A rumour that had been circulating for a few weeks was proved to be true. Comfort DelGro, Singapore’s biggest taxi company, has finally confirmed in an announcement (http://www.comfortdelgro.com.sg/uploads/pr/Media%20Release-ComfortDelGro%20&%20Uber%20Join%20Forces_FINAL%20(circulation).pdf) that it is acquiring 51% of Lion City Car Rental (LCR), a subsidiary of Uber that owns and rents out a fleet of private hire cars.
A few friends asked us how we interpret this deal, here are some of our thoughts:
- The press release confirmed LCR’s fleet size to be about 14,000 vehicles. Comfort itself has about 16,000. This means LCR had a real chance to become Singapore’s biggest taxi fleet owner – a nightmare for Comfort.
- However, we believe Singapore’s new regulations on private hire drivers and vehicles (https://www.lta.gov.sg/content/ltaweb/en/public-transport/taxis%20and%20private%20hire%20cars/industry-matters-for-private-hire-car-owners-and-drivers.html) has impacted LCR’s growth. It is now more difficult (and demanding) to become and remain a private hire car driver – without large supply of drivers LCR can’t rent out the new cars they buy.
- Shortage of drivers will still be a challenge for the new LCR, now partially owned by Comfort. However, the combined fleet at least makes Comfort theoretically safer on the supply side.
- Comfort opening up its fleet to Uber passengers could potentially be dangerous, although controlling a 30+k strong fleet partially mitigates that risk. Comfort should at the same time be very aggressive in updating its own app and keeping/growing its own customer base.
- Uber has a clear benefit of gaining access to Comfort’s own fleet. How that works out and whether the fleet (many of whom are already prolific Grab drivers) will convert remain to be seen.
- Comfort is much more experienced managing lifecycle (from purchase to dispose of) of a large fleet of assets than Uber – so there is some efficiency to be gained for LCR. However, Comfort also needs to be more aggressive in cost efficiency such that profit growth does not come from raising driver rent.
- Another rumour in the market is the potential merger of Uber and Grab, especially when Softbank becomes a major shareholder of both (https://thelowdown.momentum.asia/will-grab-uber-merge-softbank-now-shareholder/) . Dynamics will be quite interesting if that actually happens.
- Although interesting to watch how the vehicle quota licence ( https://en.wikipedia.org/wiki/Certificate_of_Entitlement) price will change in the medium term given that private hire fleet is not going to grow as fast as it used to be.
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