
Uber’s subprime leases put drivers on road, but leave some shackled - goughjustin
http://www.seattletimes.com/business/ubers-subprime-leases-put-drivers-on-road-but-leave-some-shackled/
======
Bartweiss
> She drives about 25 hours a week. In one week in May, she earned $604 for 28
> hours of work, she said — a slightly better-than-average week. Uber took
> $160 for the car directly out of her paycheck, leaving her with $444.

So, for 28 hours of work, the driver got a car (with maintenance covered) and
a ~$16/hour salary on top. Without the car payment, it's a $21/hour salary.
That's apparently a near-average week.

I seem to have missed something, because it looks to me like Uber leant her a
car that enabled her to do a job that pays better than even the most ambitious
minimum wage initiatives. It's pricy, but so were all of her other options
with "terrible" credit. Where's the evil here?

~~~
tyingq
I agree with most of this, but it should be noted that $16/hour as 1099 income
is not at all the same thing as $16/hour as a regular W2 employee. A rough
equivalent would be about $11/hour. I think that's high still, as there are
costs other than maintenance...like gasoline.

~~~
warfangle
Average city driving speed for LA is 26.8 MPH [0], which means she's driving
around 750 miles per week.

She leased a 2015 Honda Civic, which has a rated fuel economy of 31 MPG.

Assuming she gets the rated gas mileage from her civic, she's buying 24
gallons of gasoline per week for 2.39 [1] per, costing her $57.

AAA gives an estimated 5.51 cents per mile for maintenance and tires [2],
costing her $41.

So, take home pay after expenses is $604 - $160 - $57 - $41 = $346, or
$12.3/hr.

IANAA, so I don't know which of these expenses qualify for deductions when she
files. But an annual pay (after expenses) of $17,992 doesn't leave much wiggle
room for paying for an accountant, assuming Uber indentured servitude is her
only income generating activity.

0\.
[http://infinitemonkeycorps.net/projects/cityspeed/](http://infinitemonkeycorps.net/projects/cityspeed/)

1\. [http://www.losangelesgasprices.com/](http://www.losangelesgasprices.com/)

2\. [http://exchange.aaa.com/wp-
content/uploads/2016/04/2016-YDC-...](http://exchange.aaa.com/wp-
content/uploads/2016/04/2016-YDC-Brochure.pdf)

~~~
Bartweiss
This is mostly a good assessment, but the maintenance cost should be reduced -
one part of Uber's lending program is covered routine maintenance. Gas at
least should be deductible, I don't know whether the car payments can be
counted in whole or in part.

The overall point is well taken, though. There are several hits to real income
for Uber drivers that aren't shared by other types of low-wage worker, and
while "set your own hours" offers more upside than a normal part-time job,
it's limited by how many high-demand hours there are in a week. Rather than
extra overtime pay, I imagine hours past her current 28 would give steadily
diminishing returns.

~~~
warfangle
I don't think it matters if the car payments can be counted or not.

But, according to [0] (I'm not sure how accurate/reputable it is; again,
IANAA), the deductible portion of $604 _52=$31,408 is only $2,218.90.

Gas at $57_52=$2,964 already extends past that cap.

Assuming her income is taxed before the lease payments are made, and hits her
full deductible, she's paying total taxes of $4,437.81

So, net after-tax, after-expense income - I didn't realize that about routine
maintenance - is $604-$160-($57 - ($2,218.90/52)) - ($4,437.81/52) = $344 /
wk, or $13/hr.

Compared to working multiple inflexibly-houred minimum wage jobs, it's
definitely better.

But in no way is it lucrative, or even lower middle class.

~~~
pc86
In most of the country $13/hr is indeed lower middle class.

~~~
untog
We are specifically talking about Seattle here, though. All the other
variables would also be different in different parts of the country.

~~~
dragonwriter
> We are specifically talking about Seattle here, though.

The newspaper is from Seattle, but the driver featured in the article whose
numbers were used for the calculations in this thread was actually in Los
Angeles.

~~~
untog
Ah, I stand corrected! But either way, things like car payments, insurance
vary widely by geography, so it doesn't seem like applying this particular
situation nationwide would prove much.

