Uber Gets Run Over by Its Own Subprime Auto Leases | Hacker News Reader

Uber Gets Run Over by Its Own Subprime Auto Leases

wolfstreet.com

220 pointsSQL2219121 comments

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.

Well, you have to give the car back (early) to trigger the loss. Or do you mean the driver somehow finding the car on the secondary market afterwards and buying it?

No you could literally lease it from uber and work 20h a week at uber and 20h a week at lyft in it.

Oh. The lease terms are crappy for the buyer as well. So, yes, funny in that Lyft would benefit in that scenario. The driver certainly doesn't though.

Actually, clearly the driver DOES benefit, if Uber is losing $9,000 per car. That's money that the lessee should have paid in an economically fair transaction.

In all fairness, a bunch of people are paying a little too much, while a small minority are getting most of the benefit, e.g. people who default on their loan, or who drive the car into the ground in three months and then return it. But, that in a nutshell is why sub-prime leases are really expensive on the open, non-VC-subsidized market to begin with.

The fact is, the vehicle portion of a hack business is a non-negligible portion of the cost. Most professional drivers replace their car every 2-3 years, after driving the old one to near-zero value by putting 150k+ miles on it. UberX's pricing is pretty much predicated on the fact that people aren't sophisticated enough to amortize their vehicle cost into their profit calculation. Works fine, until you kill your first car and it's time to buy a new one to keep driving ...

>Actually, clearly the driver DOES benefit, if Uber is losing $9,000 per car.

The drivers that exit the lease early benefit in that they are able to without huge penalty. They didn't net much out of the whole relationship though. How much do they make a day after subtracting $17/day just for the vehicle, plus whatever fuel costs are, self employment tax, commercial insurance, etc?

For drivers that keep the car for a long time, the subprime terms eat into an already paltry income. That was the portion of drivers I meant weren't benefiting.

I agree that the entire enterprise might be a bad deal for buyers, BUT:

- for those who returned the car after months, this is an option that just isn't available in an ordinary lease - in some cases, death is not enough to cancel a lease. These folks would have been left making all of the payments on the car for the rest of the term. Plus, ordinary leases have very low mileage caps. They may not have made much money, but they would have lost thousands if they had a conventional lease.

- for those who keep the car say 3 years and put on 200k miles: they would pay a total of $18k and return the car with a couple thousand dollars of value. If the purchase price was say $22k, then they got a completely fair deal.

That's the thing - I don't think the terms were sub-prime at all, they were simply priced to only appeal to serious professional drivers working 50-60 hours and 1500 miles per week, which is not atypical for cabbies and limo drivers (mileage might even be low).

Ahh, I see why we aren't on the same page. My reading was that the cars leased in this program were used cars, with values substantially less than $22k.

https://www.uber.com/drive/vehicle-solutions/leasing/

"The majority of eligible vehicles will be pre-leased and/or pre-owned inventory"

Given Uber's pretty tight standards for cars, I would assume that these are late-model low-mileage pre-owned cars, which still hover i the $20k value range.

I think they also wanted to reserve the right to re-lease cars that came back as early returns under the leasing plan.

So apparently it's the passengers who benefited in the end? That is, if the drivers who put lots of miles on the cars didn't make much off it, this was an indirect way of subsidizing lower rates.

Yup. Most of the story of ridesharing (and the sharing economy in general) is a massive shift of profit out of the hands of monopoly rentiers (cabbies (or more accurately, medallion owners), hotel owners) and into the pockets of consumers.

We're all paying much less for car rides than we were a few years ago, but the basic underlying cost of providing those rides has not changed much at all.

All that crazy VC money benefits the users. Blue Apron is the same thing with food. I got free food, no plans to subscribe. Thanks for the meal!

(Not literally me, I never used Blue Apron, but a lot of people have)

No, you can't. You can lease it from uber and drive 40h/week for uber and 60h/week from Lyft, but even that is a stretch. When you lease from a ridesharing company you are committing to that ridesharing company.

