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Uber Gets Run Over by Its Own Subprime Auto Leases
- SHAKEDECADE 9y agoThe smoke is thick and the flames are really starting to show..
- b_ttercup 9y agoThis article seems to ignore the added revenue from a driver having a car and driving people around for Uber. The better metric is probably the average profitability of a driver with a leased vehicle.
- tyingq 9y agoIsn't there some debate as to whether there is profitability though? Or have they definitively made the turn away from investor money subsidizing below cost rides?
- onion2k 9y agoThe numbers in the article came from Uber. If there was a better metric they could have used you'd think they would have done.
- Analemma_ 9y agoThey're still subsidizing rides though. This program is paying for the privilege to lose more money!
- bogomipz 9y agoThere's also debt servicing that Uber needs to pay for the billion dollar line of credit it received and tapped. It's possible the true metric is actually worse.
- URSpider94 9y agoIn most markets, Uber is also losing money on a per-ride basis. So, the lease subsidy is offset by the rider subsidy ... to give a larger negative number.
- CamelCaseName 9y agoThe idea that one could lease a vehicle from Uber, at a significant loss to Uber, then turn around and use that vehicle to drive for Lyft, is absolutely hilarious.
- tyingq 9y agoWell, you have to give the car back (early) to trigger the loss. Or do you mean the driver somehow finding the car on the secondary market afterwards and buying it?
- brianwawok 9y agoNo you could literally lease it from uber and work 20h a week at uber and 20h a week at lyft in it.
- tyingq 9y agoOh. The lease terms are crappy for the buyer as well. So, yes, funny in that Lyft would benefit in that scenario. The driver certainly doesn't though.
- URSpider94 9y agoActually, clearly the driver DOES benefit, if Uber is losing $9,000 per car. That's money that the lessee should have paid in an economically fair transaction. In all fairness, a bunch of people are paying a little too much, while a small minority are getting most of the benefit, e.g. people who default on their loan, or who drive the car into the ground in three months and then return it. But, that in a nutshell is why sub-prime leases are really expensive on the open, non-VC-subsidized market to begin with. The fact is, the vehicle portion of a hack business is a non-negligible portion of the cost. Most professional drivers replace their car every 2-3 years, after driving the old one to near-zero value by putting 150k+ miles on it. UberX's pricing is pretty much predicated on the fact that people aren't sophisticated enough to amortize their vehicle cost into their profit calculation. Works fine, until you kill your first car and it's time to buy a new one to keep driving ...
- dsfyu404ed 9y agoWhen I first heard about this program my first thought was "Hahahahaha did nobody at Uber talk to dealership sales department?" Now my thought is "Hahahaha. I was right." Uber basically made a subsidiary that specialized in loans that everyone expects to end with the car repo'd and at auction. It's no surprise they got burnt.
- pjc50 9y agoEven more hilarious is that there are companies that do make money out of this kind of predatory lending. Uber can't even get usury right.
- jff 9y agoThat's the end goal of the "We finance everyone!" car dealers, right? Get you in a high interest rate loan and either the client eventually pays it off (paying $15,000 for a car worth $4,000) or they default after 6 months and you take the car back and sell it again.
- jaclaz 9y agoI am not sure to understand. The example 2014 Toyota Corolla at US$122 per week makes in a 130 weeks lease with Xchange some 122x130= 15,860 US$ and a 2.5 years (high mileage) old Corolla may still have some minimal residual value, let's say US$ 1,500. I.e. roughly total reimbursement of the list price of the car: http://toyotanews.pressroom.toyota.com/releases/2014+toyota+corolla+pricing.htm http://toyotanews.pressroom.toyota.com/releases/2014+toyota+... Assuming that cars in such a situation are bought "in bulk" and thus with a 10, maybe 15% discount, very roughly it should mean that in the US$ 15,860+1,500=17,360 of reimbursement some minimal costs for interests and expenses are included on an initial spent sum of around US$ 16,000/16,500. So, at least in theory it seems like a "side-business" that is going to make even or maybe loose a few hundred dollars each car (for interests on the loaned money), but this only if everyone keeps the car and pays the leases for the whole period. Now, you get one of those (and you get one of those because you have no money and no good credit record) and after 25 weeks/6 months you give it back. You pay US$3,300 (25*122+250). Xchange has in its hands a six month old car with (say) 20,000 miles on it.That still has a market value, but maybe since you sell it wholesale to some second hand dealer and you only get - say - US$8000/9000. So, 3,300+8500=11,800 So in this case Xchange seems like having lost - roughly - US$ 4,500 per car, half the US$ 9,000 stated. There must have been some large avoidance of repayment (and repossession of the cars, etc.) to make that number on average.
- YCode 9y agoAccording to the article that is indeed the case because they almost targeted with people who had subprime/no credit. And... Surprise! There was a reason they didn't have good credit ratings.
