Didi and Uber have pioneered the sharing economy in China, and with their all-out competitive melee finally resolved, they can focus on doing what they haven’t yet been able to: turn a profit using one of the world’s newest and most exciting business models.
But how disruptive is the ride hailing business in China really? Agreements with rental companies, dual-user accounts and predatory loans all point to a less impressive reality: Didi and Uber are struggling to build a profitable ride-hailing model, and now they’re playing a big role in rebuilding the industry they set out to disrupt.
‘Drive-To-Own’ Programs: Introducing The Brand New, Revolutionary… Taxi Business
The idea is this: a driver who wants a car signs a two or three year contract with the company to receive a vehicle lease, and in return the driver will pay a three to four thousand monthly fare–termed a ‘revenue sharing arrangement’ (sharing is still the magic word here). Sound oddly familiar? As the contract ends, the drivers, who are considered Didi employees, close with a one-off payment, before the car (but not the license) is theirs for keeps.
What started as a pilot program launched several select cities is spreading it own wings, and in many localities, car dealerships are introducing their own packages, offering an account registered under the dealership, a handful of models to choose from, an option to bail out at any time, and possession of the car in two to three years (according to our math).
Mr. Shen, a car dealer in Zhejiang province told Technode that such programs are more like final call for anyone who wants to join the Didi bandwagon.
“As the regulations roll out, Didi’s business has to be more standardized, more and more like a taxi company, they won’t allow just anybody with a car to join, the vehicle has to be registered under [a company like] us.”
Sign on plans advertised in driver chat groups pitch the same: “for 4888Rmb a month, this is the best deal you can get before regulations fall into place.”
According to Mr. Shen, it doesn’t actually matter if you take passengers on Didi or Uber, as long as you pay the monthly installments. “Several cities have come out with quotas for online cars. Better secure a slot early so you at least have the choice (to drive for the platforms), ” he said, referring to different local interpretations of the recent draft regulations.
Didi spins this initiative as a way to lower thresholds for drivers without a private car to work for the platform, creating jobs and enabling fair access to opportunities. The drivers who have signed on don’t see it that way, especially as subsidies dwindle.
“I signed up for a 3 year deal, but with the kind of subsidies I’m getting these days, I don’t know how I’ll cope…I’m paying 4500 a month. ” grumbled Didi driver Mr. Li, in Beijing, behind the wheel of his rented black BYD sedan. He’s making 8,000 yuan (1198 USD) monthly before gas and rental fees, a stark downgrade from the 16,000 yuan he was making three months ago when he first joined and the subsidies were lush. “I’m working 12 hours a day just to make ends meet”, he sighed.
A sense of exploitation is mirrored in Uber’s Xchange car leasing program, which launched last year in the U.S.. In a Bloomberg report, auto finance experts said that the plan was “predatory” and that the terms were more about profiting off drivers than increasing the number of Uber vehicles.
‘Strategic Cooperations’ With Rental Agencies
When Uber froze Chen Shuai’s account, he had reason to fidget: he was paying 8000 Rmb a month to rent his Roewe 550, and each day he wasn’t taking on passengers, money was going down the drain.
Mr. Chen’s attempts in the following month to reason with Uber staff was fruitless, with customer service replying that it was up to advanced back-end teams. Out of desperation, he turned to his car rental company, eHi car services, as a last resort, and to his relief they seemed to have a solution.
“The ‘driver manager’ said eHi had friends in high places, and they could contact Uber to reactivate the account, for a price: 700 yuan”, recalled Chen.
Later, the manager came back with the diagnosis–there were multiple drivers sharing one account, a breach of Uber’s rules. Miraculously, his account was reactivated a few days later, only to be deactivated again. This time his rental company shrugged off his predicament, though another rental company approached him to offer help – for 700 yuan.
Though both Didi and Uber have denied that car rental companies have any access to manage accounts from the back end, Another driver in Shanghai, Mr. Ye, corroborates Chen Shuai’s story. “There are people who specialize in this”, said Mr. Ye, speaking from his personal experience, “all I need to do is holler in the chat groups about my frozen account, and people will approach me with a price and offer to help me out.” He also had his account unfrozen by his rental company, though he says its unclear what these people had in association with the platform.
When Didi announced an official entrance into the car rental business on Friday last week, reiterating its light asset approach, eHi was mentioned as a case in point, in other word, they would be renting eHi’s cars.
The platform said it would collaborate with rental companies in vehicle sources and management. With uncertainties in local regulations, Didi and Uber’s most reliable partners are car rental companies, who owe much of their revenues to platforms.
It seems that in a few years, most of the Didi or Uber drivers on the roads could be employed through a rental company- they already seem to be very much managed by them. In that sense, wouldn’t that just be putting the disrupted taxi scene back together again?
Who’s Really In The Driver’s Seat?
In the age of car hailing, that should be a no-brainer. Your driver’s personal details should be stowed safely away in a server someplace, and some of those details should be at your fingertips: his phone, license plate and part of his name. Or is it?
In some cases, there’s a significant chance that the person behind the wheel is not registered with the platform – untraceable should they commit a crime, and impossible to lodge a complaint against.
Both Mr. Chen and Mr. Ye, for instance, both admitted to sharing an Uber account a few months back. “eHi had us covered, they registered our accounts for us, and we would be paired up with another driver taking shifts, ” said Mr. Chen.
“But that was before the platform had explicit rules against it,” he added.
According the Mr. Ye, both the drivers and car rental companies have every incentive to bend the rules. The cost of renting a car in Shanghai ranges from 6500 to 8000 yuan, that’s a lot for one driver pay off alone. If getting two people to share one vehicle and one account means that rental companies can rent out more cars, they will hand you the keys with a wink and a nod.
With lowered subsidies, for many local drivers, it no longer pays off to stay in the game. Mr. Li told us that over half the people in his driver WeChat group were pursuing better paying work. But a 6000-8000 yuan monthly salary is still attractive for those from surrounding second and third tier cities. For drivers with out-of-town plates, a local plate and matching identity is just a few hundred kuai away.
Mr. Ye introduced Technode to an account ‘scalper’, who charges around 700 yuan for a Shanghai license-plated account, no additional paperwork needed. However, this scalper declined to reveal the origin of his accounts.
If you’re not as resourceful as this scalper, Taobao runs rampant with pseudo account services, which guarantees a swift and and solid solution to difficulties across the board: insufficient driving experience? Driving a dated model? Is the platform giving you lower pecking order because of your out-of-town license? All that can be taken care of within a few hundred yuan, and with a pseudo identity, you could be an ex-convict for all that the these troubleshooters care.
Didi’s acquisition of Uber China lifted the curtain for the ride company’s post-unicorn era., and it deserves credit for many things: gobbling up its fiercest competitor, building a better government relationship (including snagging a ministry of transportation officials to become their vice president), and successfully lobbing for a nationwide green light on their business model.
But what it has yet to do, like many others before, is come up with a solution that is substantially beneficial to all parties -drivers, passengers, rental companies, taxi businesses and local gov’t all without relying on cash as fuel.
Based on an original article from Technode Chinese site.