I am not saying that isn't the case, but the article made mo such indication. What is your source for this?

Technically, Uber has the loss even before the car is returned, since the asset value has already declined. Businesses are supposed to report losses and profits when they occur, not when cash changed hands. Companies are supposed to "mark to market" assets that are on the books at an inflated rate. But, most companies resist doing this until an auditor or government agency forces them to do it. This was the crux of the financial meltdown, banks were reporting mortgages on their balance sheets that were effectively worthless, given risk of non-repayment and depreciation of the collateral, as full-value assets. Thus, they were not seen as being insolvent.

That's the general accounting principle, but accounting is pretty hard. Leases get pretty complicated quicky. For example in a sale and leaseback under IAS17 even 'profits' you make at the outset (let's call them economic profits), you are only allowed to recognize proportionally to the time of the contrary. Here the precautionary nature beats the realisation principle.

Here's an example of how accounting is hard with differences between US GAAP and IFRS [1]. Uber loses half it's revenue under a new US GAAP principle...

[1] https://www.ft.com/content/74447ca2-6b0b-11e7-bfeb-33fe0c5b7...

It's the sharing economy.

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.

Somebody needs to pay for the next Uber of Avocado Delivery

I'm sure you actually meant Avocado Toast.

No the delivery company is an infrastructure play while the toast company is scaling the b2c interfaces.

Its "Not Hotdog" all the way down.

And we could promise the VCs 100x returns in the afterlife.

Now, as a thought exercise: who do you think subsidizes VCs? (I.e. who are the biggest LPs)

For people who don't want to look it up... Some of the biggest are pension funds! It's not just high net worth individuals or companies, it's also mom & pop retirement funds.

https://www.quora.com/Who-are-the-biggest-investors-limited-...

it is a big circle of value extraction by as many members of the capitalist class as possible...

>Now, as a thought exercise: who do you think subsidizes VCs? (I.e. who are the biggest LPs)

The Fed, with their policy of Quantitative Easing over the past 5 years.

The Fed QE policy was over about 5 years (late 2009 to late 2014), but not “the past 5 years”.

Which doesn't disprove the gp. The Fed still has $4.5 trillion in assets on their books, when they had < $1 trillion pre-QE1. The Fed supported $3.5 trillion in risky assets long-term.

The Fed has paid US banks to hold onto currency reserves that were injected into them, effectively subsidizing more risky investments throughout the economy. This includes equity growth, equity distributions, low bond yields, kept the capitalization rate (ignoring Fed injections into banks) low, etc. Without keeping QE on the books, these other current market investments wouldn't have been possible.

QE has allowed risky debt to continue to float around the entire financial system without market forces quickly drowning the riskiest. Effectively the Fed is subsidizing the risk and the average person will pay when inflation finally picks up. Just because we still don't fully understand the new "laws of finance" while we are in this QE bubble doesn't mean the old laws of finance won't still apply when QE dissolves.

But Fed is not just giving money for free. VCs will need to return them eventually.

The Fed isn't giving money directly to the VCs (atlest that I know of). The fed is keeping interest rates low on Treasury Bonds low. The rationale for this is: if investors get a small return on a riskless investment, they will be willing to take bigger risks for less rewards. Theoretically this should increase the investment in Venture Capital firms.

Sure, plus there is another money flow: low long term borrowing costs, with borrowers looking for a way to invest with higher return.

But in both cases these people (investors, borrowers) will want to get their money back eventually..

The quantitative easing FUD on HN is getting pretty tiresome. It gets blamed for everything from VC subsidies to house prices and just about everything in between.

All three rounds of QE in the USA focused on mortgage-backed securities and Treasury securities. Are you suggesting there were a bunch of VCs who were neck deep in the MBS or CDS/CDO rackets in the mid 00's?

See https://en.wikipedia.org/wiki/Quantitative_easing#US_QE1.2C_...