------
bko
Subprime lending == bad

Extending credit to lower-income borrowers == good

Are we just talking about price (interest) here? You may not like the price,
but prices exist for a reason and cannot be changed by diktat. Who gets prime
vs a subprime lease isn't determined by some ethnicity or the religious sect
someone belongs in. It's determined by the risk and size of the loan. Smaller
loans have relatively higher fixed costs, driving up the up front fees or
interest rate. They are also harder to recover and may have a lower residual
value, all factors that go into determining the risk. People with little or
bad credit history are also more likely to default. This isn't controversial.

What's the alternative? Stop extending credit to risky borrowers? Force
lenders to lend to risky borrowers at subsidized rates funded by tax dollars
or through coercion?

[Edit] What I particularly don't like about these articles is the obfuscation
of financial matters. For instance,

> After dropping $250 up front for her lease of a 2015 Honda Civic, she pays
> $160 a week to Xchange. If she keeps the car for the full three-year term,
> she’ll end up paying Uber $25,210. The Kelley Blue Book fair purchase price
> for a new 2015 Honda Civic SE in Los Angeles is $18,142.

> Schmitt said she’ll need to pay Uber $5,000 or so more to buy the car if she
> wants to keep it at the end of her lease.

So basically, she's getting a $18,142 (PV) car paying $160 (PMT) a week for
156 weeks (N) and have to pay 5,000 at the end to keep the car (-FV).

PV: 18,142

PMT: -160

N: 160

FV: -5000

I (weekly) -> 0.1942% (weekly)

I (annual) -> 1.001942^52 - 1 ->10.615%

So basically she got a loan at 10%. Also, you have to factor in that she has
an option to purchase which she can choose to exercise. I don't know why they
don't just say as much.

~~~
Bartweiss
> What's the alternative? Stop extending credit to risky borrowers? Force
> lenders to lend to risky borrowers at subsidized rates funded by tax dollars
> or through coercion?

This seems to be a lot of people's answer. There's this weird claim that
payday loans and bad car loans and similar are caused by "greed!" when the
companies making them are operating at tiny profit margins. High default rates
dictate high prices (which forms a vicious cycle, but that can only be broken
from the outside).

The most 'predatory' thing about most bad-credit loans is the fee/repossession
system, which tends to be sloppy and abusive because the borrowers are too
broke to fight it. Uber has sidestepped that almost completely with a no-
consequence termination scheme.

The push to ban or cripple access to low income loans can really only be
justified in two ways. One is that these loans are somehow corrupt, but we're
not talking about balloon mortgages here - these companies are dealing with
principal-agent problems like the home lenders were, and they don't have
profit margins to give up. The second is that low-income people are too dumb
to make good decisions, so they take these loans. It's a patronizing stance
that shouldn't pretend to be uncontroversial.

~~~
bko
Actually new subprime auto loans install a device that allows the lender to
disable and locate the car remotely (obviously not while in use). So
repossession is a lot easier (and presumably less sloppy) compared to the
alternative and is part of the reason subprime auto rates have fell over the
years. Lenders don't want to repossess as they are in the business of charging
interest, not in selling pre-owned cars. They only repossess at last resort.
Going after missed payments is also very expensive, especially given the small
amounts.

------
_9MOTHER9HORSE
The headline claim that drivers are left "shackled" doesn't seem to be
supported by the article, which states drivers can leave their lease
agreements at any time after the first 30 days, with only two weeks notice,
and without harming their credit score.

If you think uber are overcharging for the vehicles, given the terms of the
agreement, the risk they are bearing, etc. why not start your own offering
which charges less?

~~~
rconti
Great comment. I went back and checked the article because I thought you were
wrong and it said "within the first 30 days". But you're correct, any time
AFTER 30 days, they can leave the program.

No mileage penalties and no contractual obligation to the lease are huge
benefits.

------
wiseleo
If drivers can walk away from the lease after 30 days (well, 44 to be
precise), I see no problem with this offer. These drivers represent an extreme
risk.

They just need to understand that the Uber lease should be treated as a short-
term program.

[https://get.uber.com/cl/xchange/](https://get.uber.com/cl/xchange/) mentions
pre-owned vehicles in addition to new ones.

"Vehicles requirements for Xchange Leasing program:

2009 or newer 75,000 or less miles no salvage, rebuilt or flood vehicle titles
4 full-sized doors minimum of 5 seatbelts (driver and 4 passengers) maximum
amount financed $20,000 (subject to change)"

I would get the least expensive vehicle through Xchange, drive it to save
about $3000, buy an Uber-qualified used vehicle, and enjoy life.

------
gleenn
I might give Uber a hard time about some things but I'm failing to see the
evil in this. Yes, the leases might seem predatory, but if the target is high
risk buyers and the apr is not off by an order of magnitude, seems like they
are just enabling their work force.

I could think of a lot worse things than a company giving someone a job and
then offering them expensive tools to do it.

