So it turns out that Uber isn’t just a neoliberal bulldozer, dismantling restrictive practices, labour codes, tax regimes and all that – according to this article at ValleyWag, it’s also a subprime bubble waiting to happen. Uber’s problem: hiring new drivers isn’t fast enough, especially drivers with fancy cars – and that $17B valuation won’t justify itself. So the company has to reach out to participants who couldn’t normally play, especially people with poor credit (other groups are targeted: veterans, for instance).
So, last year, they teamed up with big auto lenders to offer subprime loans to all comers. And they say it’s really not a problem because these drivers will be able to afford their special rates (which will be a click or two below normal subprime rates) because of that massive new Uber income. It’s not clear how many loans have been written, nor how many have gone bad, but I don’t need to tell you where this is going.
Uber isn’t the lender (that’s Humongous Auto Credit Co. or whoever), takes on no liability and isn’t even claiming a commission – this is purely about adding drivers fast. And, remember, Uber drivers aren’t staff. They don’t even have contracts. To fire a driver, somebody at Uber just swipes left. Blocked.
So, to recap: Uber, a privately-held business, is driving a boom in subprime loans, in as many markets as it can. That epic valuation won’t allow Uber management to take their foot off the gas any time soon and, incidentally, they’re perfectly insulated from the downside by these arms-length deals with lenders. This is just in ride sharing, of course – as Uber moves into other activities they’re going to need to bring on a lot more eager disrupters. It’s going to be ugly.
BTW, I met Martin Wolf the other day, my absolute favourite media economist – at Radio 3’s Free Thinking Festival. He doesn’t like ‘neoliberal’. There’s nothing neo about these robber barons, he says. They’re old-fashioned 19th Century liberals, rebuilding an old-fashioned 19th Century liberal economy, complete with increasingly vulnerable, un-tenured employees; opaque, unaccountable, ownership structures and captured legislators.
The Valleywag article linked above links on to an admiring Fortune piece and to a short Bloomberg item from when the scheme was announced a year ago. According to the FT they’re planning to look for another $1B at a higher valuation too.