Kenyan taxi operators who took loans to acquire the Uber Chap Chap cars are facing financial ruin as cut-throat competition takes a toll on the once lucrative business.
Gone is the mad rush to enter the business that runs on taxi-hailing apps despite the existence of car ownership deals.
Instead, despondency has set in as newspaper pages become awash with notices of intention to auction the cars for failure to service loans.
Kenya’s Stanbic Bank recently announced plans to auction 13 Suzuki Altos belonging to Uber taxi operators who have defaulted on their loans.
The move lifted the lid on the challenges facing taxi operators in a market characterised by rising competition, a tough operating environment and dwindling earnings.
The challenges have their origins in market leader Uber’s decision two years ago to lower fares as it sought to win more rides.
While this made sense in catering for its fixed costs—the app for which riders cede a quarter of every fare—it ignored the operating costs of the riders leaving them with little to manage overheads such as financing, labour and maintenance.
In the case of Uber Chap Chap, the service under which Suzuki Altos are enrolled, the interest rates were as high as 14 per cent.
The drivers acquire the cars at $8,224 but end up paying $10,342 for the 800 cc car, which cannot venture into rough or hilly terrain outside paved town roads.
Lost business hours
Marian Ochieng, Stanbic Bank head of vehicle and asset financing, said some drivers had fallen into distress because of lost business hours due to illness, road accidents and competition.
“Just like any lending facility, defaults are inevitable. The bank only gets to repossess the vehicles once engagement has taken place with a view to having the accounts rescheduled/restructured to avoid deterioration,” she said.
This approach, she said, had ensured 80 per cent of the drivers serviced their loans.
In Kenya, taxi-hailing app vendors are grappling with new entrants who have ignited a price war. There are about 10 taxi hailing apps in Kenya with Uber, Taxify and Little Cab battling for dominance in the market.
Drivers have also been accused of using counterfeit apps to defraud vendors and riders, who previously put in long hours to earn more, leading to a surge in accidents.
In the face of competition, Uber, which pioneered ride hailing apps in East Africa, entered into partnerships with financiers to lock in drivers.
While this enabled individuals to own cars, it left them exposed to loan defaults in the event of changes in business conditions.
In the first partnership in 2016 with Sidian Bank, about 150 drivers entered into the business under the UberX brand. Its success informed more ambitious lines of credit with Stanbic Bank, Barclays Bank, CMC Motors and Suzuki Motor Corp.
The partnerships enabled 516 drivers to obtain loans to acquire the low fuel consuming Suzuki Alto from CMC motors under the Uber Chap Chap brand.
“The terms of partnership with Stanbic Bank is to provide selected driver-partners access to vehicles through our vehicle solutions programme,” said Janet Kemboi, Uber spokesperson for East Africa. Uber drivers are independent contractors.
This arrangement has however, come under increasing pressure in the wake of two recent court decisions in France and the UK that treated drivers as fully-fledged contractors and recognising their labour rights, respectively.
In the deal, Stanbic Bank offers and facilitates a flexible lease to drivers using the Uber app that offers all the benefits of car ownership.
“This is data driven-lending with a view to having the drivers own the units at the end of the loan period. This essentially means that the drivers are partners and are in control of their own business,” said Ms Ochieng.