~~~
Bartweiss
Honestly, the APR looks totally reasonable (by bad credit standards).

They cite a $96 average weekly payment for all Americans, and compare it to a
$130 weekly payment for Xchange. The article's tone implies that I'm supposed
to go "30% markup, shocking!", but it's comparing all borrowers to bad-credit
borrowers. Knowing how other loans are priced, that seems like a pretty
standard adjustment (especially for the easy-use terms of the lease).

I honestly had a lot of trouble finding the malice here. Yes, the cars are
expensive, but it's like complaining about on the level payday loans as
'extortion' \- the prices are set by a high default rate, not by some
inexplicable market failure.

------
ivankirigin
The difference between Uber and other subprime lenders, like mortgage
companies, is that the recipients can actively become lower credit risks. They
can just drive the car. At the rates Uber pays, probably around a full day a
month.

So not only is this expanding credit options, it's expanding labor options.

------
wjnc
"“I’d say the cost is greater than the benefit for your average driver,” -
Isn't that the point of this scheme, that they target non-average drivers, ie
those with low credit scores that would be unable to drive otherwise.

With regards to the figures at the end of the article. If Uber pays for
insurance and repairs, it seems not a too prohibitive deal. If not the
interest rates are well above 20%. Seems pretty sweet (for Uber).

But then again, a market rate of 20% for those without credit score isn't much
worse that a credit card rate. And the LA-example comes through well above
minimum wage.

~~~
MisterBastahrd
You can do almost anything else at a W-2 job and make more money with less
responsibility and risk. Your credit card rate comparison is absurd. You don't
ever have to carry a balance with a credit card. You have no choice with a
car.

~~~
aoeuasdf1
W2 jobs are not comparable. Driving for uber is flexible - you can drive
whenever you want, for however long you want each week. Obviously that value
will come at a lower price point for wages.

------
rbcgerard
articles like this drive me crazy, one might even be led to believe that the
reporters for this story don't actually understand how a lease works.

If you walked into a car dealership and told them that you wanted to be able
to break your lease with a couple of weeks notice and have unlimited mileage
(with them understanding that you would be driving quite a bit) how much more
do you think they would charge for that lease?

------
goughjustin
From the article..."As the video promoting the arrangement puts it: 'The best
part: Payments are automatically deducted from your Uber earnings.' "

~~~
pdkl95
That's going to have the same problems as the "company store" scam where you
are paid in scrip. This makes moving to another employer much harder, because
of the debt to the current employer (and/or their business partners).

------
19110121001
Here is a new startup idea, UberAir: We don't do tedious things like owning
planes and hedging fuel costs. On the contrary, we are all about connecting
enthusiastic pilots with awesome passengers.

The pilots get a lease offer for the planes so they'll own one after 50 years.
The estimated pilot salary after deducting lease payments will be $1245 per
month.

We're also working on pilot-less planes. Once these are done, we'll take care
of the remaining contractors by launching UberLavatory, which will lease
public toilets to enthusiastic Toilet Managers.

~~~
jackgavigan
_> ..by launching UberLavatory..._

May I suggest a rebrand to ÜberLü?

------
MrFoof
_> After dropping $250 up front for her lease of a 2015 Honda Civic, she pays
$160 a week to Xchange. If she keeps the car for the full three-year term,
she’ll end up paying Uber $25,210. The Kelley Blue Book fair purchase price
for a new 2015 Honda Civic SE in Los Angeles is $18,142. Schmitt said she’ll
need to pay Uber $5,000 or so more to buy the car if she wants to keep it at
the end of her lease._

This is kind of par for the course for some chunk of car dealers. They have no
qualms in getting someone to ultimately pay $30,000 for an $18,000 car of
which the margins are normally extremely tight (2-3%) with profit being a very
long tail of maintenance work orders. This one Civic, if she ran it to term
and then bought it out, brought in as much profit as DOZENS of Civics.

My sister learned similarly many years ago. She ended up paying $26K for a
$15K car, simply because she didn't do the math.

