Uber’s subprime leases put drivers on road, but leave some shackled(seattletimes.com) |
Uber’s subprime leases put drivers on road, but leave some shackled(seattletimes.com) |
So, for 28 hours of work, the driver got a car (with maintenance covered) and a ~$16/hour salary on top. Without the car payment, it's a $21/hour salary. That's apparently a near-average week.
I seem to have missed something, because it looks to me like Uber leant her a car that enabled her to do a job that pays better than even the most ambitious minimum wage initiatives. It's pricy, but so were all of her other options with "terrible" credit. Where's the evil here?
She leased a 2015 Honda Civic, which has a rated fuel economy of 31 MPG.
Assuming she gets the rated gas mileage from her civic, she's buying 24 gallons of gasoline per week for 2.39 [1] per, costing her $57.
AAA gives an estimated 5.51 cents per mile for maintenance and tires [2], costing her $41.
So, take home pay after expenses is $604 - $160 - $57 - $41 = $346, or $12.3/hr.
IANAA, so I don't know which of these expenses qualify for deductions when she files. But an annual pay (after expenses) of $17,992 doesn't leave much wiggle room for paying for an accountant, assuming Uber indentured servitude is her only income generating activity.
0. http://infinitemonkeycorps.net/projects/cityspeed/
1. http://www.losangelesgasprices.com/
2. http://exchange.aaa.com/wp-content/uploads/2016/04/2016-YDC-...
Not quite. You only take off some of the employment taxes, not the income taxes (which you would still have to pay as a regular W2 employee). It will likely only be about a dollar an hour or so.
However the advantage of being self-employed is that you can deduct expenses such as fuel. (Which brings up another point...fuel will need to be considered when calculating net income).
I wonder if they count "hours of work" as hours with a passenger or as total hours driven. If the latter then she actually "worked" longer hours.
Even if its "hours with a passenger" its still too short; it really should be "hours in which other activities were foregone so that she could be logged in and ready to accept passengers".
So this is an actual hourly wage, but that doesn't mean that a move up to full time at the same wage is possible.
$16/hr with no insurance, no benefits, no nothing is NOT good pay. Yeah it's more than minimum wage but so what? Need I remind you she's driving, literally putting her life at risk at this job?
You really believe $16/hr for driving people around is good/reasonable/generous pay? Even $21/hr? Give me a break.
Add in the flexibility of the hours (most drivers I query list that as their #1 thing they like most), and the lifestyle provided seems very reasonable.
It's worth remembering that a lot of these folks are generally service workers. In their other work, they get paid shit (usually close to min. wage), they get treated like shit, and they are at the mercy of the schedule maker. That last point cannot be underemphasized: little fiefs of power bestowed upon the scheduler make for really ugly fast food office politics.
I'm just saying that this is probably not the full arithmetic for arriving at an ~$16/hr wage.
Gas and tire wear implies a ~$2/hour hit, roughly.
Tickets are presumably negligible for long-term drivers? Most people get <1 ticket per year, even with long commutes, and I assume that if you're getting ticketed very often with passengers Uber will drop you as a driver, the cutoff is low for that.
Accidents are hard to call - their 'cost' is basically whatever you pay in insurance (plus some adjustment for future insurance hikes if you file a claim). I don't know how the Uber-insurance thing shook out, so I can't speak to that at all.
The $16/hour wage is now at something like $12/hour (very roughly), but that's neglecting the benefits of having a car (I'm assuming most drivers with Xchange wouldn't have cars if they worked elsewhere, otherwise raise the effective wage by $5/hour).
But of course, that's part-time work. It's voluntarily part-time, but you can't scale up Uber driving arbitrarily - presumably you're already working the highest cash-flow hours and will see decreased hourly wages as you add less-profitable driving time.
So I'll stand by a claim that the money is pretty good, at least in <$10/hour minimum wage markets, but it's locked into a no-benefits, part-time status that prevents it from being an especially good living.
Extending credit to lower-income borrowers == good
Are we just talking about price (interest) here? You may not like the price, but prices exist for a reason and cannot be changed by diktat. Who gets prime vs a subprime lease isn't determined by some ethnicity or the religious sect someone belongs in. It's determined by the risk and size of the loan. Smaller loans have relatively higher fixed costs, driving up the up front fees or interest rate. They are also harder to recover and may have a lower residual value, all factors that go into determining the risk. People with little or bad credit history are also more likely to default. This isn't controversial.
What's the alternative? Stop extending credit to risky borrowers? Force lenders to lend to risky borrowers at subsidized rates funded by tax dollars or through coercion?
[Edit] What I particularly don't like about these articles is the obfuscation of financial matters. For instance,
> After dropping $250 up front for her lease of a 2015 Honda Civic, she pays $160 a week to Xchange. If she keeps the car for the full three-year term, she’ll end up paying Uber $25,210. The Kelley Blue Book fair purchase price for a new 2015 Honda Civic SE in Los Angeles is $18,142.