I'm not making any kind of judgement to the effects of QE policy, simply stating a fact.

> Now, as a thought exercise: who do you think subsidizes VCs?

Everyone who pays taxes on non-capital income.

How does the money get from taxes to VCs?

The point is that money _doesn't_ get from VCs to taxes. At least not in the same percentages as normal income.

All tax breaks are government subsidies. Tax rates that are lower on one class of income than another are tax breaks.

It's a good start, for a basic income I mean. Not that I'm necessarily advocating we take away retirement funds, but a 5% return on pension assets distributed to the American people yearly would be more than $3000 per person. Include some other assets and we could move make UBI less basic and more income.

From 2009: >Banks have $96trillion in assets, investment funes hold $22trillion, insurance firms have $21trillion and pension funds $19 trillion.

http://www.wealthmanagement.com/blog/fun-fact-day-know-and-t...

Except in this instance, the beneficiaries are those unable to acquire a car loan. So a very different demographic from the usual crowd benefitting from VC largesse.

I don't think the irony should be lost.

one year ago today I had to take a long uber ride, and the driver was excited that it was enough to cover his lease, and he could switch back to Lyft.

This is b.s. Uber is playing hollywood with it's money.

They are taking cars that are not particularly desirable, selling them to their own leasing company at full retail, collecting 4 times as much money per month than any same person would pay, earning money on every mile driven, and... I'm not sure about this one, but I _think_ they reduce the pay of the drivers who do the leases (I know Lyft does this).

Then they are "selling" the cars at a loss. But are they selling the cars at a loss to the wholesale market at large? i.e. putting them up for auction at Manheim/etc.? I doubt that is happening. More likely they are selling them to yet another subsidiary or affiliated company.

You don't lease a 15K car to someone at $800/month and lose money.

I think you underestimate what a dumpster fire that group is

You'd think it would work, but the drivers aren't stupid. Reading the article suggests to me the loss point here is drivers realizing they can burn these cars.

> You don't lease a 15K car to someone at $800/month and lose money.

It seems easy to imagine how you can: the driver rents the $15k car for 6 months, paying $4.8k in total before they stop making payments and Uber repossesses the vehicle. Uber hope to make themselves whole by selling it for $10.2k...except...they can't sell it for $10.2k because cars depreciate fast and anyway this one has 30,000 more miles on the clock than it did at $15k.

Only the cars initally cost $20k instead of $15k, Uber had to pay ~4% interest on the money they used to buy the car, the driver paid closer to $400 than $800, not all the cars are in fully working order and there are 40,000 cars.

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 are bought "in bulk" and thus with a 10, maybe 15% discount, very roughly it should mean that in the US$ 15,860+1,500=17,360 of reimbursement some minimal costs for interests and expenses are included on an initial spent sum of around US$ 16,000/16,500.

So, at least in theory it seems like a "side-business" that is going to make even or maybe loose a few hundred dollars each car (for interests on the loaned money), but this only if everyone keeps the car and pays the leases for the whole period.

Now, you get one of those (and you get one of those because you have no money and no good credit record) and after 25 weeks/6 months you give it back.

You pay US$3,300 (25*122+250).

Xchange has in its hands a six month old car with (say) 20,000 miles on it.That still has a market value, but maybe since you sell it wholesale to some second hand dealer and you only get - say - US$8000/9000.

So, 3,300+8500=11,800

So in this case Xchange seems like having lost - roughly - US$ 4,500 per car, half the US$ 9,000 stated.

There must have been some large avoidance of repayment (and repossession of the cars, etc.) to make that number on average.

According to the article that is indeed the case because they almost targeted with people who had subprime/no credit.

And... Surprise! There was a reason they didn't have good credit ratings.

It's just like the housing bubble. Risky bets turn out to be risky. Putting a whole bunch of risky bets together doesn't reduce the risk, it just makes the problem bigger when it crashes.

