Uber loan program helps Vietnamese swap scooters for new Hondas

A taxi pictured in Hanoi, Vietnam

In Vietnam, where motorbikes outnumber cars by a factor of 16, Uber Technologies Inc. is helping to create a new generation of auto drivers with first-time bank loans for vehicle purchases.
Vu Ngoc Hung traded his 12-year-old Taiwanese scooter for a brand-new USD28,500 Honda City after a lender financed 80 percent of his white four-door sedan based on his Uber fares. The program with Viet Capital Bank enabled him to more than triple his income to $850 a month through the app-based taxi service to support his wife and parents, who previously sold stationary from home to help make ends meet.
“Driving a taxi through Uber has transformed my family’s life with a stable income,” said Hung, 40, who previously worked as a driver for a company. “I am now my own boss at a time when it’s not easy to land a good-paying job.”
Uber’s three-month-old bank program is changing the Vietnam Dream, which now includes a new automobile in a nation of 45 million motorbikes. After testing in a country where Toyota Vios sedans compete with scooters carrying a family of four down narrow avenues hazy from vehicle pollution, the initiative is being rolled out in other Southeast Asian markets.
“About 70 percent of car buyers borrowed money from banks last year,” said Ho Minh Tam, vice chief executive officer of Viet Capital Bank. “Vietnamese spending behaviors have changed.”
The program also opens up another front for Uber in its battle for ride-hailing customers and drivers. In Vietnam, the San Francisco-based startup competes with GrabTaxi Holdings Pte. like it battles Lyft Inc. in the U.S. and Didi Chuxing in China.
Hung is one of the first Uber drivers in Vietnam to use the program that could be tapped into by tens of thousands of other Vietnamese, said Dang Viet Dung, Uber Vietnam general manager. For many people in the country, it’s the first time they have relied on financing in one of Southeast Asia’s most expensive automobile markets.
“We believe this type of program has the potential to deliver similar benefits in other countries in the region and the world,” Dung said.
Uber has also just started a leasing program with Toyota Motor Corp. in which payments are made from Uber fares.
Vietnam had one of the fastest-growing auto markets in Asia during the past three years, according to  Koichi Sugimoto, an analyst at Mitsubishi UFJ Morgan Stanley. The country’s 2015 vehicle sales jumped 55 percent to 245,000 units, the Vietnam Automobile Manufacturers’ Association reported. Half of vehicles sold were imported, according to the Hanoi-based General Statistics Office.
Auto sales increased 31 percent to more than 111,000 during the first five months of the year, the association said. Vietnam’s auto sales are forecast to rise 10 percent this year, it said.
Saigon Thuong Tin Commercial Joint-Stock Bank, a major auto loan provider in the country, says its vehicle lending soared 247 percent between 2013 and 2015. One-fourth of Toyota Vietnam’s 2015 sales of 50,285 vehicles were purchased with financing, up from one-sixth of its sales in 2013, said Yoshihisa Maruta, president of Toyota Vietnam.
Ho Chi Minh City Housing Development Commercial Joint-Stock Bank cited ride-sharing apps like Uber and Grab with helping to almost double its auto loan business last year. Viet Capital Bank expects to increase its car loans six-fold in the next five years to represent one-third of its retail banking.
Grab, though, is not participating in vehicle financing programs and urges its “partners” not to “buy new cars to drive Grab as that would increase the numbers of vehicles on the roads, worsening the traffic situation and going against our company’s policy and goal,” Nguyen Tuan Anh, Grab Vietnam director, said in an e-mail.
Still, owning a car in Vietnam can be as difficult as navigating four-wheels on streets packed with motorbikes overloaded with everything from pigs and chickens to giant panes of glass.
The government imposes tariffs ranging from 55 percent to 75 percent on imported vehicles, depending on engine size, said Anna-Marie Baisden, head of BMI’s auto analysis in London. The average annual salary in Vietnam is about $2,000, so buying a relatively low-end Honda City can cost 14 times a person’s yearly pay.
Car ownership in Vietnam is now a symbol of economic success and, in the case of Uber drivers like Hung, a means for a better life.
For Uber, the loan program is a good marketing tool to attract more drivers, said Steve Man, a Hong Kong-based automobile industry analyst for Bloomberg Intelligence. “It opens the door for drivers with limited capital to get into the business,” he said.
About 4,000 Uber drivers had joined Ho Chi Minh City’s crowded streets earlier this year, Tuoi Tre newspaper reported Jan. 8, citing the city’s transportation department.
Driver Hung says his car payments are deducted from his fares, which amounts to about half his monthly income and makes his take-home pay about $450 a month. His eight percent interest rate is lower than the 10-12 percent rates offered to Vietnamese who are able to afford a down payment of as much as 40 percent, Hung said. However, he would be on the hook for four percent of the remaining loan should he pay it off early.
The Uber loans have significant risk, Man said. Drivers might struggle to make loan installments: “It wouldn’t be a surprise if all of the driver’s earnings are eaten up by the payments in some cases.”
Nguyen The Hoang Tan says Uber’s auto loan program has improved his life. After getting a loan to buy a $29,000 Kia K3 sedan, Tan, 29, now earns $1,200 a month as a full-time driver. That’s more than five times what he earned behind the wheel at a trucking company, when he struggled to support himself and his parents. After car payments, his monthly take-home pay is about $513.
“My life is much easier now,” he said. “I am able to support my parents and travel, something impossible for me just a few months ago.” Mai Ngoc Chau, Bloomberg