> Schmitt said she’ll need to pay Uber $5,000 or so more to buy the car if she wants to keep it at the end of her lease.
So basically, she's getting a $18,142 (PV) car paying $160 (PMT) a week for 156 weeks (N) and have to pay 5,000 at the end to keep the car (-FV).
PV: 18,142
PMT: -160
N: 160
FV: -5000
I (weekly) -> 0.1942% (weekly)
I (annual) -> 1.001942^52 - 1 ->10.615%
So basically she got a loan at 10%. Also, you have to factor in that she has an option to purchase which she can choose to exercise. I don't know why they don't just say as much.
If you think uber are overcharging for the vehicles, given the terms of the agreement, the risk they are bearing, etc. why not start your own offering which charges less?
No mileage penalties and no contractual obligation to the lease are huge benefits.
They just need to understand that the Uber lease should be treated as a short-term program.
https://get.uber.com/cl/xchange/ mentions pre-owned vehicles in addition to new ones.
"Vehicles requirements for Xchange Leasing program:
2009 or newer 75,000 or less miles no salvage, rebuilt or flood vehicle titles 4 full-sized doors minimum of 5 seatbelts (driver and 4 passengers) maximum amount financed $20,000 (subject to change)"
I would get the least expensive vehicle through Xchange, drive it to save about $3000, buy an Uber-qualified used vehicle, and enjoy life.
I could think of a lot worse things than a company giving someone a job and then offering them expensive tools to do it.
They cite a $96 average weekly payment for all Americans, and compare it to a $130 weekly payment for Xchange. The article's tone implies that I'm supposed to go "30% markup, shocking!", but it's comparing all borrowers to bad-credit borrowers. Knowing how other loans are priced, that seems like a pretty standard adjustment (especially for the easy-use terms of the lease).
I honestly had a lot of trouble finding the malice here. Yes, the cars are expensive, but it's like complaining about on the level payday loans as 'extortion' - the prices are set by a high default rate, not by some inexplicable market failure.
So not only is this expanding credit options, it's expanding labor options.
With regards to the figures at the end of the article. If Uber pays for insurance and repairs, it seems not a too prohibitive deal. If not the interest rates are well above 20%. Seems pretty sweet (for Uber).
But then again, a market rate of 20% for those without credit score isn't much worse that a credit card rate. And the LA-example comes through well above minimum wage.
If you walked into a car dealership and told them that you wanted to be able to break your lease with a couple of weeks notice and have unlimited mileage (with them understanding that you would be driving quite a bit) how much more do you think they would charge for that lease?
For low income earners? I wouldn't call it a positive exactly...
The pilots get a lease offer for the planes so they'll own one after 50 years. The estimated pilot salary after deducting lease payments will be $1245 per month.
We're also working on pilot-less planes. Once these are done, we'll take care of the remaining contractors by launching UberLavatory, which will lease public toilets to enthusiastic Toilet Managers.
May I suggest a rebrand to ÜberLü?
This is kind of par for the course for some chunk of car dealers. They have no qualms in getting someone to ultimately pay $30,000 for an $18,000 car of which the margins are normally extremely tight (2-3%) with profit being a very long tail of maintenance work orders. This one Civic, if she ran it to term and then bought it out, brought in as much profit as DOZENS of Civics.
My sister learned similarly many years ago. She ended up paying $26K for a $15K car, simply because she didn't do the math.
Although we'd like businesses to not engage in these kinds of deals, but unfortunately many businesses rely on these deals. I think the only decision more costly that people getting unwillingly put over a barrel for a car is people making poor retirement planning decisions and paying through the nose in fees (or buying what a "financial advisor" that is really a salesman at a bank is peddling) when there are far lower cost alternatives. It sucks, but it's true.
In one week in May, Schmitt earned $604 for 28 hours of
work, she said — a slightly better-than-average week.
Uber took $160 for the car directly out of her paycheck,
leaving her with $444.
Vehicles requirements for Xchange Leasing program:
2009 or newer
75,000 or less miles
no salvage, rebuilt or flood vehicle titles
4 full-sized doors
minimum of 5 seatbelts (driver and 4 passengers)
maximum amount financed $20,000 (subject to change)
Can you elaborate? I don't see how that follows.
I'll be interested to see if that can continue in the long term. Consumer finance is an industry with an incredibly high profit margin, probably a lot better than Uber's core business will ever be.
This seems to be a lot of people's answer. There's this weird claim that payday loans and bad car loans and similar are caused by "greed!" when the companies making them are operating at tiny profit margins. High default rates dictate high prices (which forms a vicious cycle, but that can only be broken from the outside).
