by Paris Marx : thebolditalic – excerpt
The troubled gig-economy company breaks new ground in exploitation.
Until recently, Uber drivers had to own their own vehicles (10 years old or newer) and pay all their vehicle-related expenses out of their earnings. Yet as Uber has grown, the vehicle requirement has proven to be a major barrier to growing the number of drivers on the platform — at least partly because drivers have an incredibly high turnover rate, a testament to the fact that driving for Uber is generally not very stable or lucrative work. Recently, the company has found a solution: facilitating car loans directly for drivers so they can rent a car from Uber in order to drive for Uber — in effect, paying back the company as it pays them.
Uber’s Subprime Auto Loans
The largest US ride-sharing platform, Uber has been infused with billions of dollars in investment and, as a result, is in rapid growth mode, relentlessly hiring drivers around the country. Getting a driver’s license is a relatively easily learned skill in the United States — hence, finding drivers is not necessarily a problem for Uber; rather, finding drivers who own cars that meet Uber’s vehicle requirement is. Thus, over the past few years, Uber has made a number of deals to experiment with offering vehicle leases to drivers before finally launching its own auto-loan company, Xchange Leasing, in 2015 to offer subprime loans to drivers. “Subprime,” in finance speak, refers to the credit status of the lessee: “prime” borrowers are desirable ones with a high probability of paying back loans on time, whereas “subprime” borrowers are less than optimal for banks — and hence usually suffer higher premiums, interest rates and more predatory contracts to make up for their undesirability as clients… (more)
This looks like the perfect Ponzi scheme. Use investor’s money to multiply your investments. In this case, invest in cars, mark them up and lease them to your “contractors” at a profit. How long before the ‘contractors” pull out or go on strike and leave Uber holding the debt?
Naked Capitalism has published a five-part series on the economics of Uber… t sheds light on the lack of profitability in the current business model, and how fares are subsidized with billions in losses and VC money to try to achieve a monopoly position.