Strategy

Uber Scraps Money-Losing Leasing Business

Xchange Leasing turned out to be losing an average of $9,000 per car — 18 times what Uber had expected.
Matthew HellerSeptember 28, 2017

Uber is shutting down its U.S. car-leasing business after it turned out to be losing far more money than expected.

Xchange Leasing was launched two years ago as a way to get drivers with bad or no credit to drive for Uber. It was expected to lose an average of $500 per car but managers recently informed executives and the board it was costing Uber around $9,000 per car.

The closure of the business, which employs about 500 people, fits new CEO Dara Khosrowshahi’s focus on trimming losses at Uber ahead of a potential initial public offering. In the second quarter of this year, the company lost $645 million, compared to $708 million in the first quarter.

“We have decided to stop operating Xchange Leasing and move towards a less capital-intensive approach,” an Uber spokesperson told Recode.

As Recode reports, Uber faces the difficult task in its most mature markets of “finding new pools of drivers who can qualify to drive on the platform. By lowering the credit qualifications, Uber was trying to open up its platform to more drivers who would otherwise not be able to lease a car.”

But according to The Wall Street Journal, drivers had to pay high leasing fees, which meant working long hours that wore down the cars and hurt their value. Also, Uber’s reliance on existing dealers led to salespeople upselling drivers on cars that affected their earnings.

Uber is now shifting toward retaining drivers by pushing other incentives, such as allowing tips.

“Ultimately, its main concern is having enough drivers on the road — that can include giving existing drivers a reason to stay,” Engadget said. “Unfortunately, that also makes it considerably harder to drive for Uber if you don’t already own a car.”

Uber hasn’t said what it will do to replace Xchange Leasing. “The company is seeking a buyer for the business — which includes 40,000 cars and the showrooms for the cars — but has had little luck so far,” Recode said.

The leasing program in southeast Asia is reportedly likely to continue despite problems with defective vehicles.