The most 'predatory' thing about most bad-credit loans is the fee/repossession system, which tends to be sloppy and abusive because the borrowers are too broke to fight it. Uber has sidestepped that almost completely with a no-consequence termination scheme.
The push to ban or cripple access to low income loans can really only be justified in two ways. One is that these loans are somehow corrupt, but we're not talking about balloon mortgages here - these companies are dealing with principal-agent problems like the home lenders were, and they don't have profit margins to give up. The second is that low-income people are too dumb to make good decisions, so they take these loans. It's a patronizing stance that shouldn't pretend to be uncontroversial.
You don't need payday loans when your government provides proper social safety nets, and labor regulations that allow you to earn a living wage.
Payday loans are simply a symptom of the problem.
That's the weirdest part of me. People who drive for a living can and will put on 30k+ miles a year on a car. If they used this car for Uber work for the full three years as a driver, you probably wouldn't want the car anyway! It would make more sense to lease a new one to continue working for Uber or if you move on from Uber trigger the two week end lease policy and buy a new car. Or trigger the two week end policy and move into a car you financed under your own power.
I don't think all rates should be the same; the risks of default should be priced in to the finance or lease rate.
I agree "predatory == bad", so perhaps we could devise a system to (try to) ensure that the hit that subprime borrowers are taking is commensurate with the risk the lenders take. But arguably this is already done through competition (in lending in general, not specifically with this one-lease-company-only arrangement via Uber).
Maybe you can say we as a society should 'protect' subprime borrowers by banning lease/finance rates that are more than x% more than the best rate, and you tell sub-prime borrowers who don't meet the criteria, "too bad". But then lenders would game it by not lending to the best credit folks in order to extend down to the truly sub-prime.
Or it might flatten the rate spread between prime and subprime. Maybe this isn't an entirely bad thing; well-qualified buyers take a slight hit in order to subsidize those who are down on their luck. But then another lender comes along with better prime rates, and everyone who can swing it goes there.
Personally, I'm not really a fan of telling people they can't make their own financial decisions because "it's bad for you". Isn't this the opposite of what basic income proponents say? That we should let people be free to make their own decisions? We hear over and over that poor people make bad financial decisions (with the anecdata to support it... and some ACTUAL data and scientific research).. but there's also lots of data showing that people are best left to make their own decisions rather than some 'helpful' government scheme/program/regulation.
It is worth noting that without the current low interest rate environment, subprime loans would be a lot more expensive or just wouldn't not exist.
There certainly is a balance of responsibilities both among the borrower and the lender. Presumably the lender is the most educated of the two parties, especially in a sub prime situation where the borrower may not even be at a high school math level.
Lenders should not expect to be able to give extend unlimited amounts of capital and use a taxpayer funded legal system to recover it. Bankruptcy on the borrowers side is definitely a very important tool to keeping things somewhat fair. Most young people now see what a catastrophe that can cause in the case of student loans, a whole generation or two facing a very grim financial future short of massive inflation or winning the lottery.
Nothing is perfect and I imagine solutions will introduce their own downsides. Future car use probably won't even be a loan or a lease but rather a license to use a vehicle at a given time. That system could apply to a lot more than vehicles 10 years from now.
The problem with student loans is that you can't bankruptcy them out of existence.
Buy cheap economy cars that aren't upscale enough for a "real" used car dealer to have on the lot. Have your mechanic fix anything imminently wrong and put a GPS tracker in it. Require huge down payment (usually close to enough to break even) and/or absurd monthly payments. Hopefully you screw the customer out of a few months of payments before they can't pay, at which point you repo the car immediately and put it back on the lot for the next sucker.
In the case of my sister it was a franchised Toyota dealer selling new inventory. Not BHPH. She signed a 3-year lease on a Toyota Corolla with a ridiculous money factor component because they got her to simply focus on the monthly payment, then financed it for 6 years afterwards (again, by getting her to focus on the monthly payment) at a ridiculous interest rate despite a FICO over 720 by simply not shopping around (she agreed to 9.5% when 3% was easily available from many retail banks and CUs).
When I showed her what she could've paid instead if she had any patience and simply run the numbers, she was incredibly upset. Not with the dealer, but with herself for not doing the due diligence. That's ignoring the fact that she could've just bought a 5-year old one, because a Corolla is literally a dime a dozen (350-400K units sold per year in the US at the time).
This is my point. If you simple appear ignorant and lazy (not in a bad situation), there are plenty of businesses that will use that to their advantage. If you are in a bad situation, it's just more potential leverage for them.
Yes, some franchised dealers do this with new inventory, even to people with good credit. If they think they can make an easy buck off of you on account of your ignorance, some will take the short-sighted approach (not trying to earn a repeat customer) and try to do it. If you throw up your hands they'll come back around and try to close the sale on amenable terms and offer it however they do, to make the sale.
