After Burning Through Millions, Uber Reviews Leasing Scheme

Uber has rolled out its latest version of the driver app in India.
  • Uber cuts driver incentives, raises ride fares
  • Drivers return dozens of leased cars early – sources
  • Uber falls short of 2016 target to buy, lease 15,000 cars
  • Suspended lease scheme in December; reducing inventory

Global ride-hailing firm Uber Technologies is rethinking its car leasing strategy in India, its second-biggest market, as drivers have returned dozens of leased cars early after the company cut incentives, people familiar with the matter told Reuters.

Uber had planned to buy 15,000 new cars last year and lease them out in a bid to attract more drivers – a strategy it has used in other markets – but it suspended the scheme for a while in December after leasing just a third of that total.

After burning through millions of dollars over three years in a battle for market share with local rival Ola, backed by Japan's Softbank, Uber has cut the incentives it gives to drivers and raised the fares it charges passengers.

The incentives – from free smartphones to cash bonuses worth as much as double a day’s fares – meant drivers could earn as much as Rs 1,20,000 ($1,838) a month. Those incentive payments have been pared back, in some cases to as little as 10 percent of fare income. Ride fares have risen to Rs 1.5 per minute of travel from Re 1.

The incentives and, to an extent, the leasing scheme aimed at drivers without their own cars, boosted Uber's driver numbers, helping it rapidly gain around 30 percent market share.

Uber has faced challenges elsewhere in Asia, but the stakes are high in India’s $12 billion taxi market, a key area after it exited China last year, and one where CEO Travis Kalanick has said it expects to be profitable soon.

Uber has said its services are in 29 Indian cities and it has more than 2,50,000 drivers on its platform, but it lags Ola, which says it operates in more than 100 cities with about 5,50,000 drivers.

Also Read: Angry Ola-Uber Drivers Want to Start Their Own App in Bengaluru

Uber India Wants to Be a 'Sustainable Business'

Two people with knowledge of the matter said Uber miscalculated the impact that the reduced incentives would have on drivers' earnings, especially those making lease payments.

At an open meeting for staff in December, around the time the incentives were being reduced, Uber's India chief Amit Jain said the buying-for-lease scheme was being temporarily suspended while the company evaluated its leasing strategy, one of the sources said.

Uber did not comment on Reuters queries related to Jain's announcement or the impact of the incentives cuts on its leasing programme.

Raj Beri, business head for leasing in India, said the scheme was set up to help drivers without cars get on its platform and make money. He said:

We are very pleased with our progress towards this goal so far and look forward to introducing the opportunity to more prospective driver partners this year,” he said in a statement.

In a recent blog post on Uber's website, Jain defended the cuts to driver incentives and signalled a strategic shift for India. "We can shift from start-up mode to a more sustainable business model," he wrote.

Also Read: False Hopes & Few Perks: A Glimpse of Ola, Uber Drivers’ Plight

‘No Benefit in Leasing’

Leasing is only a small part of Uber's overall supply in India, but is seen as a way to lock drivers on to its platform for longer, and stop them switching to Ola.

To lease a new small car through Uber’s scheme, drivers pay a Rs 33,000 ($499) deposit – less than what they would pay to buy a car from a dealer with a bank loan. But weekly payments of about Rs 5,500 over three years add up to nearly double what drivers would pay to service a car loan.

That wasn't an issue when incentives were high.

Several Uber drivers said they feel trapped as a surge in the number of cars on Uber's platform has led to fewer rides, at a time when incentives have been cut, making it harder to keep up lease payments.

Arjun Chouhan, 38, an Uber driver in Delhi who has leased a car I’ll not be able to save even Rs 10,000 a month, there’s no benefit in leasing, what if I’m unwell? They don’t listen.

Also Read: Ola, Uber Strike: Drivers to Gherao Transport Minister’s House

In a dusty car lot on Delhi's outskirts, guards told Reuters that dozens of cars standing idle belonged to Uber and had been returned by drivers.

When Reuters phoned ‘Xchange Leasing’, Uber’s local leasing arm that has an office near the car park, officials said no new cars were currently being leased out. One said the priority was to lease those cars returned by drivers, and it could be 2-3 months before new cars would again be offered.

An Uber spokesman said the company doesn't comment on "anonymous speculation".

As part of its review, Uber may reduce the three-year lease term and let two drivers share the rent on a car, one of the sources said.

Uber did not comment on its leasing targets or the future of the scheme.

"People left well-paying jobs to drive an Uber," said Sandeep, another Delhi driver, adding his monthly ride income has nearly halved to Rs 60,000 in two years, despite working longer hours.

(Published in an arrangement with Reuters)