Ride Sharing

Uber Begins Retreat From German Market

Uber shown in a smartphone display source dpa
Uber, where shall we go?
  • Why it matters

    Why it matters

    The pullback is the latest blow to Uber, a company that in Germany faces opposition from unions, courts and traditional taxi firms as well as increased scrutiny from European regulators.

  • Facts

    Facts

    • Uber intends to concentrate on its business in Munich and Berlin.
    • In Germany, it’s difficult to become a successful, self-employed entrepreneur by using a personal, private vehicle.
    • San Francisco-based Uber has an estimated market value of $50 billion.
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    Audio

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Internationally, Uber is a giant but in Germany, it’s having a hard time – because of a lack of drivers.

The U.S.-based ride-sharing company has announced that it plans to suspend service in Düsseldorf, Hamburg and Frankfurt from November 9. The digital platform that connects riders and drivers intends to concentrate on its business in Munich and Berlin. The reason for the company’s cutback is simple: Uber can’t find enough drivers who are able to pass the country’s stringent tests.

With an estimated market value of $50 billion, Uber is more valuable than automaker Fiat-Chrysler. Uber’s investors include Google and Goldman Sachs.

Uber says the pullback from the three German cities is temporary. No more rides will be arranged through the app there, and Uber says its customary quality of service couldn’t be guaranteed in the cities because of the lack of drivers.

The reason is that ever since the UberPop service was banned by the courts in Germany, private individuals can no longer drive their own cars for Uber.

The reason is that ever since the UberPop service was banned by the courts in Germany, private individuals can no longer drive their own cars for Uber.

Following opposition from Germany’s taxi businesses and protests that anyone driving should have the appropriate – hard to obtain – qualifications, Uber provided its ride services mainly via registered taxis.

The UberX service, which was launched in mid-2015 in Germany, subsequently relied on independent car rental companies. However, Uber said only a “low three-digit number” of drivers had shown an interest in the service. With the withdrawal, UberX is still active only in Munich. In Berlin, the Americans are brokering only normal taxi service with UberTaxi.

Even at the start, many taxi firms pointed out that UberX wouldn’t be very lucrative for drivers. According to law, car rentals must be returned to the rental firm after every trip.

In addition, car rental companies pay the full amount of value-added taxes, in contrast to taxi drivers.

Just the same, Uber advertised that its drivers offered trips cheaper than traditional taxi companies, despite commission fees. It’s a business model that doesn’t seem to be panning out.

“We underestimated the uncertainties and the discretionary leeway on the local level,” said Christian Freese, Uber’s general manager in Germany.

Further, the road in Germany is rocky to becoming a self-employed entrepreneur by using a personal, private vehicle.  Beside having to have a license to transport passengers, car rental contractors must pass an examination at the Chamber of Commerce (IHK).

The driver must pay €160 ($175) per examination and €200 ($218) for a voluntary preparation course, and bear the costs of possible failure to pass as well.

The chamber of commerce has disclosed that, nationwide, only 39 percent of all those taking the test pass.

Mr. Freese said that since the oral examination is administered by established taxi operators, the failure rate of Uber drivers, as well as of new taxi operators, is high. For that reason, he said, some drivers prematurely dropped out.

However, chamber of commerce doesn’t feel it bears responsibility for the fact that Uber has been unable to find enough drivers – it had even been prepared, chamber officials said, to offer additional examinations to meet a rise in demand.

However, the organization hasn’t seen an increase in the number of applications since Uber’s launch.

Chamber officials in Düsseldorf had a similar experience: Since the beginning of 2015, 38 applications have been accepted; however, in the end only 16 applicants really had interest in setting up their own car rental business.

The time it takes to process car rental applications, they said, is usually two months. Uber’s Mr. Freese pointed out that the issuing of a concession license often took the maximum time, so that the whole process sometimes stretched out up to six months.

Uber has been criticized by established companies in the highly regulated taxi sector in Germany. In a letter to its own drivers, Uber promised to work “together with the government and local authorities on a long-term solution for all of Germany” after the forced break.

How that is supposed to work in detail, no one seems to know exactly. In an interview, Mr. Freese stressed that he considers the requirement for car rental operators to return to base, the testing of local street knowledge and the examination for car rental operators to be outdated.

For some time, there has been debate on the European level about setting standard regulations for the taxi industry and the car rental market and on liberalizing the highly regulated industries.

Until decisions have been made, it would seem that for the time being Uber will no longer be able to broker rides in Frankfurt, Hamburg and Düsseldorf.

Will the drivers ultimately be left paying the bureaucratic costs? Uber didn’t answer this question completely, but Mr. Freese said all of the commitments made to its partners would be honored. Among other things, Uber had offered a premium of €500 as a reward for the first 100 drivers with more than 30 passenger trips.

Uber made another proposal to its drivers: “If you are interested in moving your business to Munich or Berlin, please let us know.”

Uber says it offers its services in 55 countries worldwide but is being legally restricted in more and more markets. Most recently, Uber amassed $1 billion for international expansion, which, as far as Germany is concerned, is likely to remain difficult.

 

Lukas Bay is an editor with Handelsblatt’s companies and markets desk. To contact the author: bay@handelsblatt.com.

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