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Uber Gets Run Over by Its Own Subprime Auto Leases

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Re: Uber Gets Run Over by Its Own Subprime Auto Leases

#21

Post by tyingq »

ceejayoz wrote: post #18

> 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.

"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.

Re: Uber Gets Run Over by Its Own Subprime Auto Leases

#22

Post by pjc50 »

dsfyu404ed wrote: post #9

When 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.

Even 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.

Re: Uber Gets Run Over by Its Own Subprime Auto Leases

#24

Post by brudgers »

I 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.

Re: Uber Gets Run Over by Its Own Subprime Auto Leases

#25

Post by bogomipz »

>"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?

Re: Uber Gets Run Over by Its Own Subprime Auto Leases

#26

Post by whatok »

bogomipz wrote: post #25

>"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: >…

> 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-au...

Re: Uber Gets Run Over by Its Own Subprime Auto Leases

#27

Post by tyingq »

brudgers wrote: post #24

I 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…

$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.

Re: Uber Gets Run Over by Its Own Subprime Auto Leases

#28

Post by bogomipz »

b_ttercup wrote: post #3

This 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.

There'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.

Re: Uber Gets Run Over by Its Own Subprime Auto Leases

#29

Post by JshWright »

jaclaz wrote: post #12

I 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+... Assuming that cars in such a situation a…

> a 2.5 years (high mileage) old Corolla may still have some minimal residual value, let's say US$ 1,500.

Even on the wholesale market, I'd wager it's several time that amount...

Re: Uber Gets Run Over by Its Own Subprime Auto Leases

#30

Post by FTA »

CamelCaseName wrote: post #5

The 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.

Yet another example of VC ending up subsidizing America. We could just cut out the middleperson and go to basic income paid for by VCs.
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