The Washington PostDemocracy Dies in Darkness

Uber’s program to help you buy a car sounds like a sweet deal. But it’s actually really risky.

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About a year ago, Uber announced plans to help drivers obtain the one piece of capital anyone needs to go into business as a transportation "entrepreneur." The company already provided its drivers with smartphones. Now all they needed were cars.

Since then, Uber has partnered with automakers and lenders to give apparently thousands of drivers the chance to finance discounted vehicles for use with the app. In theory, this has been good for Uber (the company gets more supply of the one commodity — drivers — it needs most). And it's good for drivers (they get access to vehicles they might not be able to finance otherwise, and at lower prices).

Valleywag this week, though, has a scathing story about the program, which Nitasha Tiku argues has been saddling ill-prepared drivers with the very subprime loans that may now be inflating a bubble in the auto market. In particular, Tiku writes, Uber has partnered with a lender — GM Financial and Santander Consumer* — that is currently under scrutiny from regulators for its lending practices. The Uber deal isn't part of any investigation. But the loans, Tiku writes, are of the same mold. And she points to a number of drivers who've felt deceived by them.

Uber is defending the initiative for saving drivers millions of dollars. But there's no doubt that the program bears one of the hallmarks of the earlier subprime crisis in the housing market: Uber is specifically marketing the program to people with bad or no credit. Haven't been able to get a car? Uber says it can get you one in hours:

There are several issues that are concerning about this beyond the terms of the loan. From Tiku:

In promotional materials, drivers are further enticed to take out loans with the promise that car payments "are automatically deducted" from their Uber earnings. Those automatic deductions probably sound harmless given that Uber CEO Travis Kalanick has claimedrepeatedly—that drivers in his leasing program can gross $100,000/year.
But when Kalanick launched the discounted deals last November, he told Bloomberg that loan program would help ensure that drivers spend more time working for Uber, instead of its rivals.

In effect, this automatic payment plan doesn't just incentive drivers to make money for Uber. It all but ensures that they won't drive for any of its competitors. It also locks them into a financial relationship with Uber for a longer period of time — loan terms are for more than four years — than the company has even been operating in most markets.

For a driver, that's a pretty big financial gamble on an industry that cities are still figuring out how to regulate (and whether to legalize at all). And it entails tremendous uncertainty, even where cities have embraced UberX. Weekly payments on an auto loan create fixed costs for a driver. But a driver's revenue may be beyond his control regardless of how many hours a week he puts in on the app. That's because Uber has already changed its pricing structure and the commission rate it charges drivers, multiple times. And it will no doubt change both again.

UPDATE: GM has said that GM Financial "does not have a formal partnership with Uber and does not participate in Uber's vehicle financing program."