Uber hitches a ride with car finance schemes
Silicon Valley-based ride-hailing app puts financial muscle behind lending programme
When Grace Mora found herself strapped for cash in 2014, her son recommended she try driving for Uber. With a “terrible” credit score and few options for buying a car, she took out a loan from one of Uber ’s partners, Exeter Finance, which would see payments deducted from her earnings as an Uber driver each week.
That loan and thousands of others like it are part of an expanding programme to get vehicles into the hands of drivers — often by offering them loans or car leases whose cost will be taken straight out of their wages. Last year, more than 50,000 Uber drivers got their cars through such schemes, and Uber expects 100,000 more to do so by the end of this year.
The Silicon Valley-based ride-hailing app is also putting considerable financial firepower behind its lending programme, with a $1bn credit facility that allows its subsidiary, Xchange Leasing, to buy cars and then lend them out.
In addition, Uber is testing a scheme called Advance Pay where new drivers can get a $1,000 interest-free loan — to be paid back from earnings — in partnership with lending start-up Clearbanc. Clearbanc’s interest rates for other advances to drivers can be high.
Founded six years ago, Uber has expanded rapidly around the world — often encountering resistance from regulators and taxi groups along the way — and now operates in more than 60 countries. This rapid growth has made it the most highly valued private company in Silicon Valley with a valuation of $68bn.
After recently selling its Chinese operations to local rival Didi, Uber is using its war chest of more than $10bn to double down on expansion in its existing markets.
In terms of Uber’s global expansion plans, a key bottleneck has been its ability to get drivers and cars on the road, with its vehicle lending programmes an attempt to ease that. While Uber’s original business model was asset-light — it did not own cars nor hire employees to drive them — this strategy has been coming under pressure recently, prompting the ride-hailing app to begin investing in building up its own vehicle fleets in certain markets.
In Singapore, Uber subsidiary Lion City Rentals has built a fleet of vehicles that it rents out to drivers. In India, Uber leases vehicles to drivers through Xchange Leasing — a challenging proposition in a country with no centralised credit score system.
“To us, creditworthiness is not a criteria, our goal is to give out leases and give out cars to as many people as possible,” says Amit Jain, president of Uber India. Several thousand cars have been leased through the programme, he said, which uses background checks rather than traditional credit checks.
“If somebody cannot pay the monthly amount, they can simply return the car,” he added.
Uber launched its Xchange in-house vehicle leasing programme in the US a year ago and later gave it a shot in the arm with a $1bn credit facility, arranged by Goldman Sachs and funded by more than half a dozen Wall Street banks.
However, Uber vehicle financing schemes have come in for heavy criticism in the US, as consumer and worker advocates allege Uber takes advantage of its drivers, pulling them into debt they cannot afford.
Ms Mora, who took out a car loan two years ago from Blackstone-owned Exeter, says monthly payments of $726 for her Toyota Prius cost more than the rent on her apartment. “I told them this is usury, absolute usury,” she complains.
Yet she still keeps driving for Uber because she receives a 10 per cent discount when she makes repayments through her weekly Uber pay cheques. At the time she took out the loan, she had few other options due to her poor credit rating.
Worker rights groups view the programmes as an attempt by Uber to bind drivers to the company for the duration of the loans. “We see it as predatory lending, plain and simple,” says Rebecca Smith, deputy director at the National Employment Law Project. “It is a car lease that comes from your employer and makes it impossible for you to leave your job before it is paid off.”
She views Uber’s vehicle financing as an effort to foist capital costs on to drivers. “Responsible companies pay for their own equipment and tools,” says Ms Smith. “Uber has shifted that cost and risk on to drivers, who are making poverty-level wages.”
Mark Williams, a finance professor at Boston University, says the programmes remind him of the “company store model” and describes the terms of the loans as “onerous”.
“Uber is vertically integrating, becoming more of an Uber bank,” he points out. “If Uber wants to be a subprime auto lender that is fine, but they shouldn’t represent it as if they are presenting a benefit to their drivers. It doesn’t come without a cost.”
Uber says its Xchange leasing programme is not profitable. “All of these programmes are designed with the driver in mind first and foremost,” says Meghan Joyce, Uber’s general manager for the East coast. “They are meant to be really flexible and to create options,” she adds, pointing out that drivers who lease can return the car after a 30-day period.
As for the drivers, their opinions on the leasing and loan programmes are mixed. Xchange leasing offers a lease that has no mileage cap and includes maintenance, a boon for drivers who work full time.
“I regret buying a car,” says Jason, an Uber driver in San Francisco. “The lease is actually a pretty good deal, because it covers all your wear and tear.” He laments the damage that passengers have inflicted on his own Toyota Camry. “If I were to buy another car for Uber, it would be a lease.”
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