Although many banks, insurers and OEM financing arms thought this would be a promising sector, ride-hailing might be starting to show its true colors when it comes to financing. Long-maturation loans, coupled with the informality and risk of the type of client applying for them, has led some companies to mistrust the associates of these platforms
Ride-hailing services changed the game for OEMs, distributors, financing companies and insurers, all of which had to adapt their offering to cater to an emerging type of user. Financing firms, in particular, took note of the success of these platforms in the country and most have implemented aggressive strategies to attract these players. “The success of companies such as Uber and Cabify was one of the pillars supporting NR Finance México’s development,” said Rafael Portillo, Director General of NR Finance México in an interview with Mexico Automotive Review (MAR) 2017. “These contracts represent 13 percent of the company’s portfolio.”
As the main automotive brand in the country, Nissan quickly became the preferred choice for ride-hailing drivers. Versa became the No. 1 car for Uber and Cabify associates, which justified the faith the company put in this market and strengthened Versa’s position as the most popular light vehicle in the country. For a while, it all worked fine. The overall domestic market was growing at double-digit rates year on year, fueled by attractive financing conditions and special deals for potential owners, which meant companies were enjoying an unparalleled time of success.
Nevertheless, some industry leaders were already aware of the risk that such aggressive strategies would have in the long term, especially when oriented to a segment of the population that needed more time to pay back the loan and that in many cases did not have the collateral to back a loan, as is the case with many applicants looking to work with a ride-hailing platform. “Almost 70 percent of all new vehicle sales are financed and each year more and more clients choose plans lasting 48 to 72 months,” said Gerardo San Román, Head of Latin America at JATO Dynamics, to MAR 2018.
This development helped change the dynamics of the market, moving the country into a period of contracting sales that were also hit by high interest rates and economic uncertainty due to the political climate in Mexico and the US. “We are finally noticing the effects of this financing strategy; the market cannot sustain such growth levels indefinitely,” said San Román. In his interview with MAR 2018, San Román said this process is completely natural and urged company executives to not think about stabilization as something bad for the country or the industry. However, a new condition has arisen that threatens financing companies that already have to deal with these contracting numbers.
In an interview with El Economista, Portillo said NR Finance has chosen to terminate its financing plan for ride-hailing drivers, even though the company sold 70,000 contracts between 2017 and 2018 to these clients. “This is the riskiest plan,” he said, specifying that 6 percent of the clients have vanished while 25,000 are still paying but under an overdue scheme. Portillo said that part of the problem was a change in Uber and Cabify’s screening process. Before, these companies required applicants to present a letter that showed they did not have a criminal record. The condition was later eliminated from the hiring process and that is when NR Finance started seeing an increase in user fraud. Insurance also became a problem after the accident rate rose among these drivers.
Insurers were among the players that jumped onto the ride-hailing bandwagon, including companies such as AXA, which established a partnership with Uber to insure all its cars in Mexico except for those in Mexico City. “If the industry is coming up with new mobility solutions, we must adapt accordingly,” said Santiago Fernández, Executive Vice President of Vehicles, P&C and Health at AXA México to MAR 2018. “Although it is still a small part of our business, this represents a major step in terms of innovation and an opportunity to build future strategies with Uber or other mobility service providers.”
Others like ANA Seguros learned to be more skeptical of the benefits that ride-hailing platforms could bring to their business after realizing the risk related to these users’ accident rate and the lack of involvement from Uber and their competitors in the service offered by drivers. “When ride-hailing services arrived, we insured private drivers as regular vehicle owners because these platforms advocated good driving habits,” said Barba to MAR 2018. “The idea was that drivers would transport people around as a way to complement their income rather than making a job out of these services. That has changed; vehicles are no longer in optimal condition and there are people who employ 15 drivers or more.”
According to Portillo, the ride-hailing business has become so risky that insurance premiums have risen to almost MX$50,000 (US$2,600) annually from MX$12,000 (US$620) per year. “Today, premiums have incremented fourfold for ride-hailing drivers or they are simply not good business anymore,” he says.
The data used in this article was sourced from MAR 2017, MAR 2018, AMDA and El Economista.