It’s no secret that Uber has always had trouble hanging onto money, but now that it’s being kicked out of a major market, the transportation giant is doing everything it can to cut costs. The latest casualty at Uber is Xchange Leasing, its American auto-leasing business. And given that the venture was losing 18 times more money on each vehicle than previously believed, it seems like the wise choice in this situation. Luckily, just a few months after deciding to shutter Xchange, Uber has found a buyer for the business — Fair.com.
As initially reported by the Wall Street Journal, Uber first began toying with the idea of closing down the business over the summer. The original hope was for a buyout, but the company appeared to get impatient a few months ago, and shut Xchange Leasing down without a buyer over the summer, affecting about 500 jobs. Simultaneously, however, Uber launched a sale process, and now, that process has reached its conclusion.
It’s unclear how much Fair paid for the leasing service, but the company itself is well versed in the rentals business. Its customers name a price for a rental vehicle, and Fair does what it can to match these customers with a car purchased from a local dealership. These vehicles can then be returned at any time. Thus far, the firm has raised around $85 million in equity, and has racked up $1 billion in debt (sound familiar?).
“We have decided to stop operating Xchange Leasing and move toward a less capital-intensive approach,” a spokesman confirmed to the Journal back in September. Originally begun in 2015 under ex-CEO Travis Kalanick’s leadership, the leasing program was bolstered by an investment of around $600 million. Uber hoped that this initiative would make it easier for the company to recruit drivers who would otherwise be unable to provide their own vehicles.
Unfortunately, this didn’t work quite as planned, as the Journal reported many drivers returning the leased cars in “poor shape, damaging their resale value.” Ultimately, the company was forced to place drivers in increasingly expensive leased vehicles, which meant that the drivers had to work longer hours in order to pay back the lease, thereby creating more wear and tear, and perpetuating a vicious, net-loss cycle.
By July, Uber realized that Xchange was in the red by about $9,000 for every vehicle in the fleet (previous estimates suggested this figure was just $500). There were a total of about 40,000 cars in the fleet, which represents a whole lot of debt.
Hopefully, the sale of the business will do something to negate that red zone.
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