Consulting|Technology|International business – Bangalore’s solution to auto problems or is it?

with 2 comments
Launched with much fanfare, this has already been reported to be heading into troubled waters. A Deccan Herald coverage ( last weekend supplemented this fact that this service has few takers and its difficult to sustain its operations over the long run.

First of all, auto economics are a different ballgame unlike bus economics ( or taxi economics. Auto drivers live by their own rules – as a seasoned auto commuter almost everyday, I can say this quite vociferously and defend my standpoint.

Autos typically charge by 2 mechanisms (that is IF they decide to come where you ask them to!)

– The meter fare (in all likelihood, many meters are rigged)

– The waiting charges when the auto is stationary

For the meter fare charges, the minimum has been upped to Rs. 12 and thereon increases as per the meter. Auto drivers in Bangalore typically are a little more honest than the ones one finds in Chennai where you are usually not charged by the meter at most times!

The addition to this revenue mechanism for the auto owners is that they tend to charge almost 1.5 to 2 times the meter on days where demand is more (say, it is raining or if there is a strike etc.) – though as per rules, they are supposed to charge 1.5 after 10 PM, most of them charge 1.5 after 9 PM itself.

Costs for the rickshaw chaps are quite reduced these days with most of them running on CNG (compressed natural gas). Auto drivers claim that this has a 30-40% advantage over autos being run on Petrol – in terms of cost savings. Unfortunately, those savings are not passed onto the consumer.

Unlike Delhi (where CNG has been almost made mandatory for most buses and auto’s), Bangalore still has a short supply of gas stations. This makes the drivers get into an agency problem – they will drop you to a location only if they are assured of a CNG refill bunk someplace closeby. In other words, an external factor that is completely unrelated to the consumer is driving how the auto driver chooses to pick his next destination. Moreover, it is no secret that most auto drivers (7/10 of them actually) do not agree to drop you at the exact destination. This is  an ‘uncalled for’ variable. The only saving grace for the hapless commuters is the pre-paid booths but even that is subjected to misuse as the auto’s might demand extra once they reach the mid-point of the source and the destination point. The hapless customer has no go but to heed to the auto driver’s whims and fancies. This is not to discredit all those sincere auto drivers who live by principles and are extremely courteous. Almost 1 in 2 auto drivers are really good chaps (this is a healthy percentage of 50+%).

Having given this backgrounder, let us look at and see how it will fare in coming days:

– was launched a few months ago to alleviate the common problems that auto commuters face – typically those who are harassed by rude auto drivers not willing to drop them to their respective destination points. While the concept was good, the negotiations with unions etc. is going to be their biggest hurdle to crack into that huge 200000+ auto driver community.

Will it work?

I doubt it.

The economics of the deal show that even if were to rope in 25% of the overall auto drivers of Bangalore city, the marginal costs are quite high to run such a service. ex: for every additional auto to be called for through an SMS, it costs money for the service operator to coordinate between the customer’s source point and the nearest auto driver’s current location (this is either by a wireless handset or by a regular mobile phone (think about the costs incured per unit!) or something else innovative that helps the call center communicate with the auto driver on the field.

This is no mean task for an already overcrowded city such as Bangalore. Moroever, the service operators themselves admit that collecting even Rs. 3 per customer is quite a difficult task so how will they scale such an operation? They will need to scale at both ends of the supply chain if they are to succeed in this venture. A couple of lessons from SCM efficiencies would prove beneficial to the organizers of this service or similar services in future.

The DH post (Source: suggested that there are still regulatory approvals etc. that needs to seek to make this scheme work and moreover, only about 125-odd auto’s have been roped in by the service so far. This out of an estimated 200000 autos that may be plying on the roads of Bangalore and nearby areas! How much does this work out to be? A mere 0.1% of the total auto community! Moreover, the auto rickshaw community is run by unions.

For the same communication devices being used by other fleet operators such as Taxi services etc., the marginal cost per unit works out lower due to the higher rentals they charge. Their per kilometer charges are anywhere between Rs. 12 to Rs. 15 per km depending on the comfort angle (AC/non AC etc.) and the type of vehicle (ex: Tata Indica’s are in vogue these days due to their higher efficiency as compared to Tata Sumo’s or Toyota Qualis’). Compare this to a Rs. 2 per km being charged by an autorickshaw for the same distance with a lesser luxury angle.

Furthermore, their (taxi fleet operators) minimum fares are usually Rs. 250 – where is Rs. 12 and where is Rs. 250? Where is Rs. 2 and where is Rs. 15 per km incremental cost to the passenger?

As I said, Taxi’s such as CitiTaxi etc. are able to maintain such a vast network because they have a powerful system in place with wireless handsets etc. and a central management control tracking exactly where they are. They are coordinated very well.

Such taxi operators are thus able to thrive. Whether economics is to their advantage or not is a different question which we will choose to abstain from, for now.

Auto dynamics show that the incremental revenue earned by the drivers are driven by myriad factors:

1. The distance of commute.

2. The waiting charges

3. The distance to travel to pick-up the passenger from the source point.

4. The time of the day (before 7 AM and after 9 PM – the charges are 1.5 or ‘double’)

5. The weather conditions (make hay while the sun shines is an adage that auto drivers truly believe in!)

From a cost angle, they need to factor in high efficiencies. This has been achieved as of now by the CNG system they have so they already incur cost savings of about 40% of their otherwise Petrol cost they were incurring before.

Will succeed? It would be an extremely daunting task for them to make this work (economics is clearly not on their side if they have started out with their sole objective as profit maximization) but if it does not have much to do with profit making but instead an NGO type of an operation, then they might just prove successful as a brand entity to reckon with in the days to come. Would they be able to scale operations – I am not sure – its an even more daunting task given the economics are not on their side at all.

Moreover, if one were to look at their external environment carefully, the Tata 1 lac car and the Renault-Bajaj combine might just phase out the auto rickshaw’s from the automobile landscape if they prove successful – of course this is predicted only in another 5-10 years timeframe and not anywhere in the immediate future. As with the phasing out of any existing logistical system, the transition is going to be more than gradual.

Why I speak of the external environment is that associations take months (sometimes years to build and nurture). Even if manages to work out a cordial relationship/arrangement with the auto driver unions, their very business is in danger of being displaced by the external environment! Scaling such an operation in such cases would be detrimental as they don’t want to be saddled with 50000+ handsets or communication equipments and call centers/dedicated operators to manage operations over the next few months/years. They would first need to work out a cost-benefit analysis before trying to invest any more money on this and do a thorough market research to see if this concept would take off at all.


Written by Naveen Athresh

September 14, 2007 at 2:23 pm

2 Responses

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  1. If we return to home from office, we have to ask around 10-15 auto daily “Whether you will go” response “NO”
    We have to pay 25-50% extra then are reday to go. Further, there meters are very fast.
    This is our daily routine
    This is totally loot, decotti


    August 21, 2008 at 3:07 pm

  2. The most fraud and cunning people i have ever seen is the auto drivers.. Please Dont give any false commitment to people that auto drivers are good, as i have experienced very worst experiences with auto. Some Auto drivers really act like goondas if we do not give them extra money, its better to call them goondas instead of autodrivers..


    May 29, 2010 at 10:37 am

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