Uber Plans To Wind Down U.S. Car-Leasing Business
Move by the ride-hailing company is due to unsustainably high losses.
By Greg Bensinger
The Wall Street Journal
August 9, 2017
Uber Technologies Inc. is winding down its U.S. auto-leasing business, according to people familiar with the matter, after the ride-hailing company discovered it was losing 18 times more money per vehicle than previously thought.
The Xchange Leasing division—begun two years ago to attract drivers whose credit prevented them from getting their own cars—had been estimating relatively modest losses of $500 per vehicle on average, these people said. But managers recently informed Uber executives and board directors that the losses were actually around $9,000 per car, or at least half the sticker price of a typical leased vehicle.
After investing billions to rapidly expand its ride-hailing app into more than 70 countries, Uber has sought to tame losses that totaled more than $3 billion last year alone. Last month, Uber merged its unprofitable Russian operations with the more-popular app in that country, Yandex.Taxi.
Investors have exerted pressure on Uber to rein in costs and prepare for a possible initial public offering following the ouster of Travis Kalanick as chief executive in June. As Uber’s board searches for a new CEO, a 14-member executive committee is making weighty decisions while also dealing with the aftermath of a months-long investigation into its culture, a trade-secret lawsuit from Alphabet Inc. and fierce ride-hailing battles around the world.
News of Xchange Leasing’s planned shutdown follows a report from The Wall Street Journal that exposed safety problems at Uber’s rental-car operation in Singapore, which the company began in 2013 and has since extended to Vietnam and India.
Uber launched the U.S. car-leasing program in 2015 under Mr. Kalanick, and had high hopes for it, investing some $600 million in the business, according to the people familiar with the matter. The idea was to offer leases to new drivers who otherwise may not be able to get cars because of spotty credit histories, in an attempt to maintain a healthy supply of vehicles, crucial to keeping fares and wait times low.
But executives in recent weeks decided to phase out the auto-leasing unit after realizing the extent of their expected losses, culminating in a board committee briefing in late July, the people said.
The ride-hailing company is aiming to close out or sell most of the business by year-end, these people said. As many as 500 jobs could be affected by the exit of the Xchange Leasing program, representing roughly 3% of Uber’s 15,000-employee staff.
Uber struggled to control losses at Xchange Leasing despite rates of more than $500 a month—well above an equivalent lease price from a regular dealer. The high lease fees pushed many drivers to work longer hours and return the vehicles in poor shape, damaging their resale value, these people said. A fickle pool of drivers mixed with inconsistent earnings made it a challenging business to maintain, they said.
Uber’s financing operations have run into trouble before. Early this year, Uber settled for $20 million a Federal Trade Commission lawsuit that alleged, in part, that the ride-hailing firm falsely claimed it offered the “best financing options available,” irrespective of drivers’ credit history. The FTC found Uber’s advertised rates of between $119 and $140 a week were actually between $160 and $200 a week during a period running from late 2013 and April 2015.
The FTC also alleged Uber gave its drivers worse rates than those with similar credit could get elsewhere. Uber admitted no guilt in settling the claims with the FTC.
For Xchange Leasing, Uber had relied on a network of established dealers to offer leases, but soon found they were pushing drivers into more expensive vehicles, lowering their likelihood of turning a profit, according to a person familiar with the business. So Uber decided to start opening leasing facilities of its own, where it could better control the lease terms and streamline the process of registering new drivers.
Another person familiar with the matter said Uber might try to sell off the vehicles or the whole division and has held some preliminary discussions already. Uber may move some of the 500 workers into other divisions of the company such as customer service, this person said.
Subprime auto leasing can be highly lucrative because of the starkly higher monthly fees, larger down payments and other tacked-on charges dealers can demand in exchange for taking a risk on drivers with poor or no credit history.
But subprime lessees are also more likely to miss payments or abandon their vehicles altogether, which can cut into profits or even turn a lease into a money-loser.
