers who are stuck somewhere in decision midway, they are not falling through. They are going paths and getting the vehicles out because they are finding OTO to be much assured option these days.

Sanjay Swamy  5:57 

Got It. So you don't see this as yet another form of a bank loan, but it's really it's a third new option that did not exist in the past.

Sumit Chhazed  6:04 

Yes, exactly. So this is something interestingly being built with our experience and expertise of the market. We have seen the trends over years, we have interacted with lot of customers. And we strongly feel that the market needs innovation and market needs better options than what there are today. And I think OTO is trying to fill that gap with its its effort.

Sanjay Swamy  6:25 

So let's step back a little bit. Right. So if you look at certainly over the last, three months, for sure and perhaps last six months, there's been certainly a lot of talk in the four wheeler industry and to a lesser extent in the two wheeler industry about a slow down. And what I'm hearing you say is, on the one hand, the slowdown is perhaps because of to some extent, the economic slowdown, but broadly you are also saying that the products that are out there or the ownership mechanisms, the financing mechanisms aren't really appealing to the users. So, if you were to attribute, the slowdown, how much of a do you think you would attribute to just not having the right option for the customer ?

Sumit Chhazed  7:00 

I believe economic slowdown just probably pushes, it's a cyclical effect. It will probably move out in some period but what we see the change in behavior is a permanent thing. And I think if we do not bring the right resolutions for such kind of a customer behavioral change, I think industry is going to face these challenges. So, I believe it's a bigger factor than the economic slowdown from a concept, like today only I met a friend who just shifted to Bangalore wanted to look for a bike but don't want to own it he doesn't know how far long he is going to be here. He's looking for options and I think that's where the OTO fills in the gap. Okay, look, you're looking for a mid-term kind of plan you want to atleast for your stay you look at horizon one two years, take bike from OTO use it if you keep living in Bangalore stay keep using it, else you give it back and move to other cities. So, makes it very simple makes it very useful for a customer today who is travelling out in and out of cities because of career options because of other needs become the best fit.

Sanjay Swamy  7:56 

So, broadly, this space has been deemed as leasing of vehicles, way back in the 90s when I lived in the US I  had leased a car and then at the end of three four years, I decided to buy it. So, this mechanism has existed in India only for the fairly exclusive segments. Do you see this something you want to take to the retail market?

Sumit Chhazed  8:17 

Yeah, I think yes, that's interesting point Sanjay. So, this leasing has been very prominent in if you go to the Western markets go to the developed nations leasing is like driving 25-30% of the share of the industry now, and it is a norm for customer to basically lease vehicles. Probably a decade ago, a generation ago, the mindset was different. The ownership of vehicle, ownership of house has a very different status its association, but just in the last 10 years that the millennials coming in with the Z generation coming in, that the whole mindset is changing. And that's where we see this is going to pick up and definitely see it's an interesting opportunity for the individual customer to take the decision to basically own a vehicle in a more flexible and a fashionalble way. And I think that's where the market we see and we have strong conviction about the retail segment. So we are all in for retail as a concept. We want every individual who's looking to own a bike, get it in a most affordable and flexible way, through OTO.

Sanjay Swamy  9:08 

Today you're live in Bangalore and Mumbai ?

Sumit Chhazed  9:12 

So we started off interestingly, with the Bangalore city, we got really great response. Like, I would say it's outrageous growth that we're seeing out in this market, we have recently launched Pune. Seeing a similar growth. That is an interesting factor here that the depth of this market is humongous. So it's not just limited to the larger cities, the generation is evolving all across the country. And this option, we feel strongly going to be useful in tier two, tier three as well. We are excited we have already in two cities, we're looking to be in another four six cities in the coming year. And let's see how it goes.

Sanjay Swamy 9:43 

So, if you think about the broader market, in India, certainly in the urban segment you have you know, some of the other new rental services and stuff also coming out. So what niche does leasing of my own vehicle cater to right, on the one hand, we had ownership, on the other hand you have one time very, very short term, what is the niche that leasing the OTO capital way serves?

Sumit Chhazed  10:07 

Yeah, exactly see, I believe the long age of ownership is completely gone and I believe the complete market who has been taking bank loans to own their vehicle is completely available to us to actually switch over to my OMI plan as we say with the benefits that comes with the mindset change has happened. But yes, that's an interesting way of looking at the short term rental market. Yes, there is a kind of a market creation happening through them. Yes, there is a category of user who have all kind of unpracatical we have regularly moving across and for them, that makes a lot of sense, but someone staying in Whitefield going to office every day on Belandur road, for him its is a complete predictable route, for him if he does economics, which sees the comfort and flexibility. The leasing has its own, outweigh both the options outright. So I believe it's a customer who has a midterm kind of goal like at least for a year or two. I'm very clear, how I want to?, what kind of commute I look forward to? I think we have the best option here.

Sanjay Swamy  11:04 

And one last question, from the initial customers that you have are people saying that because of the lower EMI, I get to save some money or are they saying I can buy a better vehicle? So what are you selling them? Are you selling them savings? Are you selling them a dream?

Sumit Chhazed  11:19 

No, I think definitely we are selling a dream out here. I believe auto is a passionate industry. People have their own desire to own something which they like and generally a trends have been they desire what they cannot afford. And somehow with OTO that desirability becomes affordability. So that's an interesting surprise that we give to our customer at the showroom. And I believe it's we are seeing a customer behavior where people are looking to own something with a desire and get fulfilled. It gives another level of happiness and satisfaction to us like we doing something impactful to the industry.

Sanjay Swamy  11:51 

Awesome Sumit. So on the note of desirability becomes affordability. Thank you so much for your time. It's great having you on the show.

Sumit Chhazed  11:58 

Thanks Sanjay. Thanks for the time.