In some ways this could be seen a very charitable on Uber's part. They're giving these people who don't have the personal assets a chance to work for a living despite their past behavior. If you're willing to concede that the company is willing to take risk to help the most disadvantaged people, then the only thing I can fault them on is doing it at the wrong end of the equation. They should have had the people make conventional leases at the higher rates and then tack on a "lease premium" on the fares they collect (supplied by Uber, not the passengers) to help pay for the car. This would prevent them from going to work for Lyft (where they wouldn't get the bonus money) but still gain the advantage of a steady job and hopefully get their credit back in order in time.

Have you factored in the maintenance costs, oil changes, tires, wheel balance, windshield wipers, labors and other Xchange employee related costs? Those add up REAL QUICK.

BMW used to run an industry leading (back then) warranty program the covers the wear&tear of regular maintenance (except tires and a few others) but they eventually decided to discontinue that warranty program since 2015 due to the huge loss on it.

I thought it was a "plain" lease with maintenance (and tires, etc.) in charge of the user not a "full service" lease.

If it was the latter, then yes, but it would be "suicide", not even the "perfect world" example where the driver pays every month for the full period can possibly work.

EDIT: Found it, is just "basic maintenance":

https://help.uber.com/h/ba3a48f4-07ae-4836-9d5a-6df170210d6f

>- Oil change and tire rotation every 5,000 miles

>- Cabin air filter replacement every 25,000 miles

It doesn't add up to much anyway.

(as a side note the usual "US madness" about changing oil every 5,000 miles applies here as well).

I believe that when you buy a new Corolla, Toyota gives a 5,000 miles tire rotation and a 10,000 miles oil change included in first two years, BTW.

Taxi style use generally qualifies for shorter oil change intervals. Including that in the lease probably helps the vehicles stay maintained and resellable.

Naaah, that depends on quality of oil (and of course characteristics of the engine), as hinted it is a long standing dispute.

A number of people (particularly in the US, but not only) change their oil every 3-5,000 miles for reasons like:

- my father always changed oil every 3,000 (or 4,000 or 5,000) miles

- a friend of mine who races changes it every 2,500 miles so changing it every double that is appropriate

- the dealer (or the mechanic just around the corner) told me to change the oil every 5,000 miles or the engine will explode

Of course the Toyota engineers (mind you the same ones that designed, produced and tested for a few zillions miles the thingy that you chose to buy, implying that you trust them overall) saying 10,000 miles are a bunch of incompetent morons, what do they know?

http://toyota.custhelp.com/app/answers/detail/a_id/7604/rela...

Seriously, the 10,000 miles for (partially) syntethic oil is on the very low of the expected range of duration of a modern oil on a modern engine, i.e. it is a conservative enough duration, 12,000 to 15,000 is common.

And IF there is something that makes an oil or engine go bad is NOT "continued use" (like taxi use) but rather cold starts after long periods of inactivity (or racing, for other reasons).

In this the other also mostly psychological "limit" of "oil must be changed every six months no matter how many miles" has some more background reasons.

Still a (partially) synthetic oil is good for much more than that, usually 1 year at the very least.

Fully synthetic oils (very expensive) can last much more (but you need to change filters ever 10-15,000 miles anyway).

Can you explain what is bad about "cold starts after long periods of inactivity"? Or provide a reference? It sounds interesting, but I do not know enough about how engines work to understand what would be different about starting a car after one day or one month of not driving it.

In a nutshell?

It's complicated, but basically an oil has two main functions:

1) lubricate

2) circulate and take away all impurities and metal debris (which are then - as much as possible - filtered and absorbed by the filter and - at least the steel ones - by one or more magnets), i.e. to "clean" (continuously)

So the oil has many components inside, some of which with different weight (i.e. that may tend to separate) some of them that may be affected by water (the air that inevitably enters the engine can condensate) some by the oxigen in the air itself (i.e. oxidate).

