Uber Strikes Deal To Lower The Cost Of Car Ownership For Drivers

On-demand transportation service Uber is trying to get new drivers on the road, while also improving the experience for those who are already on its platform. To do that, it’s partnered with a couple of auto manufacturers and a few financing providers to reduce the cost of new car ownership for Uber drivers in six of its fastest-growing markets.

Over the past year, Uber has been aggressively expanding into new cities, enabling users to request rides via their mobile phone in more than 50 markets around the world. But the problem Uber faces today isn’t how to raise awareness of the service in new markets – it’s how to keep up with demand in cities that it already serves.

According to Uber co-founder and CEO Travis Kalanick, the number of rides requested by Uber users continues to accelerate, even in markets that it’s served for years. As a result, bookings and revenues have grown faster in 2013 than a year ago, increasing by more than 20 percent month-over-month in each of the last two months.

The majority of growth in revenues isn’t necessarily coming from cities that Uber is just entering, as they’re still small compared to more mature markets like San Francisco. Instead, it’s markets which have already hit scale that are driving the largest overall increase in revenues and bookings.

In some more established markets, Uber is struggling to keep enough cars on the road to meet the demand – and that’s a problem. It means cars either aren’t available, or if they are, there are longer wait times, and lower overall satisfaction with the service. Uber has tried to deal with this in the past by instituting surge pricing – which both curbs demand and ensures that drivers are more likely to continue driving at peak times.

But ultimately, the company knows that the only way to deal with that demand is to sign up more drivers. And one way to do that is by ensuring that they’ll have a car to drive if they’ve been approved for the Uber platform.

Ultimately, the only way to deal with demand is to sign up more drivers.

“We need to get hundreds of thousands of cars on the road,” Kalanick said. That would mean investing more than $2.5 billion into buying cars if it tried to pay for that growth itself. Instead, the company has partnered with a couple of auto manufacturers – like GM and Toyota – and struck a deal with auto financing companies to ensure that qualified drivers will be approved for financing rates that are better than they could get on their own.

Basically, it’s lowering the cost of entry for anyone who wants to be an Uber driver. Because the company can predict driver income, it’s been able to lock down better rates for those who have been approved to drive on its platform. According to Kalanick, a fully utilized vehicle on Uber grosses more than $100,000 a year.

“That robust, consistent cash flow means significantly less risk for a financing company,” he said. “It means reduced rates for a lot of people, and rates that they couldn’t get before.”

Uber drivers who couldn’t get financing before will now be able to buy their own cars. And those who could get financed will receive much better rates than if they tried to buy a car on their own. While terms of the financing will depend on the creditworthiness of each driver, Kalanick said drivers could expect to save anywhere from $100 to $200 on monthly payments, depending on the make and model of the car they’re buying.

Trialing In Six Cities

Who will qualify? At launch, Uber is trialing the program in six cities where it sees particularly high demand. Those markets are New York City, Boston, Philadelphia, Chicago, Dallas, and San Francisco. It’ll be available to those who already drive for the company, as well as drivers who might have been approved but don’t currently own their own cars.

Historically, Uber has partnered with the operators of black car services to use their cars and drivers. For those partners, the new financing offer will enable them to potentially upgrade their cars or expand their fleets of vehicles.

At the same time, the deal will empower more drivers to strike out and start businesses of their own as independent contractors for Uber. It could recruit drivers who might work for a cab company today, but would like to own their own vehicles. It could possibly steal away drivers who work for competing ride-sharing services like Lyft or SideCar.

But Kalanick sees the biggest opportunity for bringing on new drivers coming from those who are not already affiliated with other black car, cab, or transportation services.

By offering financing on just a select group of cars, Uber believes it will be able to add new drivers while still maintaining a standard level of vehicle quality across its system. Available models could include Cadillac Escalades and XTS Sedans for its more traditional UberSUV or UberBLACK service, and Toyota Prius Hybrids for its low-cost UBERx service.

It means reduced rates for a lot of people, and rates that they couldn’t get before. – Uber CEO Travis Kalanick

For this trial, Uber hopes to sign up thousands of drivers for the program over the next few months. And if things go well, it plans to open the financing offering up more broadly to drivers in other markets.

How big could it get? Kalanick sees the program expanding rapidly over the next 12 to 24 months, potentially reaching hundreds of thousands of drivers in that time.

And if Uber continues to grow the way that it has, it’s going to need them.