- jandrese 9y agoIt's just like the housing bubble. Risky bets turn out to be risky. Putting a whole bunch of risky bets together doesn't reduce the risk, it just makes the problem bigger when it crashes. In some ways this could be seen a very charitable on Uber's part. They're giving these people who don't have the personal assets a chance to work for a living despite their past behavior. If you're willing to concede that the company is willing to take risk to help the most disadvantaged people, then the only thing I can fault them on is doing it at the wrong end of the equation. They should have had the people make conventional leases at the higher rates and then tack on a "lease premium" on the fares they collect (supplied by Uber, not the passengers) to help pay for the car. This would prevent them from going to work for Lyft (where they wouldn't get the bonus money) but still gain the advantage of a steady job and hopefully get their credit back in order in time.
- koolba 9y agoDoes this mean there is (or will soon be) a glut of Priuses on the market?
- toomuchtodo 9y agoThere is a tidal wave of used cars coming into the used car market due to substantial subprime defaults, including these Uber vehicles.
- mack1001 9y agoUber is playing both sides of the table which is ok if you are profitable overall. But not ok if you are losing money on both sides. Uber will go a full Groupon soon.
- sunpazed 9y agoNever go full Groupon.
- astrodust 9y agoYou mean they haven't already? I have no idea how an idea as simple as Uber, where they clearly don't give a fuck about rules, regulations, or paying taxes, still can't make money. It's like a mob running a casino that's laundering money and it bankrupts itself, you know, like the Taj Mahal in New Jersey. It takes an astonishing lack of talent to make that happen.
- frik 9y agoYou mean "go a full Pets.com" like in millennium dotCom bubble.
- ceejayoz 9y ago> 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. Only Uber could lose money on a $500/month 2014 Corolla lease.
- tyingq 9y ago"drivers...will be able to return the car with only two weeks notice, and limited additional costs. The program allows for unlimited mileage...with routine maintenance also included." The core problem for Uber is that the terms made it more like a car rental than a lease. Uber pays the maintenance, unlimited miles, and there's almost no penalty for bailing on the lease. $500 a month (~$17/day) to rent a 2014 Corolla is actually well below market.
- brudgers 9y agoI saw -$9000/vehicle and 40,000 vehicles and thought, that's only $360 million of losses. At the scale of Uber, that's just a cost of doing business. It's half of what it paid for Otto, and probably less than 1% of the startup costs for producing self-driving vehicles. To put it another way, $360 million one way or the other is noise on Apple's bottom line. It is 0.05 of the variation in GOOG market cap over the past five days (~$7 billion). I'd bet it provided far more bang for the buck than $360 million spent on advertising...with more bang for the buck over online advertising being a four star lock. The interesting story of Uber's subprime leases is not the losses, but the predation on driver partners.
- tyingq 9y ago$360 million is, though, a substantial portion of their ~$3b/year of losses. If I were an investor, I might question how many of these types of decisions were driving losses. The model may depend on subsidizing rides, but there's no reason to bleed more than needed.
- brudgers 9y agoConcern over local losses at one company in an investment portfolio is what separates ordinary investors from the class of investors Uber allows to invest. The Saudi Sovereign Wealth Fund is not going to sweat this. The value of Uber is the distribution of possible outcomes weighted for probability. The worst outcome is $0 and that was accepted going in. The reason companies like Uber stay private is to keep out ordinary investors and for the ability to ignore the traditional haymaking of Wall Street analysts. All those subprime leases let Uber gain market and refine its product. The widely published per ride loss numbers reflect those leases because they are baked into the overall losses.
- charlesdm 9y agoAre there any metrics on how well these sovereign wealth funds are actually doing? I often see them making big bets, with some definitely paying off (e.g. Kingdom Holding and Twitter), but I wonder how well they do across the board.
- bogomipz 9y ago>"The Xchange Leasing division had been estimating modest losses of around $500 per auto on average, these people said. But managers recently informed Uber executives that the losses were actually about $9,000 per car — about half the sticker price of a typical leased vehicle." So their accounting was off by almost two orders of magnitude? My first thought was "how was this even allowed to happen?" But then I read: >To fund these leases, Uber obtained a credit facility of $1 billion last year from a consortium of banks including Goldman Sachs, J.P. Morgan Chase, Citigroup, and Morgan Stanley." I think this is what happens when its all funny money. Uber loses hundreds of million of dollars a quarter and yet big banks have no problem writing them a check for another billion. I'm guessing none of the banks asked what the credit facility was for or even any details about the leasing plan it was intended to fund?
- whatok 9y ago> I think this is what happens when its all funny money. Uber loses hundreds of million of dollars a quarter and yet big banks have no problem writing them a check for another billion. I'm guessing none of the banks asked what the credit facility was for or even any details about the leasing plan it was intended to fund? Details were disclosed in this article. I'd imagine the banks underwriting the loan had those details and more at the time. https://www.cnbc.com/2016/06/07/uber-wants-to-disrupt-the-auto-leasing-industry.html https://www.cnbc.com/2016/06/07/uber-wants-to-disrupt-the-au...
