Customer’s Dilemma: Lease or Buy?

The concept of personal vehicle leasing is not new, as it has existed for a long time and has been quite popular in developed markets. However, this idea was relatively novel to the Indian market when it made its entry in 2018. Car manufacturers such as Hyundai and Mahindra had previously ventured into this segment through tie-ups with start-ups, and the latest auto manufacturer to follow suit was India’s largest automaker, Maruti Suzuki. While Suzuki had prior experience with venture leasing restricted to corporates, it had not achieved much success. Nonetheless, this time, it was exploring personal vehicle leasing as an alternative way to promote vehicle ownership. The case describes the predicament faced by an average Indian auto customer when making a capital investment decision regarding car ownership. There were three options available to prospective owners: (a) leasing the car, (b) purchasing the car with their own capital or (c) buying a car through an auto loan with a required down payment. The objective of this case is to resolve the dilemma of a prospective car buyer by thoroughly analysing the three available alternatives from various financial perspectives and reaching a plausible decision. To arrive at the most suitable choice, this case takes into account factors such as the time value of money, opportunity cost, applicable interest rates, insurance costs, time horizon and the frequency of compounding for each option.