This is a pervasive myth, but, while they are harder to discharge than most other unsecured debt, they can be discharged in bankruptcy.
But the whole calculation of the money was based on the earnings of one driver in LA, which isn't a < $10/hour minimum wage market (California has a $10/hr minimum wage).
(And, after taking the employer-equivalent share of self-employment taxes into account, the pay is barely above the equivalent of a $10/hour employee wage.)
My quick+dirty calculation accounted for just the net added self-employment taxes, plus other differences like state unemployment, employer's share of health insurance, sick days, etc.
No, its not. If those expenses aren't reimbursed by your employer (which often they are), you can deduct them as a W-2 employee, as well, so there is no benefit on that point to being a 1099 contractor vs. a W-2 employee.
The overall point is well taken, though. There are several hits to real income for Uber drivers that aren't shared by other types of low-wage worker, and while "set your own hours" offers more upside than a normal part-time job, it's limited by how many high-demand hours there are in a week. Rather than extra overtime pay, I imagine hours past her current 28 would give steadily diminishing returns.
But, according to [0] (I'm not sure how accurate/reputable it is; again, IANAA), the deductible portion of $60452=$31,408 is only $2,218.90.
Gas at $5752=$2,964 already extends past that cap.
Assuming her income is taxed before the lease payments are made, and hits her full deductible, she's paying total taxes of $4,437.81
So, net after-tax, after-expense income - I didn't realize that about routine maintenance - is $604-$160-($57 - ($2,218.90/52)) - ($4,437.81/52) = $344 / wk, or $13/hr.
Compared to working multiple inflexibly-houred minimum wage jobs, it's definitely better.
But in no way is it lucrative, or even lower middle class.
> You realize that the people that demographics of people who like to drive for Uber are those coming from minimum wage jobs, who have none of the above either.
After deducting the portion of SE taxes equivalent to the employer share of payroll taxes (which isn't counted in employee wages), the wage is equivalent to $10.43/hr, which is only a hair above minimum wage in CA.
And, in CA, minimum wage earners are covered by mandates for unemployment coverage and, depending on employer, paid family leave and (since July 2015) paid sick leave.
That's not really true - one of the big advantages of driving for Uber is you set your own hours, so you can take time off whenever you would like.
Which is just barely above California's minimum wage ($10.00) today, and not (as suggested upthread) better than the most generous minimum wage proposals.
I'm not sure if you factored in commercial insurance for a leased vehicle which will be more expensive per month, compared to personal auto insurance for own car. Factoring the commercial/rideshare auto insurance in, will leave little wiggle room.
IIRC, the paid sick leave benefit in CA is prorated in amount based on hours worked, but still available to part time employees for those employers covered; unemployment coverage applies to part time work (weekly benefits are based on weekly earnings, so part-time workers get less benefit than full-time workers with the same wage); California disability insurance and paid family leave (the two are linked) are not restricted to only full-time workers.
There is when comparing hourly compensation in a role that provides no paid time off with hourly compensation in role that provides paid time off. For instance, a $10/hr that accrues 1 hour of paid sick leave for every 30 hours of work (the minimum for an accrual plan meeting California's paid sick leave mandate) is better paid than a $10/hr job that does not (the actual value is up to $10.33/hr, though restrictions on the use of paid sick leave may make it somewhat less but always greater than $10/hr.)
> "Paid" time off is as much of a lie as "employer" payroll taxes.
Employer-share payroll taxes are not a lie, either; they are both real taxes, and they really do not come out of your gross pay (they may reduce the gross pay the employer is willing to offer, but that doesn't make them "a lie", it just means they have other effects.)
The distinction probably was most critically important to people who had employment contracts in place that straddled the time when payroll taxes were first implemented, since the employee share was the part that the employee's reimbursement was reduced below the status quo ante, whereas the employer share was not.
Like paid time off, its important to keep the difference in mind when comparing employment that has employer-share payroll taxes (generally, W-2 employment) with employment that does not but instead pays the equivalent of both shares as self-employment taxes (1099), since the nominal pay of the two kinds of employments is not directly comparable without adjusting for the differences.
The effect (minimum wage employees not withstanding) is the same as if the entire tax was employee-share. It is coming out of the worker's pocket. Therefore the 'employer' part is a lie and mostly an ingenious way to hide the tax from the voting base (because unlike other taxes, it does not show up on your pay stub or tax return).
That said it's true that you need to take both these things into account in order to make an apples-to-apples comparison between self-employment income and a given W2 job. But that goes both ways, a $10.33/h job with unpaid time off is the same thing as a $10/h job with 'paid' time off and you have no reason to prefer the latter.
The newspaper is from Seattle, but the driver featured in the article whose numbers were used for the calculations in this thread was actually in Los Angeles.