Although we'd like businesses to not engage in these kinds of deals, but
unfortunately many businesses rely on these deals. I think the only decision
more costly that people getting unwillingly put over a barrel for a car is
people making poor retirement planning decisions and paying through the nose
in fees (or buying what a "financial advisor" that is really a salesman at a
bank is peddling) when there are far lower cost alternatives. It sucks, but
it's true.

~~~
dsfyu404ed
Congratulations on figuring out how a BHPH dealer works.

Buy cheap economy cars that aren't upscale enough for a "real" used car dealer
to have on the lot. Have your mechanic fix anything imminently wrong and put a
GPS tracker in it. Require huge down payment (usually close to enough to break
even) and/or absurd monthly payments. Hopefully you screw the customer out of
a few months of payments before they can't pay, at which point you repo the
car immediately and put it back on the lot for the next sucker.

~~~
MrFoof
_> Congratulations on figuring out how a BHPH dealer works._

In the case of my sister it was a franchised Toyota dealer selling new
inventory. Not BHPH. She signed a 3-year lease on a Toyota Corolla with a
ridiculous money factor component because they got her to simply focus on the
monthly payment, then financed it for 6 years afterwards (again, by getting
her to focus on the monthly payment) at a ridiculous interest rate despite a
FICO over 720 by simply not shopping around (she agreed to 9.5% when 3% was
easily available from many retail banks and CUs).

When I showed her what she could've paid instead if she had any patience and
simply run the numbers, she was incredibly upset. Not with the dealer, but
with herself for not doing the due diligence. That's ignoring the fact that
she could've just bought a 5-year old one, because a Corolla is literally a
dime a dozen (350-400K units sold per year in the US at the time).

This is my point. If you simple appear ignorant and lazy (not in a bad
situation), there are plenty of businesses that will use that to their
advantage. If you are in a bad situation, it's just more potential leverage
for them.

Yes, some franchised dealers do this with new inventory, even to people with
good credit. If they think they can make an easy buck off of you on account of
your ignorance, some will take the short-sighted approach (not trying to earn
a repeat customer) and try to do it. If you throw up your hands they'll come
back around and try to close the sale on amenable terms and offer it however
they do, to make the sale.

------
femto113
Uber may not be making a profit directly on the leases, but it's clearly a way
to get more drivers at a lower effective wage.

    
    
        In one week in May, Schmitt earned $604 for 28 hours of
        work, she said — a slightly better-than-average week.
        Uber took $160 for the car directly out of her paycheck,
        leaving her with $444.
    

That works out to about $15/hour after the lease payment, even less if it's
not including fuel costs.

~~~
icebraining
But you can't ignore the value of the lease of the car; it's not like you can
only use it to drive for Uber.

------
xycodex
Hmm, sounds like a great idea, except that they should do this with cheaper,
used cars. if you have bad credit, you shouldn't be buying a brand new car.

~~~
TeMPOraL
> _if you have bad credit, you shouldn 't be buying a brand new car._

Can you elaborate? I don't see how that follows.

~~~
bitJericho
A brand new car might cost your 400-600/mo whereas a used car might cost your
2000usd total (5 months at 400/mo of savings). Even if you buy a piece of
garbage, you could replace anything wrong with it and still come out ahead. A
new car is really a stupid buy for a person with little income.

~~~
dagw
But you cannot work as an Uber driver if you have "a piece of garbage", kind
of defeating the whole point.

~~~
dsfyu404ed
You can find a lot of cars that are perfectly acceptable (no immediate work
needed, no visible rust, does not need extensive interior cleaning) at
$2k-$5k.

------
calpaterson
> Xchange, which caters to people who have been rejected by other lenders,
> isn’t intended to be a moneymaker, said an Uber spokesman.

I'll be interested to see if that can continue in the long term. Consumer
finance is an industry with an incredibly high profit margin, probably a lot
better than Uber's core business will ever be.

------
zer00eyz
Southwest airlines, and taxi companies know one thing: an idle vehicle is an
un-funded cost. Will uber add in functionality to support a "hot seat" model,
one driver owns the car and another contributes to it by "using" it?

~~~
rconti
I wonder if Uber allows multiple drivers to use the same vehicle? I'm sure the
lease company wouldn't like it...

------
serge2k
How can they take a deduction from your paycheque for loan they helped setup
for a car that is intended to be used to work for them... but your are just a
contractor.

------
msoad
Uber had better tools than usual credit companies to lend to riskier people.
That's their advantage in money lending business.

------
mywittyname
Do these drivers still need to get expensive commercial insurance or commit
fraud?

------
chinathrow
Haha, even more like an employer...

