Uber rethinks about car-leasing scheme

New Delhi: Global ride-hailing firm Uber is rethinking its car leasing strategy in India 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 — meant drivers could earn as much as Rs 1,20,000 a month.

Those incentive payments have been pared back, in some cases to as little as 10 per cent of fare income. Ride fares have risen to Rs 1.5 per minute of travel from Rs 1.

The incentives and the scheme aimed at drivers without their own cars, boosted Uber’s driver numbers, helping it rapidly gain around 30 per cent 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.

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 boss Amit Jain said the buying-for-lease scheme was being temporarily suspended while the firm evaluated its strategy, one of the sources said.

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

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

In a recent post on the website, Mr Jain defended the cuts to incentives and signaled a strategic shift for India. “We can shift from start-up mode to a more sustainable business model,” he wrote.

Leasing is only a small part of Uber’s overall supply, but is seen as a way to lock drivers on to its platform for longer.

To lease a new small car through Uber’s scheme, drivers pay a Rs 33,000 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 3 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 drivers said they feel trapped as a surge in the number of cars on Uber platform has led to fewer rides making it harder to keep up lease payments.

When Reuters phoned Xchange Leasing, Uber’s local leasing arm, officials said that 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.