Uber has said Xchange Leasing was never meant to be profitable on its own, though executives were scrambling to bring the program closer to break-even, the people said. Vehicle depreciation and costly repossessions cut into Xchange Leasing’s profits, they said.
Unlike the Asian car-leasing program—which involves Uber buying cars from importers and leasing them to drivers—with Xchange Leasing, Uber holds titles in a trust rather than on its balance sheet. Uber has titles to nearly 40,000 vehicles through Xchange Leasing and would need to sell the vehicles. The San Francisco company has leased a variety of vehicles through the program, including Ford Focus, Hyundai Elantra and Nissan Sentra sedans.
A 2014 Toyota Corolla was recently being offered for a term of 130 weeks at $122 a week, totaling roughly $500 a month, according to marketing materials distributed by Uber. Leases for current-model Corolla sedans, by comparison, can be had for around $150 a month after a $1,500 payment, according to Toyota’s website, though generally for customers with high credit ratings.
A 130-week lease for a base-trim 2014 Corolla would end up costing a driver over $16,000, which compares with the Kelley Blue Book fair purchase price of about $11,700. As Xchange Leasing is only two years old, no driver has yet gone through to the end of a vehicle lease.
Unlike more-traditional leases, Uber allowed drivers to return vehicles with just two weeks’ notice after the first month and didn’t restrict mileage, a bid to keep the vehicles racking up rides. If a driver isn’t logging shifts, payment obligations continue to pile up.
Uber keeps a $250 deposit that drivers pay if they turn in their cars early, which is a fraction of typical termination fees. Drivers’ earnings are deducted through the app to help pay for the lease, which also gives them a disincentive to drive for rival Lyft Inc. or small competitors. Uber installs tracking devices on many of the vehicles, which can help them repossess the vehicles from drivers who miss multiple payments.
Uber is plagued by constant turnover among its drivers, who may find wages are less than anticipated or simply grow tired of the work.
As a result, Uber has tried a host of programs to get more drivers on the road, including a recent partnership with Avis Budget Group Inc.’s Zipcar allowing for hourly rentals. Last year it reached deals with Toyota Motor Corp. and General Motors Co. to offer leases or rentals to potential drivers.
Uber Technologies Inc. is winding down its U.S. auto-leasing business, according to people familiar with the matter, after the ride-hailing company discovered it was losing 18 times more money per vehicle than previously thought.
The Xchange Leasing division—begun two years ago to attract drivers whose credit prevented them from getting their own cars—had been estimating relatively modest losses of $500 per vehicle on average, these people said. But managers recently informed Uber executives and board directors that the losses were actually around $9,000 per car, or at least half the sticker price of a typical leased vehicle.
After investing billions to rapidly expand its ride-hailing app into more than 70 countries, Uber has sought to tame losses that totaled more than $3 billion last year alone. Last month, Uber merged its unprofitable Russian operations with the more-popular app in that country, Yandex.Taxi.
Investors have exerted pressure on Uber to rein in costs and prepare for a possible initial public offering following the ouster of Travis Kalanick as chief executive in June. As Uber’s board searches for a new CEO, a 14-member executive committee is making weighty decisions while also dealing with the aftermath of a months-long investigation into its culture, a trade-secret lawsuit from Alphabet Inc. and fierce ride-hailing battles around the world.
News of Xchange Leasing’s planned shutdown follows a report from The Wall Street Journal that exposed safety problems at Uber’s rental-car operation in Singapore, which the company began in 2013 and has since extended to Vietnam and India.
Uber launched the U.S. car-leasing program in 2015 under Mr. Kalanick, and had high hopes for it, investing some $600 million in the business, according to the people familiar with the matter. The idea was to offer leases to new drivers who otherwise may not be able to get cars because of spotty credit histories, in an attempt to maintain a healthy supply of vehicles, crucial to keeping fares and wait times low.
But executives in recent weeks decided to phase out the auto-leasing unit after realizing the extent of their expected losses, culminating in a board committee briefing in late July, the people said.
