Uber has reportedly reached an agreement to sell its subprime auto-leasing business to a car marketplace startup, a move that could attract more drivers and give it an edge over Lyft.
The sale to Fair.com, founded by former TrueCar chief executive Scott Painter, for an undisclosed amount stanches Uber’s losses on its two-year-old Xchange Leasing division. Reports estimate losses at about $9,000 per car, 18 times more than Uber anticipated.
“Uber was not really a player in leasing,” said Mark Jansen, assistant professor of finance at the University of Utah. “The large losses they incurred were not unexpected because they don’t have the data to put together a leasing business.”
Reports say Uber will retain an equity stake in Fair, a move that could help Uber attract drivers more efficiently and allow Fair, which is already in the leasing business, to benefit from economies of scale.
Founded last year, Santa Monica, Calif.-based Fair matches users with cars based on a monthly price range, effectively renting its supply of new and used vehicles to customers who may return them at any time. Uber will offer drivers in the U.S. access to Fair through the Uber app.
Uber’s program, intended to attract would-be drivers who lacked the credit to finance a vehicle, offered similar flexible terms while deducting payments from drivers’ monthly earnings. But many drivers struggled to shoulder lease rates as high as $500 a month, working longer hours and putting more wear on their vehicles, ultimately damaging their resale value.
Lyft offers leasing deals with General Motors through its ExpressDrive program, but Uber’s deal with Fair could spur the No. 2 rideshare company to acquire more strategic partnerships, Jansen said.
he sale is “an indicator that jumping head first into the subprime business is a fool’s errand,” he added.