Uber’s troubles are growing, the ridesharing company has been trying to sell its Xchange Leasing program to Fair.com, The Wall Street Journal and Engadget reported.
Xchange offers vehicle leases to Uber drivers, and it was not making money. A problem with the service; was that the leases were paid from the drivers’ earnings which are often pitiful. Many of the drivers were simply not making enough money to pay the lease from the fares.
Tellingly, Uber had to buy a stake in Fair.com in order to get rid of the leasing scheme, Endgadet reported. Fair is a website that leases cars without commitment. Fair’s leases are supposed to cover many of the expenses vehicle operation such as warranties, roadside assistance, routine maintenance, and insurance.
Is Uber’s Business Model Sustainable?
Uber apparently had trouble unloading Xchange Leasing, several potential buyers including billionaire Carl Icahn and Avis Budget Group (NASDAQ: CAR) refused to touch the program. That calls Uber’s whole business model into question.
If the Uber leases cannot sustain themselves, can Uber sustain itself? An interesting reason why Uber might have wanted out of Xchange was to limit the number of Uber drivers so it can charge higher fees. Xchange might have been attracting poorer, lower quality drivers that damage the brand by repelling customers.
This is a sign that Uber’s new CEO Dara Khosrowshahi is trying to limit the breakneck growth, and trim the size of the business. Another sign of that is Uber’s decision to effectively pull out of Russia in November.
The company has merged its business in that country with a taxi service owned by Yandex, Engadget reported. Under the deal, customers will be able to book vehicles through both Uber and Yandex’s apps in the Russian Federation. That allows Uber to make a gracious exit from the market.
Something else that undoubtedly shrink is Uber’s valuation. There is no way this company can be called the world’s most valuable Unicorn (pre-stock offering company) if it keeps trimming its operations.
UberEats is growing
There is one bright spot in Uber’s ecosystem – UberEats. The takeout delivery service is growing faster than the ridesharing solution in 19 European cities, Business Insider reported.
More importantly, Uber Eats might actually be making money. The Financial Times claimed the service is on track to do $3 billion in sales by the end of 2017. UberEats might also be capable of generating float with a subscription plan.
It goes without saying that UberEats can easily be adapted as a delivery service for groceries and other products like retail stores. That would put Uber in a good position to cash in on the growth of same-day delivery. Uber has been experimenting with grocery delivery from Kroger’s (NYSE: KR) Harris Teeter stores in the United States.
To survive Uber might have to change its whole business model and start hauling goods instead of people. There are potential flaws in Uber Eats; including low pay which might make it difficult to attract or keep a labor force. Uber Eats also faces strong competition from GrubHub (NYSE: GRUB).
Uber is facing a struggle for survival. Vast changes at the company will be needed to just keep it in business in 2018.