Democratising Vehicle Ownership in South Africa
Relative to developed markets, accessing finance to buy a car in South Africa is at best expensive and at worst impossible. But what if your business relies on you having a car?
For 12,000 Uber drivers in the Southern African republic, that is the case. The choice is to accept expensive loan terms (if they are accepted for a loan from a bank) at 20-30% interest or pay costly weekly rental rates. These are all options that eat into profits and result in drivers working longer hours to achieve their target net earnings.
However, ex Uber colleagues Tinashe Ruzane, Marlon Gallardo and Rudolf Vavruch have come up with an alternative. FlexClub offers a subscription platform for commercial use cars to Uber drivers, under the brand name Drive-to-Buy, providing a flexible way to access and own vehicles.
Earning credits to pay for vehicles
Currently operating in South Africa and Mexico, the company focuses exclusively on members operating a small business on a digital platform. The subscription enables them to earn credits, which they can use towards purchasing their vehicle after a minimum of 12 months on the platform. The longer they stay members, the more credits they acquire, but they can purchase vehicles using a combination of credits and cash.
The cost of a subscription and earning potential
In South Africa, members typically pay a weekly subscription of R2,500 (€147) or less to access their own car, depending on the vehicle they choose. In Mexico, the weekly subscription is MX$2,500 (€116). Insurance (damages and theft), plus regular maintenance costs are covered by membership.
After operating costs, members in SA typically earn annual profits more than double the national minimum wage of R42,000 (€2,500) per annum. In Mexico, members earn over MX$132,000 (€6,250) a year in annual profits, which exceeds the national minimum wage of MX$32,000 (€1,515).
To join, members must have a strong operational track-record on Uber for at least four months. They pay a joining deposit, which in SA is R4,000 (€236) and in Mexico MX$2,500 (€116). This deposit is 50% lower than the standard deposit levels charged by rental companies.
Taking up the option to buy
FlexClub has been in operation for just over 12 months and already four of the company’s more than 350 members (across the two countries) have taken up the option to purchase their vehicles outright. Membership doesn’t necessarily end once this has occurred.
CEO and Co-Founder, Tinashe Ruzane, explains: “There are many benefits to being a member of FlexClub that extend beyond owning the vehicle. Members can continue to pay a lower subscription fee where insurance and maintenance costs are still covered. Additionally, they get the benefits of continuing to be part of a peer community. We host member events and are always on hand to offer support to help them grow their business.”
Supporting wider mobility and helping microbusiness
One of the four members who has purchased their vehicle outright sent it to family in a different town, where mobility is challenging. He then began another vehicle subscription with FlexClub for his local Uber work.
Says Ruzane: “This story shows how our subscriptions could indirectly impact access to mobility for the wider community. His family in his hometown are now able to do more in their business because they have their own car. Helping microbusinesses in this way is unlocking better opportunities for the wider economy in these emerging markets.”
Funding vehicles through passive investment
Ruzane explains: “The first $3 million worth of cars, were largely funded by individuals who wanted to earn passive monthly income while empowering others. What they get in return for their investment is a fixed monthly amount for their vehicle. Our team is continuing to work on unlocking more ways for individuals and institutions to passively invest in funding cars to empower small businesses.”
In January 2020, FlexClub announced a pilot with Easy Equities and fund manager Sunstone Capital, to make it possible for anyone to invest in a share of ride-hailing fleets for as little as R100 (€6.24). This gave retail investors the ability to affordably invest in rental-earning fleets, while democratising vehicle ownership for those excluded by traditional vehicle finance.
FlexClub is aiming to expand to support over 100,000 members over the next five years.