Wednesday, 20 July 2011

Ever dreamt of woning a Mercedes? Now, lease its at 50% of price

Ever dreamt of owning a Mercedes at half the cost. It is possible now with the German luxury carmaker offering 'individual lease' options to customers who can now get a new car on lease instead of buying it with full payment. 

Daimler, the parent of Mercedes Benz, began its financial services business in India on Tuesday and said that the bouquet of services this division will offer would include individual lease plans, something very popular in the West but rarely used in India in individual cases. 

"Individual lease is a big draw in developed markets. In the US, 40% of individual sales is through the leasing route while only 15% through finance. We expect the trend to pick up in India as well and this country seems to be adequately placed for such an option," said Klaus Entenmann, global chairman of the Board of Management of Daimler Financial Services AG, which annually does business to the tune of euro 64 billion. 

Explaining the process of individual lease, Sidhartha Nair , MD of of Daimler Financial Services India (DFS), said the facility offers one of the most flexible option to customers. "One does not need to pay the full price of the car. Normally, as per the leasing model, we give the car on lease for a period of three years, working out a residual value upfront. This value, which on an average is 50% of the cost of a new car, is something the customer does not need to pay. All that he pays us is the remainder value of the car, which is nearly half of its cost. We lease the car to him." 

Procuring the car at half the cost is not the only attraction. The service and maintenance costs as well as the insurance fee are the company's headache. 

If a new Mercedes model costs, say, Rs 30 lakh, DFS will give two options to an individual customer-buy or lease. Either he can get financing for buying the car and register it in his name, or else he can go for a lease model. 

In case he goes for lease, the customer will need to pay only Rs 15 lakh as the rest of the cost will be taken as the residual value after three years when the company takes the car back. 

Industry analysts said that the timing of the individual lease model is ideal for India. "Aspiration levels are high and more and more young people want to have access to a luxury brand like Mercedes. Also, since they have to pay just half the cost, it is easier for them to break into the coveted brand," an auto analyst with a brokerage said. 

The fact that Indians are also changing models frequently, in three-four years, is also something that will support this phenomenon. "Rapidly-changing technology and entry of newer models are something that prompts people to change models frequently, especially in the upper end of the market. The leasing model is perfect for such people who will only pay half the cost of a vehicle and will have the option to switch to a new model in three years," another analyst said. 

But while being a new phenomenon in India, leasing is already an accepted practice in the corporate world. However, the numbers are small even here, though these are picking up fast. When it comes to individuals opting for lease, history is against leasing, at least so far.


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