According to the Wall Street Journal, Uber is reportedly in the process of selling its auto-leasing business known as Xchange Leasing, which has drawn criticism for taking advantage of drivers with poor credit histories.
According to an anonymous source, Xchange is set to be purchased by the car-lending marketplace Fair.com. The move is said to be part of a new approach taken by Uber’s CEO Dara Khosrowshahi. Khosrowshahi plans to take the company public in the next few years and is trying to repair its reputation with the public and the company’s drivers.
Uber began offering auto leases, as opposed to auto loans, through Xchange as a way to bring in new drivers. The program was designed for high-risk borrowers who otherwise would not have access to a car. Drivers could lease cars through one of 14 different dealerships and after paying an upfront fee of $250, their weekly payments were deducted from their paychecks.
But after launching the program in 2015, company executives discovered it was much more costly than they had anticipated. Uber began to lose roughly $9,000 per car which is significantly higher than the $500 average the company had expected. On an extra note, since the drivers were trying to pay off their loan payments, they took on longer shifts which put more wear on the vehicles, thus lowering resell value.
According to finance professor David Kass, Khosrowshahi is leading the company in a new direction by cutting the losses and focusing on profitability to prepare for their initial public offering in 2019. Based on figures obtained by the Wall Street Journal, Kass speculated that the Xchange program may have cost Uber around $270 million.
On top of finances, the program quickly became controversial for other reasons. Critics accused the leasing program of being “predatory” and took issue with the fact that the company took money directly from the drivers’ paychecks – similar to wage garnishment.
This isn’t the only controversy involving Uber.
Khosrowshahi took on the position of CEO in August of 2017 after the previous CEO and company co-founder, Travis Kalanick, resigned last summer. While Kalanick was extremely focused on the growth of Uber, his unconventional style led to a number of public controversies.
At any rate, it is unknown what Fair agreed to pay for the sale but the Wall Street Journal reported that with over 30,000 available vehicles, the company was valued at around $400 million. And according to sources close to the deal, Uber plans to take an equity stake in Fair. They will also give new drivers access to Fair through the Uber app.
Both Uber and Fair declined to comment on the pending deal but it will likely be finalized early in 2018.