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Uber is phasing out its subprime car-leasing division after massive losses

Uber is phasing out its subprime car-leasing division after massive losses

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Losses per vehicle ended up being 18 times more than Uber expected

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Uber plans to discontinue its subprime car-leasing operation as it currently exists, according to The Wall Street Journal. Uber created Xchange Leasing LLC in 2015 in a bid to disrupt the auto loan industry, but it will now sell off or close most of the business by the end of the year, the Journal reports.

The decision to shutter its auto-lending division could result in hundreds of layoffs. Around 500 jobs could be affected, or around 3 percent of Uber’s total 15,000-employee workforce. Not everyone will lose their job, however. Some of those employees could be shifted to Uber’s customer service call centers, for example.

Around 500 jobs could be affected

Uber’s executives decided to close Xchange after realizing they had misjudged the average losses per vehicle. Originally predicted to lose $500 per vehicle on average, Xchange’s managers recently informed Uber the losses were actually closer to $9,000 per car — around 18 times more than the company expected, in addition to being about half the sticker price of a typical leased vehicle.

A source familiar with the discussion said that Uber isn’t planning on completely abandoning its auto leasing ambitions. In the wake of Travis Kalanick’s resignation as CEO, the company is taking a new look at some of its more cash-losing enterprises in the hopes of becoming more financially responsible. Uber is weighing selling off some of Xchange’s assets as well as reducing the number of cities it serves.

Xchange offered subprime leases to people who have been cleared to drive for Uber, but have poor or nonexistent credit scores that prevent them from getting cars. Xchange is part of Uber's larger Vehicle Solutions program, which was developed after the company realized that many qualified drivers had cars that were too old, only had two doors, or didn't meet standards in other ways. In addition to Xchange, the program offers drivers discounts with certain automakers, traditional auto financing, and weekly or daily rentals.

The challenges of fleet maintenance

As part of the program, Uber purchased a little less than 40,000 vehicles that it kept in 14 showrooms across the US. In some respects, Uber is learning about the challenges of maintaining such a sizable fleet, which will no doubt carry over to the company’s self-driving car ambitions. Currently, only the smallest percent of vehicles driven on Uber’s platform are owned outright by the company; the vast majority are owned by black car companies or individual drivers, who are responsible for fuel, insurance, and maintenance costs.

If Uber eventually transitions to autonomous vehicles, it will have to shoulder all those costs itself. So even though it will be taking a larger percentage of the fare by eliminating the driver, it won’t all be profit. Now that Uber is cutting its losses with auto leasing, it remains to be seen what the company will do different to make self-driving cars work better.