Uber’s Subprime Auto Scheme Is the Last Nail in the Sharing Economy’s Coffin

Uber, sharing economy, ridesharing, banking, loans, Leon Kaye
Staring at an Uber app has become the new pastime in many cities.

Perhaps we should finally call the sharing economy the exploiting economy.

Uber has taken the gig economy to a new level with an announcement that its investment from Wall Street financiers, including Goldman Sachs, will result in the rapid expansion of Xchange Leasing, the ridesharing company’s car leasing division. Uber makes it sound easy. All you have to do is fork over $250, choose the model of car you wish to drive, sign a 36-month lease, and you have the means to make extra money driving around town.

Uber even says each automobile lease includes free oil changes, tire rotations and an occasional air filter replacement. These terms, however, only come into effect if the driver agrees to weekly payments that Uber will automatically deduct from their “Uber earnings.” If the driver cannot make enough money from schlepping people across town, too bad — the car is repossessed. And as Bloomberg reports, not only does Uber pocket that $250 deposit, but if the driver decides he or she wants to buy the car, they will have to pay thousands of dollars to compensate Uber for the residual value of the car — a car that will be beaten up from endless months of stop-and-go city driving.

From a business perspective, Uber does not have much choice but enter the car leasing business if it wants to grow and come close to meeting investors’ expectations. The ridesharing company is one of several Silicon Valley “unicorns” — companies with valuations that are assessed far too high when compared to revenues. And as long discussed here on TriplePundit and many other media outlets, Uber has a contentious relationship with its most valuable asset: its employees. More municipalities, such as Austin, Texas, are considering kicking Uber to the curb for the company’s stubbornness, its refusal to comply with local safety regulations and its notorious labor practices. Meanwhile, the company has reduced its fares, with Think Progress suggesting earlier this year that 60 percent of Uber’s drivers at any given time are considering quitting the company.

Furthermore, as Houston Chronicle business columnist Chris Tomlinson pointed out, Uber’s venture into the car leasing business is arguably one that is predatory. Uber has seen a boost of drivers in Houston, which was hit hard by layoffs within the city’s energy sector. The nation’s fourth largest city is also massively sprawling with limited public transportation options, so Uber and other ridesharing companies are a perfect fit for residents who need to make those quick trips to the office or store. Xchange Leasing’s business model, however, does not rely on conventional economic rules of supply and demand within the market — it is dependent on customers who have poor credit and cannot lease or buy a car through the banks or automobile finance companies.

And while Uber (and its largest competitor, Lyft) insist that its employees are independent contractors and form 1099-filers who are not entitled to any work benefits, the company insists on dictating hours, rates and, now, even owns the property that its drivers must use in order to work. Even more bothersome is the lack of transparency. Uber makes it sound as if its leases are ideal with terms that are easy to understand; Bloomberg reports the leases are 28 pages long, making it easy for poorer, less educated and desperate citizens to sign something that, in the long term, they really do not want and cannot afford.

Few people outside of Uber and Goldman Sachs are impressed. “Sounds awfully predatory,” says Lauris Bliss of CityLab. “Modern-day sharecroppers,” adds Sarah Leberstein, an attorney with the National Employment Law Project, in an op-ed in Quartz.

Uber’s push to sign up desperate people with the promise of easy money is eerily similar to the widespread foreclosure crisis that began to boil over a decade ago. True, if this billion-dollar venture fails, its effects will not come even close to the impact the 2006-2009 housing fiasco had on the U.S. and the global economy. But one way or another, if this scheme collapses, consumers will pay for this greed-inspired plot with higher banking fees or automobile prices, while more workers become even more frustrated as they see limited options for gainful employment. And the sharing economy, once viewed as a way to maximize resources and supplement income, will be seen as a movement that ended up enriching a few while enraging many.

Image credit: Senator Mark Warner/Flickr

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Based in Fresno, California, Leon Kaye has written for TriplePundit since 2010. He has lived across the U.S., as well as in South Korea, Abu Dhabi and Uruguay. Some of Leon's work can also be found in The Guardian, Sustainable Brands and CleanTechnica. You can follow him on Twitter (@LeonKaye) and Instagram (GreenGoPost).

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