- bogomipz 9y agoThat certainly would be par for the course. There's been much speculation that auto leasing might be a bubble. See: http://www.zerohedge.com/news/2017-03-29/signs-auto-bubble-soaring-delinquencies-these-266-subprime-abs-deals-cant-be-good http://www.zerohedge.com/news/2017-03-29/signs-auto-bubble-s... and http://usa.streetsblog.org/2017/05/01/what-comes-after-the-auto-bubble/ http://usa.streetsblog.org/2017/05/01/what-comes-after-the-a...
- Spooky23 9y agoTotally. Auto financing is really scary. One of my dopey co-workers bought a BMW 5-series with an 84 month loan at 2%. $600/mo for 7 years for a car that will be upside down from day one.
- Clanan 9y agoUber won't just be out the $360 million on the cars. They'll be out the 40,000 drivers who may not be able to get another leased car.
- pbreit 9y agoThe author mentions "sub-prime" borrowers several times but I don't see any indication that borrower quality had anything at all to do with Uber's problem. I always thought sub-prime borrowers were unfairly blamed for the mortgage crisis. There were a lot of average & prime borrowers walking away from ridiculous "nothing down, 1%" mortgages.
- jandrese 9y agoA house would have to be staggeringly overpriced for a 1% fixed loan with no down and no points to not make sense. Especially if they qualified for a prime rate. Hell, if I had that loan available I would totally take it and run with it.
- bronson 9y agoWell, 1% loans never existed. They were just teaser rates. After a time period (say, 3 years), it would reset to awful ARM rates that the borrower couldn't possibly afford. The loan agent: "No problem, just refi before then."
- jandrese 9y agoSo people were running away from loans that were about to get way more expensive? Who could have ever seen this coming? IIRC you can't refi if your house value has dropped below your equity in it, meaning those people didn't really have a choice.
- lsc 9y agoI'm not weighing in on the moral judgement, but I do believe that you misunderstood the comment you are responding to. I think previous commenter was saying that lots of people like you with reasonable credit did take and run with those sorts of loans on crazy favorable terms, then when the value of the house dropped to half what was owed, many of those people defaulted on the loan; "Mailed the keys to the bank"
- ChuckMcM 9y agoWow, if even half of that is accurate that is pretty amazing. I always wonder about such stories on how much oversight is involved. Clearly for a company moving fast you have to trust the people closest to the situation to make the best decision, but do you do that when there $600M in play? Do you review their plans and pencil out the math? It sounds like it will be especially challenging to unwind as well.
- Steeeve 9y agoThis is b.s. Uber is playing hollywood with it's money. They are taking cars that are not particularly desirable, selling them to their own leasing company at full retail, collecting 4 times as much money per month than any same person would pay, earning money on every mile driven, and... I'm not sure about this one, but I _think_ they reduce the pay of the drivers who do the leases (I know Lyft does this). Then they are "selling" the cars at a loss. But are they selling the cars at a loss to the wholesale market at large? i.e. putting them up for auction at Manheim/etc.? I doubt that is happening. More likely they are selling them to yet another subsidiary or affiliated company. You don't lease a 15K car to someone at $800/month and lose money.
- RobPfeifer 9y agoI think you underestimate what a dumpster fire that group is
- KirinDave 9y agoYou'd think it would work, but the drivers aren't stupid. Reading the article suggests to me the loss point here is drivers realizing they can burn these cars.
- calpaterson 9y ago> You don't lease a 15K car to someone at $800/month and lose money. It seems easy to imagine how you can: the driver rents the $15k car for 6 months, paying $4.8k in total before they stop making payments and Uber repossesses the vehicle. Uber hope to make themselves whole by selling it for $10.2k...except...they can't sell it for $10.2k because cars depreciate fast and anyway this one has 30,000 more miles on the clock than it did at $15k. Only the cars initally cost $20k instead of $15k, Uber had to pay ~4% interest on the money they used to buy the car, the driver paid closer to $400 than $800, not all the cars are in fully working order and there are 40,000 cars.
- paul6987 9y agoUggh read below (edited my 1st comment after fully reading the terrible details that will hugely and negatively affect a friend)
- paul6987 9y agoAlso, wow my friend whose parent made him go bankrupt at 18 (put his name on deed of their house & didnt tell him) is going to lose his car he uses to make money and support/transport his family. Whoever votes me down has no heart. Uber is run by criminals!
- Neliquat 9y agoHow is that relevant? And don't complain about votes, it is what it is.
- ww520 9y agoUber is about externalizing the cost to others. It's no surprise they bleeding red once they take on the cost themselves.
- deleted 9y ago[deleted]
- randyrand 9y agoDo people actually care that Uber is running at a loss with rich investor money? It seems like a good form of income redistribution. You would think the left-tech scene would be in favor of this.