Uber And Goldman Now Leasing Cars To Broke People Because Good Ideas Are Boring

Goldman Sachs + Uber + subprime auto leasing = What could go wrong?
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Aside from regulation, competition, labor hassles and an unquenchable thirst for cash, Uber really only has one problem: a need for more drivers with their own cars.

Uber.GoldmanSachs

But like all of it's so-called "hurdles," the Ayn Rand-themed car service that lives on your phone has a brilliant plan to put new asses behind new wheels. Per Bloomberg...

In a deal led by Goldman Sachs, Xchange received a $1 billion credit facility to fund new car leases, according to a person familiar with the matter. The deal will help Uber grow its U.S. subprime auto leasing business and it will give many of the world's biggest financial institutions exposure to the company's auto leases. The credit facility is basically a line of credit that Xchange can use to lease out cars to Uber drivers. 

Two generally "beloved" entities getting into a subprime lending market? Why didn't this happen before?

Xchange caters to people who have been rejected by other lenders. The program is run by Andrew Chapin, who pitched it to Uber Chief Executive Officer Travis Kalanick in 2012. Before joining Uber, Chapin was a Goldman Sachs commodities trader. He oversees all of Uber's auto-financing efforts, including a partnership with Enterprise Rent-A-Car and vehicle-purchase discounts. "I want the driver to get an option that is best for them," Chapin said. "I try to provide a menu of options that the industry thus far has not provided."

And by "a menu of options" for "people who have been rejected by other lenders," Chapin means this:

The terms of an Xchange lease run 28 pages. Drivers pay a $250 upfront deposit and then make weekly payments to Uber over the course of the three-year life of the lease. As the video promoting the arrangement puts it: "The best part: Payments are automatically deducted from your Uber earnings." At the end of three years, Uber keeps the $250 deposit to release the drivers from the lease. If they want to buy it, they'll need to fork over the residual value of the car, which could run many thousands of dollars. Uber declined to provide an average figure.

Aside from "disrupting" the literal definition of the word "deposit," the loan is based on high weekly payments designed to make lessees drive for that cheddar. All of which, of course, inevitably leads to this:

Xchange was a solution to Shawn Hofstede's money problems at first.
Hofstede, 30, started driving for Uber in the Dallas-Fort Worth area last year, using his own car. But then, during an accident on his own time, he wrecked the car and was left without the income. "I was literally screwed," he said. Then Uber e-mailed him about its financing options.
He leased a 2016 Toyota Corolla from Xchange in November, paying $155 a week. Two months later, Uber slashed fares nationally. Soon Hofstede had trouble keeping up with his payments. He went from making $200 in a weekend to $140 in a weekend, he said. "It got to the point that I would drive just to meet my payment," he said. "If you were short on your payment for a week it would roll onto the payment for next week. It starts adding up."
Eventually, Hofstede gave up and stopped driving. He said he told Xchange to come get the car several times. That was in February. "I felt trapped, and then I said, 'F--- it,'" he said. "I'm not paying them."
It was no secret where the car was; Uber had installed a GPS tracker on it. For a while, Hofstede left a note on the Corolla that read, "Dear Uber, thanks for coming to pick up the car. Call this apartment, and I'll come out and give you the keys." After two months passed, he stopped putting the note out. One April morning, Hofstede woke up and the car was gone; it had been repossessed overnight.

Throughout the Bloomberg piece, loan experts refer to Xchange's rates in glowing terms ranging from "Pretty expensive" to "Predatory." And the reporters illustrate that point with stories of other drivers that found themselves underwater on their car payments before even leaving the lot.

Uber's defense seems to be that Xchange will lose money over the long-term, but that doesn't really appear to jibe with Goldman's involvement in the aforementioned $1 billion investment. Even sweet-talking Travis Kalanick can't get Goldman to throw money at his staffing shortage...can he?

But it does make sense for Uber to keep this up, at least until Travis can get his robot drivers out on the road. After all, robots have no problem driving around the clock to pay off those rapacious weekly payments on a subprime car loan designed to benefit only the company that funded it.

Inside Uber’s Auto-Lease Machine, Where Almost Anyone Can Get a Car [Bloomberg]

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