Moreover some metal parts in the engine that are normally covered by a thin film of oil may well, after some longer period of inactivity "dry up" and thus develop some oxidation themselves or "run dry" thus creating more debris (that will be washed at next start and thus contaminate the oil).

And then there is the temperature cycles, an oil needs to be fluid enough when very cold yet do not become too fluid when heated, which adds the need of more components that may suffer from these cycles.

As an example in some industrial setups (think of static diesel electric generators) the oil in the engine is pre-heated electrically to keep it always from going under a given temperature.

All in all keeping it continuously mixed/moved and within a given temperature range is "better" for the oil.

Taxi use is specifically called out as a special operating condition in the manual. The owner's warranty and maintenance guide for the 2017 corolla [1] says on page 38, for the 5,000 mile/6 month interval:

"Extensive idling and/or low speed driving for a long distance such as police, taxi or door-to-door delivery use: Replace engine oil and oil filter"

[1] https://www.toyota.com/t3Portal/document/omms-s/T-MMS-17Coro...

Good find, the resource I found earlier: http://toyota.custhelp.com/app/answers/detail/a_id/7604/~/wh... did mention "extensive idling" as "Special Condition" but did not mention "and/or low speed driving" and associate it with Police or taxi service.

Of course I take back what said before, always do what the Toyota engineers recommend.

True, with one caveat: the engine manufacturer optimized for miles covered under warranty. Some even spec longer intervals between oil changes as a selling point.

Some engines are known to be more finicky to dirt (VW infamous chain tensioner comes to mind), and thus it makes sense, if you plan to keep the engine after the warranty expires, to reduce the oil change interval, as oil tends to be much cheaper than an engine rebuild.

There's a service where you'd send your spent oil to be analyzed for cleanliness, so you could determine the best change interval for your engine and usage. But that cost of that service wasn't much cheaper than just changing the oil a bit more often…

> A number of people (particularly in the US, but not only) change their oil every 3-5,000 miles for reasons like:

There's an even bigger reason it worked like that for so long. Car companies (American car companies) would print in their US manuals that you should change the oil every 3-5,000 miles, while printing in their European manuals - for the exact same car - that the oil change should be every 10,000 miles. I believe this was brought up on Car Talk once, for example. And they even went into a discussion of how it wasn't a units conversion problem - that the kilometers listed in the EU manual were equal to 10,000 miles, not that someone had just switched the units accidentally, etc.

In Europe for most cars it's recommended to change oil after 10,000 kilometers, not miles. I know you're saying it's not a conversion problem - but maybe they just had an outdated manual or didn't see many manuals.

> 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...

I don't know, but I would expect 7,500 to 10,000 miles per year on a normal car, hence that would have in a 130 weeks/2.5 years some 25 thousands miles top.

If (as it is reported here and there) an Uber driver needs to make 3,000 miles per month, the car after 30 months would be more likely to be in the 90,000 - 100,000 range, i.e. the same as a 10-12 years car, i.e. an "end of life" car.

Even if only 2.5 years old, upholstery, seats, plasric accessories, etc will likley show the wear from use.

Such a car can only be sold to "particular" customers.

But if the value is bigger, then it is another reason why the 9,000 US$ lost per car are simply too much.

A 2014 Corolla with 120k miles in "average" condition books at $5-7k "trade-in" value (which tends to map pretty well to wholesale value).

Good, then if we use the lower US$ 5,000 as a reference, the "complete cycle" turns to be actually advantageous for Xchange.

15,860+5,000=20,860 against a cost (adding the costs of "basic maintenance", assuming an intervention every 5,000 miles of 100 US$ each) of 16,500+20*100=18,500

That is 2,360 over 18,500 in 2.5 years, roughly 13% or 5%/year interest (excluding administrative/managing costs).

>I don't know, but I would expect 7,500 to 10,000 miles per year on a normal car, hence that would have in a 130 weeks/2.5 years some 25 thousands miles top.

I think that's way low. Over the course of several years and car insurance companies, the lowest any of them would let me estimate my annual mileage was 10,000 miles/year.

