Possible reasons behind Zoomcar refund crisis

March 2021 Update

I read on The Hindu Businessline that Zoomcar claims they are back in business, have more bookings than they can handle and refund issues are raised by less than 1% of customers.

Also I have finally bought a car of my own now, reducing dependency on self drive rentals.

Feb 2021 update:

This INC42 article suggests zoomcar is in huge loss and needs funds to sustain. Zoomcar spent 630 crores in 2020 just to earn 291 crores, or effectively spent 2.1 rupee to earn a single rupee. Obviously without fresh revenues or investor funding, company has no funds to refund customers and may soon default on salaries and other liabilities. Let us see how management recovers the company from this crisis.

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India's leading self drive Car rental company Zoomcar is facing a massive refund crisis. Every social media post of Zoomcar is being retaliated by angry customers about their unpaid refunds. Zoomcar's social media team doesn't have any solution or timeline for this and can only give some template replies. Zoomcar's CEO claims to be unaware of the crisis [Read Inc42 report] or underplaying it and even after few months since lockdown ended, Zoomcar is unable to give a reasonable explanation or respectable timeline to process refunds of thousands of customers.

What could be the reason? Since Zoomcar is not being honest with its customers and not revealing anything, I'm taking an effort to identify potential reasons for this crisis. While it is obvious that corona pandemic has affected travel industry the sheer volume of crisis at Zoomcar, lack of information and inability to resolve it even after multiple months demands some introspection and analysis.

Why Zoomcar is NOT refunding customer's money?

Possible reason 1: No investment on working capital: 

Zoomcar has raised millions of dollars of investments to grow its business. Zoomcar acquired Drivezy recently. Zoomcar has tied up with M&M and other companies but all these are probably used to grow business, not sustain. I mean, investor money is being put to buy new cars, expand operations to new cities etc. Money required to process refund request is probably expected to come in from next booking. With fresh bookings not happening due to lockdown, people reducing travel or being scared to use a vehicle used by someone else, Zoomcar doesn't have cash to process refund requests. With bookings being cancelled in bulk all over the country and new bookings not happening, Zoomcar is finding it impossible to process refunds. All existing cash is probably being spent to pay salaries, vehicle loans and other expenses like ads. Customer refund is least of the priorities.

Possible reason 2: Failed ZAP Subscribe concept.

Zoomcar tried to promote car subscription model under ZAP. However this looks like a failed model. Zoomcar claims over 9000 people have subscribed to their cars- this looks like nothing. Maruti Suzuki sells more than 1 lakh cars per month. All major manufacturers included more than 4-5 lakh new cars are sold every month. (and 10-15 lakh two wheelers, who are also potential customers for car subscription) Even if Zoomcar managed to convert 1-2% of these customers into ZAP subscriber, company should have got 10000 subscribers every month. But even after several years, ZAP has less than 10000 subscribers. Reasons could be as explained in this post.

Zoomcar expected ZAP subscribers to pay a massive monthly fee that would cover EMI of new cars while daily bookings generated additional revenue for other expenses. With ZAP not gaining traction and daily bookings gone, fund for refund is not coming up.

Existing ZAP customers are also affected as they are not earning from listed bookings due to both pandemic and because frustrated customers are not making any repeat bookings due to unpaid refunds.

Possible reason 3: Management disregard

May be Zoomcar has money but management wants to conserve it for something else. Refunding customers is not profitable and will drain cash reserve. Management knows that most customers will eventually give up after waiting for few months. For a small amount like 3000-5000 INR one may not hire a lawyer, file court case and wait for years- so it could be management strategy to ignore customer follow ups for refunds and make them wait. They could use existing cash to launch new promotions, marketing campaigns etc hoping to get new customers. But this tactic is backfiring as frustrated customers are venting their anger on social media, alerting other potential new customers, ruining Zoomcar's reputation, credibility and potential revenue. Existing customers who would have made fresh bookings are also holding back.

Possible reason 4: Company bankruptcy?

May be Zoomcar is looking to exit the market. They just have to sell their cars and pack up. Processing refund is waste of time and money. I hope this is not the case.

Zoomcar has fixed expense like car EMI, staff salary, rental etc even if no one is renting the cars. Obviously the industry and company are impacted by Corona and some impact is expected, but the level of problem seems worrying w.r.t zoomcar. (Number of customers, amount unpaid etc). But then, I do not see so much complain about Revv or Myles or other self drive rental companies on social media. What do you think could be the reason?

I don't have a solution for this, but I guess Zoomcar can sell off some of their cars, get some cash, refund customers. Most of India's startups are designed to run on loss- grow at any cost using investor money even if individual transactions are not profitable. This backfires heavily as customers pull back. Do you think investors will pump in more money just to support refund? I don't think so. With so much complaint, new customers will also be scared, causing even more damage. It is in Zoomcar's own interest to accept and inform what is going on, how and when they are likely to refund. Let us see how this evolves.

October 24 Update:

I realize that Zoomcar has no physical people handling their social media. We only get bot replies. Hope someone is still employed in this organization and is working to sort things out.

Related: Tips to avoid bad experience with Zoomcar *