Fair’s board has not yet approved a plan and bankruptcy is not guaranteed, although a decision on the debt could come in months, Stewart said. Automotive News. The company owes $315 million in senior secured debt to SoftBank, among other unsecured liabilities, he said.
The car lease model “requires it to take on a lot of debt, and the company hasn’t been able to repay that debt and doesn’t have the ability to pay it,” he said. “And to raise the capital we need to continue the market operations, that debt has to be eliminated or significantly reduced.”
Stewart said expanding Fair would be difficult because demand for used vehicle subscriptions and leased products is limited compared to demand for cash or financed vehicle purchases. He added that some loan terms and new vehicle leases are also cost-competitive for some consumers, and that a short-term car subscription comes at a higher cost.
Fair’s brand and technology could instead serve a market model that enables a vehicle transaction between consumers and dealers without bearing risk on the company’s balance sheet, he said.
The company’s model, he said, would be analogous to “Carvana without owning the cars, or thinking of it as an Autotrader where you can buy the car and have all the things that come with it — insurance and F&I products and logistics — facilitated by that platform. In this case, us.”
Stewart said Fair would handle an entire digital transaction, including finance and insurance and paperwork. Cooperating dealers would arrange test drives, trade-ins and delivery of vehicles, as well as longer-term service needs, he said. Consumers would transact digitally from Fair, which would purchase the vehicle in a wholesale transaction from the dealer and sell it directly to the buyer without keeping it on the company’s books for a long time, he said.
“In my opinion, the choice and the right way forward was incredibly clear,” he said. “And so we have chosen not to fundraise for our leasing business and we are now choosing to fundraise for our marketplace business.”