Uber has long been criticized for lending practices designed to reel in prospective drivers to the ride-hailing company, particularly their program to push people into subprime auto loans. Now, facing significant losses, the company’s planning to wind down the lending business, according to the Wall Street Journal.
Uber’s business model requires a constant influx of drivers, so it’s taken to investing in controversial leasing programs. But those options haven’t come without controversy.
The WSJ reported last week that Uber knowingly leased defective Honda Vezels to drivers without getting the necessary fixes done beforehand. In June, Quartz looked into Uber’s leasing efforts with third-party vendors in New York City and found an array of unseemly tactics. (The company said it planned to temporarily shutter the NYC program while it reviewed the claims.)
Uber is hoping to close the lending business by the end of 2017, WSJ reported, citing unnamed people familiar with the matter. The end of the Xchange Leasing Program could impact as many as 500 jobs in the company, the newspaper said, but a source familiar with Xchange told Jalopnik that some employees could be moved into Uber’s main business in, say, customer support areas.
Putting aside the problems found in Uber’s leasing efforts, as well as other subprime lenders currently facing regulatory scrutiny, the ride-hailing company’s program was more or less an unmitigated disaster, according to the WSJ report (emphasis ours).
Uber executives were prompted to pull the plug on the auto-leasing unit in part because they recently came to a stunning realization: The average loss per vehicle was about 18 times what they had thought.
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.
The source familiar with Xchange said the company and its board of directors decided to significantly alter Xchange in order to provide vehicle options to prospective drivers.
Altering Xchange is part of an effort to adjust Uber’s business model, the source said, adding that there’s more affordable options available to connect potential drivers with a vehicle, if one’s needed.
While Uber has been embroiled in a sea of scandals this year—including an internal sexual harassment investigation, federal investigations into tactics it used to allegedly subvert authorities, the firing of its firebrand CEO, and a high-profile lawsuit over self-driving technology with Google’s self-driving car project—the treatment of Uber drivers has been relatively understated in 2017.
Still, the government has scrutinized the company’s practices for drivers: In January, Uber paid $20 million to settle allegations from the Federal Trade Commission that it exaggerated how much drivers could earn on its website and Craigslist ads.