Uber has agreed to create a joint venture that merges its car-leasing subsidiary with major taxi firm ComfortDelGro.
Uber has sold a majority stake in its Singaporean car-leasing subsidiary to cab firm ComfortDelGro. As part of the deal, the two companies have created a joint venture — valued at $474 million — which ComfortDelGro will control with its 51 percent stake.
Uber will own the rest of the car-leasing company, called Lion City Rentals, while ComfortDelGro will take over operations and maintenance of the 14,000 cars that were once on the ride-hail player’s balance sheet.
That’s a big deal for Uber, which is eyeing a 2019 IPO.
The $69 billion ride-hail company saw its losses jump nearly 40 percent to $1.46 billion in the third quarter of 2017, and it doesn’t expect to be profitable in some of its major markets, including Southeast Asia, for at least another six months. Cutting down on losses has been a major focus for newly minted CEO Dara Khosrowshahi, as it was for predecessor Travis Kalanick.
That’s partly what led to the company’s decision in November to merge its Russia business with local competitor Yandex.
Southeast Asia, by Khosrowshahi’s own admission, is not an easy market to crack.
“The economics of that market are not what we want them to be,” Khosrowshahi recently said. “I think it’s over-capitalized at this point. We’re going in, and we’re leaning forward. But I‘m not optimistic that market is going to be profitable any time soon.”
The difficulty of facing off against a strong competitor, Grab, has been compounded by the high cost of car ownership in the region. That has made it harder for Uber to translate its model of turning casual drivers into commercial ones, especially now that Singapore has put a freeze on private car ownership.
Uber’s initial value proposition for investors was its low overhead, but in places like Singapore and India, the company had to take on the costs of owning and leasing cars in order to maintain or increase supply.
Now, under the chief business officer of Uber’s Asia operations, Brooks Entwistle, the company is shifting its strategy.
Not only is Uber offloading the costs of operating these cars in Singapore, but the company will have exclusive access to Comfort’s approximately 15,000 cabs and expects to strike more partnerships with cab companies in the future.
That’s counter to how Uber has operated since its inception. The company has historically leveraged public dissatisfaction with the safety and efficiency of cabs to attract new riders.
But places like Singapore have a robust and often reliable taxi industry, and it makes more sense for the ride-hail company to partner with the cab companies. That’s partly why Uber competitor Grab, formerly known as GrabTaxi, started off as a taxi-hailing app and continues to work with a number of cab companies in Singapore, except for Comfort.
Still, running a leasing company hasn’t been without its problems.
Lion City Rentals and Uber recently faced a firestorm of criticism when a car under lease caught fire. As the Wall Street Journal revealed, the company knowingly rented out cars that were under manufacturer recall due to an electrical component that could overheat and catch fire.
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Author: Johana Bhuiyan
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