Yeah, I want to see you buy a 2.5 year old car on the open market for less than $3,000 even with high mileage.

I had to total out a 1997 Honda Civic due to a collision (which I got fixed, thanks), and the insurance reduced my payout by almost $2,000 because that's what they could get sight-unseen for a totalled car.

Yeah, I was more than a little pissed.

how do you dump that many high millage cars on the market without it dragging down used car prices.

or lets assume you say f* uber drive for lyft or just say thanks for the free car a*shole.... then you need to run around and find them and collect the car and you got $250 for the hassle.

Hell, you might even find half your car's parts for sale on ebay.

Not that all people with bad credit are bad people but some of them are.

The drivers bought the cars in open market and the dealers steered them to higher end cars, the article said. Pick the car in the middle of the range from http://toyotanews.pressroom.toyota.com/releases/2014+toyota+... the car costs about $19,000.

The finance cost is $871, https://goo.gl/YozEwy.

Administrative cost: Uber has 500 employees running the lease program (TFA said 500 would be laid off if it ended). 500 employees X $60,000/employee-year X 2.5 years = 75 millions, to run the lease program for 30 months. Uber has 40,000 cars in the program, so 75M/40000 = $1,875 per car for admin cost.

The car cost plus finance cost plus administrative cost: $19,000 + $871 + $1,875 = $21,746.

With the figure you have ($11,800) for the money Uber gets, the loss is $11,800 - $21,746=-$9,946. It is near $9,000.

>With the figure you have ($11,800) for the money Uber gets, the loss is $11,800 - $21,746=-$9,946. It is near $9,000. Good, but then almost every car was given back within the "shorter" term of six month.

And the 122 dollar per week might actually been higher for a higher initial amount.

With the new calculations (your higher cost but also the higher resell value JshWright suggested at the end) the full cycle would be (adding also the "basic maintenance" 20x100): 130x122=15,860+6,000+2000=23,860

The "normal" cycle is still short of US$ 2,114 per car, which means, that given that there are ONLY "full cycles" and "short cycles" 2014 Corolla's in the "fleet", that you need 7 "short cycles" every 1 "full cycle" to get a US$ 9,000 average.

7x9,946= 69,622

1x2,114= 2,114

69,622+2,114=71,136 / 8= 8,967

So if 7 out of 8 cars/financing went bad, then the theory that it is suicide to finance people with no or bad credit (or maybe that the income from Uber service had been grossly overestimated) seems like a valid one.

Resell value=

Uber is playing both sides of the table which is ok if you are profitable overall. But not ok if you are losing money on both sides. Uber will go a full Groupon soon.

Never go full Groupon.

You mean they haven't already? I have no idea how an idea as simple as Uber, where they clearly don't give a fuck about rules, regulations, or paying taxes, still can't make money.

It's like a mob running a casino that's laundering money and it bankrupts itself, you know, like the Taj Mahal in New Jersey. It takes an astonishing lack of talent to make that happen.

You mean "go a full Pets.com" like in millennium dotCom bubble.

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.

$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.

Concern over local losses at one company in an investment portfolio is what separates ordinary investors from the class of investors Uber allows to invest. The Saudi Sovereign Wealth Fund is not going to sweat this. The value of Uber is the distribution of possible outcomes weighted for probability. The worst outcome is $0 and that was accepted going in.

The reason companies like Uber stay private is to keep out ordinary investors and for the ability to ignore the traditional haymaking of Wall Street analysts. All those subprime leases let Uber gain market and refine its product. The widely published per ride loss numbers reflect those leases because they are baked into the overall losses.

Are there any metrics on how well these sovereign wealth funds are actually doing?

I often see them making big bets, with some definitely paying off (e.g. Kingdom Holding and Twitter), but I wonder how well they do across the board.

Not that they are doing badly, but to some degree they don't have to perform well to be successful. Their primary goal is to transform a currently-limitless stream of oil money into a sustainable source of wealth and income when the spigot turns off in a generation or two.

