A few years back, Uber had an idea for how to attract more drivers to the ride-hailing service: Lease cars to people who either don’t have cars or whose personal vehicles don’t meet Uber’s standards. But not only has the program been criticized by some drivers who say the monthly payments are too high, it’s also apparently been a big money-loser for Uber, which is now reportedly looking to get out of the leasing business in the U.S.
Uber launched its Xchange Leasing program in 2015, offering new and used cars directly to drivers who use the company’s ride-hailing platform. The hope was that it would allow people — particularly recent immigrants or lower-income Americans who have no or bad credit — access to vehicles they could use on the job.
Soon after it launched, critics of the leasing program accused Uber of taking advantage of these drivers — who are, as Uber will politely remind any reporter who dares say otherwise, not employees of the company — by charging them rates far above the typical leasing prices for similar vehicles. Some drivers said their total lease cost is about double the retail price for their car. Uber countered this criticism by pointing out that it has a rather forgiving return program for leased vehicles, allowing drivers to get out of their lease obligation comparatively cheaply.
In the years since launching Xchange Leasing, Uber has made changes to the way it compensates drivers and some have claimed that they were either unable to afford to keep up with payments or had to significantly increase the hours they worked just to keep up.
These changes appear to be one of the underlying issues in the notorious caught-on-camera argument between an Uber driver and Uber co-founder Travis Kalanick. That spat, in which Kalanick declared that “Some people don’t like to take responsibility for their own shit… They blame everything in their life on somebody else,” is one of a handful of events that ultimately led to the former CEO’s ouster in June 2017.
Now, on top of all the bad publicity Uber has received for the leasing program, a Wall Street Journal report claims that the company was losing gobs of money on Xchange Leasing; and by “gobs” we mean “18 times what they thought” they would lose, according to the Journal.
Sources tell WSJ that Uber never intended to make a profit on the leases, and that it had in fact been projecting acceptable losses of about $500 per vehicle; not a bad price to pay if each of those cars makes up for it in additional revenue from passengers.
But the truth, per the Journal’s sources, is that Uber was losing around $9,000 per vehicle, or about half the MSRP of the average car. That’s an awful lot of rides to the train station.
Why is Uber bleeding so much money on this program? It looks like the company is simultaneously charging too much while being too generous about returns.
First off, these leased cars are going to get a lot of wear and tear because of all the miles put on them and all the passengers hopping in and out all hours of the day.
Then you have the apparently exorbitant lease payments. The Journal cites the example of a 2014 Toyota that Uber is currently offering for lease at around $500/month. That same car is available at a dealership for around $150/month. In order to make those larger lease payments to Uber, a driver needs to put in more work, which adds more miles to every part of the vehicle. Even if that car is leased for the full term of the contract, it’s likely going to be worth a lot less on the resale market than it a similarly leased vehicle that did not pick up dozens of passengers (some of whom may be prone to making a mess) each day.
Uber also allowed drivers to turn in their leased vehicles and end payments early. Under a normal lease, that could result in significant penalties, but Uber only keeps the driver’s original $250 deposit. Given the rapid turnover of drivers who either sour on the job or jump ship to the competition, this can saddle Uber with cars that are now worth much less than when originally leased.
The company hasn’t announced the end of the program, nor has it decided internally how to actually cease the leasing. It could sell off its remaining inventory and turn the ongoing leases over to someone else to handle. Toyota and GM already offer separate leasing programs to Uber drivers.
Uber’s leasing program in Singapore is currently being criticized for allegedly leasing unsafe, recalled vehicles to drivers there. The company claims that it has “introduced robust protocols and hired three dedicated experts in-house… whose sole job is to ensure we are fully responsive to safety recalls.”