The ride-hailing company is aiming to close out or sell most of the business by year-end, these people said. As many as 500 jobs could be affected by the exit of the Xchange Leasing program, representing roughly 3% of Uber’s 15,000-employee staff.
Uber struggled to control losses at Xchange Leasing despite rates of more than $500 a month—well above an equivalent lease price from a regular dealer. The high lease fees pushed many drivers to work longer hours and return the vehicles in poor shape, damaging their resale value, these people said. A fickle pool of drivers mixed with inconsistent earnings made it a challenging business to maintain, they said.
Uber’s financing operations have run into trouble before. Early this year, Uber settled for $20 million a Federal Trade Commission lawsuit that alleged, in part, that the ride-hailing firm falsely claimed it offered the “best financing options available,” irrespective of drivers’ credit history. The FTC found Uber’s advertised rates of between $119 and $140 a week were actually between $160 and $200 a week during a period running from late 2013 and April 2015.
The FTC also alleged Uber gave its drivers worse rates than those with similar credit could get elsewhere. Uber admitted no guilt in settling the claims with the FTC.
For Xchange Leasing, Uber had relied on a network of established dealers to offer leases, but soon found they were pushing drivers into more expensive vehicles, lowering their likelihood of turning a profit, according to a person familiar with the business. So Uber decided to start opening leasing facilities of its own, where it could better control the lease terms and streamline the process of registering new drivers.
Another person familiar with the matter said Uber might try to sell off the vehicles or the whole division and has held some preliminary discussions already. Uber may move some of the 500 workers into other divisions of the company such as customer service, this person said.
Subprime auto leasing can be highly lucrative because of the starkly higher monthly fees, larger down payments and other tacked-on charges dealers can demand in exchange for taking a risk on drivers with poor or no credit history.
But subprime lessees are also more likely to miss payments or abandon their vehicles altogether, which can cut into profits or even turn a lease into a money-loser.
Uber has said Xchange Leasing was never meant to be profitable on its own, though executives were scrambling to bring the program closer to break-even, the people said. Vehicle depreciation and costly repossessions cut into Xchange Leasing’s profits, they said.
Unlike the Asian car-leasing program—which involves Uber buying cars from importers and leasing them to drivers—with Xchange Leasing, Uber holds titles in a trust rather than on its balance sheet. Uber has titles to nearly 40,000 vehicles through Xchange Leasing and would need to sell the vehicles. The San Francisco company has leased a variety of vehicles through the program, including Ford Focus, Hyundai Elantra and Nissan Sentra sedans.
A 2014 Toyota Corolla was recently being offered for a term of 130 weeks at $122 a week, totaling roughly $500 a month, according to marketing materials distributed by Uber. Leases for current-model Corolla sedans, by comparison, can be had for around $150 a month after a $1,500 payment, according to Toyota’s website, though generally for customers with high credit ratings.
A 130-week lease for a base-trim 2014 Corolla would end up costing a driver over $16,000, which compares with the Kelley Blue Book fair purchase price of about $11,700. As Xchange Leasing is only two years old, no driver has yet gone through to the end of a vehicle lease.
Unlike more-traditional leases, Uber allowed drivers to return vehicles with just two weeks’ notice after the first month and didn’t restrict mileage, a bid to keep the vehicles racking up rides. If a driver isn’t logging shifts, payment obligations continue to pile up.
Uber keeps a $250 deposit that drivers pay if they turn in their cars early, which is a fraction of typical termination fees. Drivers’ earnings are deducted through the app to help pay for the lease, which also gives them a disincentive to drive for rival Lyft Inc. or small competitors. Uber installs tracking devices on many of the vehicles, which can help them repossess the vehicles from drivers who miss multiple payments.
Uber is plagued by constant turnover among its drivers, who may find wages are less than anticipated or simply grow tired of the work.
As a result, Uber has tried a host of programs to get more drivers on the road, including a recent partnership with Avis Budget Group Inc.’s Zipcar allowing for hourly rentals. Last year it reached deals with Toyota Motor Corp. and General Motors Co. to offer leases or rentals to potential drivers.
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