Taxi Business Model in Indonesia

The business model follows an “ownership – partnership” model where the driver “owns the car”  by paying a 6 year installment to the company

The car is typically a Toyota Limo (the taxi brand for Toyota Vios, which lowest version retail at IDR 212 million. The Limo version should come in cheaper)

Taxi driver pays:

–          Down payment for car at IDR 5 million

–          Daily installment payment at IDR 200 k, for 6 year, this amounted to IDR 438 million

–          Daily admin and services fee at IDR 30 k (Car wash, etc)

–          Perishables like oil, tires, braked pads (sold by company at double market priced, driver take a loan from the company, loan is paid daily)

–          Spareparts (same practice)

This is a rente business model almost as good as it gets. Perhaps the only thing more rente is financial based rents (taxes, transfer or remittance fees, banking account admin fees, payment fees, escrow fees)

The taxi company is in effect an expensive middlemen between suppliers (car company, spare part producers, etc) and the driver, abusing the driver’s lack of capital (to buy car at market financing rate, to buy car parts at market price) to force driver to buy overprice supplies from the company.

The driver is basically siphoned to the bone by the company, from around IDR 300-350 k per day the driver can get, around 230-270 k are given back to the company.

Due to its volume, the company can extract more value by going higher in the supplier value chain, such as:

–          Buying cars direct instead from a typical dealer  and even at that point, capture fleet discounts

–          Be a sparepart distributor or even importer

–          Same for perishables

On the financing side, the company might be able to capture value by:

–          Being their own financing company

–          Open a credit union or community bank to supply funding

–          Securitized the loan using the cars residual value as collateral

The company provides, at basic, the meter and the brand. Heck the company can even charge the driver for the meter and the paint job for the brand.

And thus, perhaps, lies the difference between a shitty taxi brand and a reputable brand.

The shitty brand provides nothing beyond a meter and logo.

The decent brand provides two way radio, order center, and some driver education on customer greeting and basic English

The reputable brand provides GPS tracking, centralized call and ordering center, strong education on customer services and language, even magazines

Naturally for the reputable brand this massive overhead cannot be all send back to the drivers, but what they lost in short term profit, they gain in longevity of the business, and savings from scale as their brand gain a premium among customers and potential drivers.

The risk for the company:

–          Operational: Driver stop making daily payment

–          Operational: Driver ran away with car

–          Operational: Driver abuse the car, skimping on perishables and components, ignoring the company “suggestion” on maintenance and repairs, AND then, dump the car, leaving the company with a broken and tattered vehicle

–          Reputational: Driver inappropriate behavior to customers

–          Reputational: Driver collaborated with criminals to victimized the customers

Driver selection and indoctrination are key to foster a peer control mechanism to supplement whatever monitoring you can do.


One Response

  1. I need more information from Leasing or Banking that will handle to financing the loan for expanding taxi’s business in Indonesia. Please assist me and refer me to the right sources that they can give lower interest and good deal. My clients are in need to renew their old taxis. I hope I can get the right directions and answer.

    Thank you so much.

    Yours truly,
    Lely Ngabadi

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