Uber’s new car-rental program for drivers doesn’t actually make much financial sense

Uber said Tuesday (Dec. 1) that it is testing a new program that will allow drivers in Denver, Colorado to rent cars for a discounted rate to drive on Uber’s platform. The basic idea behind the partnership with Enterprise Rent-A-Car is that while lots of people might want to drive for Uber, not all of them have access to a car that meets the company’s requirements. Now they’ll be able to rent one from Enterprise for $210 a week.

Uber says this program is a big deal because traditionally rental car companies haven’t permitted customers to use their vehicles on Uber-like services. Uber is a bit vague on the details here, but says these restrictions have less to do with insurance requirements (a perpetually sticky subject for ride-hailing apps) than how rental-car companies have historically financed and rented their fleets.

The Uber-Enterprise partnership is the latest addition to Uber’s broader “vehicle solutions” program, a range of rental, leasing, and auto-financing options that help potential Uber drivers gain access to cars. Andrew Chapin, the head of Uber’s vehicle solutions program, says “many people” have approached company “saying they want to drive with Uber but need a vehicle that they can use on the platform.” Uber is hoping to see the partnership put “hundreds of cars on the road.” Currently, there are more than 7,000 Uber drivers in Denver.

That said, it’s not entirely clear who this program makes sense for. While not exorbitant, $210 a week still isn’t cheap. Uber declined to provide data on the median earnings of a driver in Denver, but SherpaShare, a third-party firm that tracks data on Uber and other on-demand services, found over the summer that the average UberX driver in Denver was making $11.70 per trip in gross earnings—that is, before any on-the-job expenses like gas and maintenance that all Uber drivers as independent contractors are required to pay. (UberX is the cheapest ride option that Uber offers in Denver.) Or consider this data on median hourly driver earnings in six major US cities that the company released at the start of 2015:

As you can see from the chart above, the median UberX driver in cities other than New York and DC was making between $15 and $20-ish an hour as of October 2014. Those earnings are after the fee that Uber takes, but before any out-of-pocket driver expenses (again: gas, maintenance, insurance, etc.). From that same report, we also know that the vast majority of Uber drivers nationwide work either one to 15 hours a week or 16 to 34. Based on this and the SherpaShare data, my educated guess is that the typical UberX driver in Denver is also making in the $15-an-hour range. So, at the highpoint of the one-to-15 weekly hours range, that person is earning around $225 before expenses; at the highpoint of 16 to 34 hours a week, it’s $510.

Again, though, that’s before expenses. And while Uber’s $210 weekly rental rate with Enterprise includes insurance and basic maintenance, it doesn’t account for gas. The point is that once you add up the costs—$210 to rent a vehicle, plus taxes and fees on that rental, plus an excess mileage charge of $0.25 per mile (Enterprise throws in 2,500 miles for 28 days), plus any driver-incurred expenses like gas or parking tickets—the profit margins on earnings of $225 to $510 a week are looking pretty thin. There’s also a $40 start-up fee and a refundable $500 deposit. Rental charges are automatically subtracted from a driver’s weekly earnings.

Uber, which declined to provide specifics on how it arrived at the $210 rental price point, believes it will be able to tweak the cost to something economically viable as it collects feedback from drivers. Essentially, the company is looking at the Enterprise option as a gateway vehicle. Buying a car, after all, is a big investment. If prospective Uber drivers want to try the platform before making that kind of commitment, renting a car through Enterprise is a new way to do that.

But what if drivers don’t make enough to cover their rental charges? The company has clearly considered this possibility, as it’s included in a program FAQ. “No problem,” Uber says. “When you pick up your vehicle, Enterprise will take your valid credit or debit card to place on file. In the event of a difference, Enterprise will automatically charge the outstanding balance to the card on file.” See? No problem.

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