While most casual users of the service probably don’t know this, Uber actually has an automotive leasing business. There are rumors that the company wants to offload their capital-intensive leasing division.
Uber’s leasing company is called Xchange Leasing, and it has close to 50,000 vehicles and 14 locations across the country. Uber set up the exchange as a way to entice new drivers by offering them leases to acquire a new car to use an Uber. But the company pushed these potential new drivers into loans and leases at subprime rates – ok, quick refresher, you remember what happened to the housing market with subprime loans to people with poor credit that they couldn’t afford to pay back? If not, look up 2009, and now think about the fact that there are over $200 billion subprime auto loans on the book. Uber needed a lot, and we mean a lot, of new drivers coming in every month to make this shady business work. And guess what, it didn’t. It turns out people might have been a little smarter than Uber gave them credit for, and not enough potential drivers were willing to load up on debt just to drive a trendy cab for Silicon Valley.
Now the company is looking to get rid of their messed-up leasing division, but it hasn’t gone as smoothly as they hoped. The Wall Street Journal claims that the company knowingly leased cars that were defective to drivers and didn’t bother to repair them—putting drivers and passengers at risk. Now that Uber is shutting down the division, at least 500 remaining drivers could be affected. As far as Uber is concerned, executives didn’t realize that the average loss per vehicle was more than 15 times what they thought. Managers at Xchange Leasing apparently told their superiors that the losses would amount to only $500 per car, when in fact they were bleeding up to $9,000 per car! We can’t wait to hear more about this particular disaster.
It’s been a rough year for Uber with sexual harassment scandals, the firing of their CEO, the lawsuit with Google, and terrible press over how they treat their drivers. On the financial side, Uber still has massive debt and loses money on every ride as they try to undercut taxi companies (that’s right, people, no, your cab should not be that cheap in real life). We’ll see if the company can rebound from another big blow.