Same for China overseas investments, it's a way to turn RMB-denominated cash into hard assets in democratic countries with stable political environments. Value-for-money comes second.

This is true. I had a friend, who pretty much built a shovelware game, talk a chinese publisher into doing a deal. He banked $200k. I don't even get how that deal even could be made. Hell, he didn't even understand it.

The Chinese mobile gaming market is one of the hottest in the world right now. Tencent (the people who make WeChat) pull in USD $1BN each quarter just from games.

There was and possibly still is a lot of dumb money in that space right now.

I don't expect to see them launching Gofundme pages:

https://en.wikipedia.org/wiki/Kuwait_Petroleum_Corporation

https://en.wikipedia.org/wiki/Saudi_Aramco

I get the difference between private and public. Private investors, though, aren't universally hands off. I'm sure there's some level of bad decision making that trigger the Saudi fund to start probing. Maybe not this level, but there's a line somewhere.

Uber had better hope that the startup costs of self-driving vehicles are a lot lower than $36B. They can't afford that.

Uber spent $680 million on the Otto. GM spent $1000 million on Cruise Automation. Neither of these came with tooling and supply chains or production engineering. In the automotive industry, a billion gets some talent and potentially promising intellectual property, not vehicles on the road.

Yes, I think the Otto purchase was a bigger waste of money than the subprime leases. On the other hand, it didn't wreck lives by treating people disposabley.

I mean, sure, but on the other hand $1B is 36 times lower than $36B.

Maybe we're just talking in cross purposes. Obviously if you buy a million cars, you'll be spending tens of billions of dollars. I didn't mean that Uber was hoping to be able to roll out a massive worldwide fleet of driverless vehicles for under $36B. I meant that Uber has to demonstrate a mature technology and business model involving lets say thousands or tens of thousands of vehicles that people are actually paying for and that have unique advantages over their many competitors, for much less than $36B. If they can do that, they won't have any difficulty securing the financing to scale their fleet of vehicles up significantly.

If they can't do that, and they can't do that for much, much, much less than tens of billions of dollars, then they're in a lot of trouble.

I do think that we tend to get sloppy about large numbers. It feels like people hardly see any difference between $1B and $5B.

Cars that are produced in the 1000's or 10,000's tend to run in the $100,000's [1] even when the costs are amortized over the total production of an established manufacturer where startup costs like site acquisition and robots and hiring are already sunk costs.

To better explain, the difference between one and five billion is significant when its my money. But it is not a quantum difference in terms of ordinary automotive manufacturing. Tesla is fourteen years old, has raised billions of dollars and is not relevant at the global scale in terms of production or sales. [2] More importantly, Tesla's differentiation is not self driving technology, it is electric drive trains which have an automotive history going back to the 19th century. Tesla is able to draw on established power technologies and engineering expertise in the production of batteries and electric power systems. Just maybe it will be able to produce a few tens of thousands of $35,000 electric cars a year at some point. I think that the odds Tesla will be first with a full on self-driving vehicle with wide availability are pretty low...but given that it has been working on the idea for about a decade or so, much higher than Uber's ever were.

[1]: To be clear, I am not talking about 2017 Camero's with green leather interior and cherry red paint.

[2]: That's not to say it does not have potential to become so over the next fifteen years.

Uber doesn't have to manufacture cars from the ground up, and has given no sign that I'm aware of that they're interested in doing so. They'll use after-market additions of their self-driving technology, and most of the manufacturing will be done by third parties, for a long time yet.

If they get to the point where they're even thinking about creating automobiles from the ground up, it'll be past a bunch of hurdles. Even then, they'd still almost certainly partner with an existing auto-maker.

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.

Isn't there some debate as to whether there is profitability though? Or have they definitively made the turn away from investor money subsidizing below cost rides?

The numbers in the article came from Uber. If there was a better metric they could have used you'd think they would have done.

