Hire purchase deals on cars for e-hailing rider businesses... Why is it hard to get in Lagos?

Aug 18, 2018 By Alex Okoh 35 Comments

What is a hire purchase deal?

A hire purchase deal is one in which a car owner or financier gives a car to a partner driver for a certain amount on some sort of lease. The partner driver will be expected to pay a certain amount periodically (weekly or monthly in most cases) until the entire hire purchase amount is paid and will also be expected to take full responsibilities for repairs and maintenance.

Penalties most time are applied for defaults in payments. This could be an interest penalty, demand for payment from guarantors, or outrightly loosing the car and all payments made from the start of the contract.

So, the big question is how realistic are hire purchase deals with the current e-hailing ride prices in Lagos today?

The most popular e-hailing rider apps in Lagos are Uber and Taxify. There are others like OgaTaxi, RideMe, DropRider amongst others.

A breakdown of driver earnings across all these platforms weekly is as follows;

  • Average earning after commission deductions - 70,000 NGN
  • Fuel costs (for 1.8l engine cars) - 25,000 NGN
  • Pone calls and data - 5,000 NGN

This leaves the partner driver with a balance of about 40,000 NGN. Out of this the driver is expected to pay the owner of the car some money, save money for repairs and maintenance of the car and take something home as his/her wage.

Let us assume the following breakdown of the weekly balance of 40,000 NGN;

  • Payment to car owner - 25,000 NGN
  • Savings for repairs and maintenance - 5,000 NGN
  • Take home wage - 10,000 NGN

Two things to note here;

  1. A regular privately employed driver in Lagos earns a minimum of 45,000 NGN weekly and works less than an e-hailing app driver who probably works 10 to 12 hours 7 days a week. The former earns more than an e-hailing app driver.
  1. For the car owner, he would averagely spend 2.6m NGN to get a tokunbo (imported fairly used) 2006 Toyota Corolla with registration and insurance included. This means at 25,000 NGN weekly, he would make 1.3m NGN in a year (assuming there are no issues, like the partner driver being sick or major downtime on the car).

This implies that it will take a minimum of two years to get back the starting value of the car. For starters, this is too long to wait to break-even.

The big questions now are;

  1. How much does he give the car out as the hire purchase price?
  1. If he doubles the price of the car, will a partner driver be willing to drive a car for four years before he owns it?
  1. Will a partner driver even agree to a 3 or 4-year hire purchase contract knowing fully well that there will be so many issues in-between especially as the car gets older and wear and tear is higher with increasing maintenance and repair costs?

Hire purchase deals were more realistic when partners drivers could afford to pay between 50,000 and 60,000 NGN weekly. That way the car owner gets back the value of the car within a year and subsequent money made is the owners’ profit over time.

Hopefully, over time, the e-hailing business space will become as profitable as it used to be and then partner drivers can afford to get more hire purchase deals.

 

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