Saturday, January 30, 2016

Taxi Troubles

A headline on today's Drudge Report reads "UBER Drivers Protest Over Lowered Fares In NYC..." But the linked article doesn't claim that: instead it reports that primarily Yellow Cab drivers were protesting Uber's lowered fares. And for good reason--the move potentially puts them out of business.

Uber announced that it is lowering it's fares for UberX and UberXL by 15%. Of course given the decrease in gas prices that makes some sense (though that's unmentioned in the article).

But it's driving the medallioned Yellow Cabs crazy. "Beleaguered yellow cabbies say they can’t compete with the lower fare since their rates are determined by the Taxi and Limousine Commission." Hoist on their own petard, I'd say, since until now the cabbies have been hiding behind the medallion to protect their monopoly. But now they've woken up on the wrong side of the issue.

A few Uber drivers joined the protest, claiming that the reduced fares would hurt their income. Not true, claims the company. "Uber is guaranteeing drivers who work the minimum will make more, and if they don’t, Uber will pay the difference. Spokesman Josh Mohrer adds that the ultimate goal is to reduce the use of personal cars."

Put another way, the lower fares will reduce the profit per trip, but the difference will be made up on increased volume. But only full-time drivers will generate the volume necessary to increase revenue. So Uber calculates that it will a) generate more total revenue for the firm, much of which will be shared with the drivers, and b) professionalize its workforce by discouraging part-time and casual drivers.

It sounds like a win on all counts. But it will put the Yellows out of business, and maybe sooner than anybody thinks.

For recently the Yellow Cab companies in San Francisco and Chicago have both declared bankruptcy. In both cases it's because they lost liability lawsuits because of accidents. The Chicago firm (my employer for about a year in the 1970s) is on the hook for about $26 million. The much smaller San Francisco company owes $8 million.

Two points can be made. First, these sound like one-off events. But liability is something all cab companies have to deal with. The sums involved are relatively paltry--a company with a strong balance sheet or good insurance should be able to survive this.

Second, it illustrates an Achilles heel for the medallion companies--they can't keep their workforce. Good, professional drivers will make more money with Uber, and that's where they're going. The Yellows, meanwhile, are left with the dregs--part-timers with spotty driving records. Indeed, the photo below can hardly inspire confidence in cab safety.

Chicago Yellow Cab, pictured with victims
Chicago Yellow cab and victims
(Clifford Law Offices via Chicago Tribune)

It completely negates the long-standing taxi argument that the medallion somehow equates with safety.

Bill Onasch, over at Socialist Action, points me to an article at LaborNotes.org, a useful site reporting on labor news. There Sonia Singh authors a piece about an attempt to unionize Uber drivers in Seattle.

The drivers, who are mostly Somali and Eritrean immigrants, have gone to the city council and gotten a resolution allowing them to unionize. Uber has taken the issue to court, where it will likely languish for several years.

Nevertheless, Teamsters Local 117, which already organizes cab drivers, has set up the App-Based Drivers Association. During my stint at Chicago's Yellow Cab I was a member of the International Seafarers' Union, a mob-run outfit if there ever was one. It's doubtful the Teamsters will be more honest, for if they're successful they will generate a permanent revenue stream from Uber drivers. The temptation to skim off the top will be hard to resist.

Ms. Singh asks "will drivers sign up? Ajema is confident this will be the easiest part, even though he expects Uber will try to dissuade them." Count me skeptical. I think this whole effort is a non-starter.

So the taxi industry is changing faster than anybody predicted. I think that medallion cabs will be out of business across the country within the next five years.

Further Reading:

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