They're still subsidizing rides though. This program is paying for the privilege to lose more money!

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.

In most markets, Uber is also losing money on a per-ride basis. So, the lease subsidy is offset by the rider subsidy ... to give a larger negative number.

Uber won't just be out the $360 million on the cars. They'll be out the 40,000 drivers who may not be able to get another leased car.

I'd imagine the drivers being really upset... because I assume they'd also use the vehicle for personal things as well.

I wouldn't worry about that too much. Their entire business model is predicated on the at-will disposability of their "employees".

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.

That's the end goal of the "We finance everyone!" car dealers, right? Get you in a high interest rate loan and either the client eventually pays it off (paying $15,000 for a car worth $4,000) or they default after 6 months and you take the car back and sell it again.

> 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.

I'm currently renting a 2017 Corolla from Avis for just over $23/day all taxes and fees included.

There are great deals for certain locations.

The smoke is thick and the flames are really starting to show..

Wow, if even half of that is accurate that is pretty amazing. I always wonder about such stories on how much oversight is involved. Clearly for a company moving fast you have to trust the people closest to the situation to make the best decision, but do you do that when there $600M in play? Do you review their plans and pencil out the math?

It sounds like it will be especially challenging to unwind as well.

The author mentions "sub-prime" borrowers several times but I don't see any indication that borrower quality had anything at all to do with Uber's problem.

I always thought sub-prime borrowers were unfairly blamed for the mortgage crisis. There were a lot of average & prime borrowers walking away from ridiculous "nothing down, 1%" mortgages.

A house would have to be staggeringly overpriced for a 1% fixed loan with no down and no points to not make sense. Especially if they qualified for a prime rate.

Hell, if I had that loan available I would totally take it and run with it.

Well, 1% loans never existed. They were just teaser rates. After a time period (say, 3 years), it would reset to awful ARM rates that the borrower couldn't possibly afford.

The loan agent: "No problem, just refi before then."

So people were running away from loans that were about to get way more expensive? Who could have ever seen this coming?

IIRC you can't refi if your house value has dropped below your equity in it, meaning those people didn't really have a choice.

I'm not weighing in on the moral judgement, but I do believe that you misunderstood the comment you are responding to.

I think previous commenter was saying that lots of people like you with reasonable credit did take and run with those sorts of loans on crazy favorable terms, then when the value of the house dropped to half what was owed, many of those people defaulted on the loan; "Mailed the keys to the bank"

Uber is about externalizing the cost to others. It's no surprise they bleeding red once they take on the cost themselves.

Do people actually care that Uber is running at a loss with rich investor money? It seems like a good form of income redistribution. You would think the left-tech scene would be in favor of this.

Does this mean there is (or will soon be) a glut of Priuses on the market?

There is a tidal wave of used cars coming into the used car market due to substantial subprime defaults, including these Uber vehicles.

Uggh read below (edited my 1st comment after fully reading the terrible details that will hugely and negatively affect a friend)

Also, wow my friend whose parent made him go bankrupt at 18 (put his name on deed of their house & didnt tell him) is going to lose his car he uses to make money and support/transport his family.

Whoever votes me down has no heart. Uber is run by criminals!

>"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?

> 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...

That certainly would be par for the course. There's been much speculation that auto leasing might be a bubble. See:

http://www.zerohedge.com/news/2017-03-29/signs-auto-bubble-s...

and

http://usa.streetsblog.org/2017/05/01/what-comes-after-the-a...

Totally. Auto financing is really scary.

One of my dopey co-workers bought a BMW 5-series with an 84 month loan at 2%. $600/mo for 7 years for a car that will be upside down from day one.

In all fairness, 2 orders of magnitude over $500 is $50,000. They're a lot closer to 1 order of magnitude ($5,000) than two.

Sorry yes, definitely not a factor of 100. That's what I get for being up late :)

But still it's greater than even a single order of magnitude which is a substantially large accounting discrepancy.

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