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cafebabe writes:

Before Uber lost its license to operate in London, the first half of Keiser Report Episode E1112: Uber Business considered the scenario of Uber's collapse. Figures are taken from a financial report but the hosts add startling commentary. Uber has lost about US$3 billion and more than 10% is due to bad car leases to Uber drivers. To maximize the number of available drivers, Uber arranged leases to 40,000 drivers. These are on generous terms, such as unlimited mileage, inclusive repairs and the option to return a vehicle with a US$250 penalty. Uber expected losses of US$500 per vehicle. However, with some vehicles accumulating 20,000 miles within six months, vehicles have depreciated to 1/2 of their showroom price. So, average loss per vehicle is US$9,000. For 40,000 vehicles, this is about US$360 million.

How did such an elementary mistake get so bad? Some tranches of funding have been provided by investment banks, such as Goldman Sachs, who charge fees for investment advice into high-tech shares (such as Uber), charge fees for brokerage services for shares (including Uber) and have have their own holdings in Uber. Although Goldman Sachs would presumably be "too big to fail", Uber certainly isn't. Enron collapsed after a peak market capitalization of US$80 billion. Without adjusting for inflation, Uber is worth about US$70 billion. However, much of this value is captured from a finite pool of taxi license "medallions". For example, a medallion for a New York Yellow Cab has traded above US$1 million. It is now 1/10 of that value and Max Keiser believes this is still over-valued due to ongoing market uncertainty.

Anyhow, in the scenario that Uber collapses, investment banks keep their fees. However, their holdings may require a bailout, may be offset as a tax loss, or in the worst case, they'll have to go through the grind of jubbing other shares to their clients. It would be trivial to slice 'n' dice US$720 million of subprime vehicle leases (total value, not the loss). However, if Uber is placed into administration, the situation is far less optimistic for drivers. Obviously, drivers lose a source of income. However, 40,000 drivers may incur unilateral changes to their lease arrangements. For some, they may have a lease on a vehicle that they cannot utilize and cannot return. This could bankrupt some individuals. Meanwhile, institutional investors would be largely unaffected.

Original Submission