Uber is ending its subprime car leasing program in the US

Heading to court
Heading to court
Image: AP Photo/Jeff Chiu
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Uber plans to shutter Xchange Leasing, its US subprime car leasing operation, the Wall Street Journals reports. Uber executives decided to wind down Xchange, a wholly owned subsidiary, after realizing that the average loss per vehicle was 18 times what they had thought. From the Journal:

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.

Uber executives last month briefed a board committee on the unit’s growing losses and agreed to put an end to it, the people said.

A source familiar with Xchange told Quartz that Uber and its board know big changes are needed at the leasing division, which employs at least 500 people. The person said Uber is exploring options that include a partnership or outright sale of Xchange, a reduction in the number of cities it serves, or layoffs in the unit with some employees switching to Uber proper. The Journal, citing sources, said the company aims to close or sell most of the business by the end of the year.

Xchange owns and operates about 40,000 vehicles and has 14 showrooms in the US. The program was a unique bet for Uber, whose ride-hailing business was originally premised on an “asset-light” model of owning no cars and employing no drivers. But as Uber grew it also needed a way to get more drivers on the road, and in the US that meant helping more Americans who wanted to drive get the right kind of cars. Xchange started in July 2015 and had received a $1 billion credit facility from Goldman Sachs. Two years later the company has decided owning and operating vehicles as it did with Xchange was too capital-intensive to be sustainable.

Uber has dabbled in other car-rental and leasing options. It partnered with Enterprise Rent-A-Car in late 2015 to let drivers rent a vehicle for $210 a week, a deal that makes little financial sense. That program still operates today, with rates starting at $225 a week plus taxes and fees. In Boston, it debuted a program with Zipcar earlier this year that let prospective drivers rent by the hour, starting at $12 an hour plus a monthly membership fee of $7—rates that practically guaranteed the driver would make less than minimum wage by working for Uber. In Singapore, the Journal reported last week that Uber had purchased and knowingly leased Honda SUVs that were subject to a recall. One of them caught fire.

In New York, Uber for years rented and leased cars to drivers through a network of shady subprime auto-dealers that operate without much scrutiny. Uber halted lease referrals to those dealers in June after Quartz reported on its auto-financing practices.