Too Much Funny Money leaves TNC Drivers at Bay
May 17, 2024
Dear Minneapolis City Councilmembers and Staff, Legislators, MULDA members, Uber and Lyft Drivers, Uber and Lyft Analysts and other interested parties.
As we conclude our research and writings on the TNC and Taxi Industries and the plight of the Mpls/St. Paul Metro area drivers, we believe the problems brought about by too much venture capital, too little industry research and business model scrutination and too passive portfolio management by investors have brought about the decimation of the Taxi Industry and the classical Taxi driver and that the wealth depleting behavior of Uber and Lyft coupled with their penetrating pricing has created an unsustainable TNC industry as practiced by the U.S. market leaders Uber and Lyft and deplorable wages for committed drivers as Uber and Lyft have now taken on the Taxi industry head on in the social service public transportation space.
The Taxi Industry in virtually every city has been a delicate balance of regulated supply and at times subsidized demand and there simply isn’t enough money to support drivers, corporate staff and shareholders as those living at poverty level who can’t afford to own a car take an Uber to go to an entry level work occupation or a Lyft to the grocery store. Historic studies have shown that increasing the supply of drivers is the factor that most adversely impacts earnings per driver and such a strategy is core to the “greater efficiencies” sought by Uber and Lyft.
Industry experts, economists, cost-accountants, academics, and transportation officials that have studied the Taxi and now TNC industry deem an understanding of the following integral when developing policy:
1) At a driver level, the Taxi industry is easy to enter, yet at the firm and public policy level difficult to operate- benefiting from localized policy customization to meet the needs and travails unique to each city. Not all firms in the industry are consistently profitable and historic studies have shown gross margins are roughly 3%.
2) The reality that at a national or international level the entrance of new TNCs is unlikely as Uber, Lyft and others have benefited from market cap gross overvaluations, dominate most markets they are in, yet do not have a clear path to profitability and have left a path of demolition within the Taxi industry and are benefit from “economic rent” and “economic rent seeking behavior ”which is one entity seeks to increase their own wealth without creating any sustainable benefit or wealth to society. It is the drivers and not the TNCs that afford the low income and the poor to partake.
3) A thorough understanding of the nature of the dynamics of the Taxi Industry- a 3 % Gross Margin Industry, cyclical demand yet the need to cover all time slots for public/social service reasons and the reality that the most lucrative trips/fares lend themselves to gig work. Drivers that spend less time but spend it strategically on the TNC app likely make more per hour and perhaps even more in absolute terms then the “dedicated drivers” that daily spend 8-10 hours on the app. Historically this cyclical nature of demand has been balanced out by Taxi companies with an hourly wage that balances the supply, the demand, and the compensation of their workforce.
The Minneapolis situation is need of action by lawmakers as it will only get worse. We applaud the Mpls City Council for its courage and its actions and we too believe that sequestering and containing the driver wage problem by assuring TNC algorithms provide a minimum wage and by simultaneously encouraging new TNCs with more holistic business models to serve the Twin Cities are prudent strategies.
We applaud MULDA and all drivers who take time for local officials and hope that cooperative efforts coupled with creativity can present new opportunities and solve current injustices. Cooperative efforts in the vein of the City of West Hollywood’s providing $100 of Taxi vouchers for $16 to qualifying residence as a means of making Taxis a reasonable option while preserving driver wages and the city of San Francisco helping administer but not pay for needed benefits such as healthcare for the Taxi Companies and Taxi drivers and even Taxi Cooperatives like those in Madison WI could prove fruitful.
We encourage Uber and Lyft to take a close look at their numbers from a cost accounting point of view and consider the realities of all their channel partners and revamp their business models accordingly.
Uber as a Private Car Company of an App Software Company
A more thorough knowledge of the industry and its idiosyncrasies suggest that Uber would have a straighter road to profitability had it become a “private car” company- not taking on the public/social service aspect of the Taxi Company which is substantial but very low margin and or by becoming an App company selling its App and Software services to municipalities and Taxi companies and drivers.
By taking on the traditional social service component of the Taxi industry by offering lower fares to a very cost conscious market segment, Uber has decimated the traditional Taxi Industry in the Twin Cities and elsewhere and its leaked documents reveal it knows this is unprofitable and detrimental to its dedicated drivers. A more prudent use of venture capital may have spared great wealth depletion. There are numerous articles on the merits of the medallion system and how medallion values were destroyed overnight by Uber’s venture capital and defiant approach to industry dominance. For a more thorough Understanding of the Taxi Industry, we highly recommend “Taxis as a Part of Public Transport-Sustainable Urban Transport Technical Document #16” and have prepared a summary of it called TNC and Taxi Industry Overview of Key Dimensions For Policy Makers.
We contend that the TNC industry as practiced by its market leaders is wealth destroying and their enormous venture capital purse strings coupled with their defiant disposition destroyed the Taxi industry which was a delicate balance of private and public transportation with a social service component at local levels in many cases.
There is no doubt about it, the Taxi Driver position was the most adversely impacted in terms of both employment and wage growth of approximately 25 entry level positions and corresponding first line supervisor positions we analyzed for 2012- the year Uber entered the Twin Cities market, 2015 and 2022. The number of Taxi drivers and Chauffeurs in the Bloomington/Mpls/St. Paul Metro Area increased considerably between 2012-2015 from 1,600 to 2450 and then down to 40 Taxi drivers in 2022. It is very rare to see an industry contract so much and so quickly. In 2022- Shuttle drivers and Chauffeurs were combined together as a new category- shuttle drivers were likely categorized as Motor Vehicle Operators, all others, explaining part of the decline but never-the-less the fall to only 40 Taxi drivers is dramatic- and as one who does not use TNCs, finding a Taxi to take to the airport is somewhat difficult in the suburbs.
Subway and Streetcar Operators were added as a category in 2022 and are included in our analysis. Although small in number Subway and Streetcar Operators of employees, the 2022, $25.31 median hourly wage for represents what the government thinks transportation workers should be paid. Likewise, city bus drivers saw median wages of $18.14 in 2012, $15.79 in 2015 and $22.40 in 2022 why as Taxi drivers and Chauffeurs in 2012 and 2015 and then Taxi drivers in 2022 saw the median wage virtually unchanged hovering at $12.50 per hour and a mean wage increasing slightly from 2015 to 2022 from $13.48 to $14.72 for the remaining 40 workers, down from 2,450 making it by far the most adversely impacted industry from 2015-2022. For more detailed information on entry level positions and the Taxi Industry, please see the Entry Level Occupation Employment and Wages 2012 2015 and 2022 Report.
The predatory pricing of Uber and Lyft allowed for unprecedented market share per given region forcing present and future growth to be in the areas of progressively less attractive trips which are likely disproportionally given to the same “committed” drivers. This is a dynamic that makes the industry tricky at a company level and is one of the primary reasons for local regulation. The city of West Hollywood has addressed the balancing of the needs of the city’s poor for transportation and the need for Taxi drivers to earn a decent wage by providing passenger subsidies whereby a qualified city resident can twice monthly purchase $100 worth of Taxi trip credit for $16, thus allowing economical transportation without upsetting the apple cart or at the driver’s expense.
We contend that the dominance of Uber and Lyft is due to their lower priced trip fares which are likely still predatory- below cost in some cases and that it is the driver that bares the load for a given trip fare that is set by Uber or Lyft and yet is below his/her operating costs though perhaps not obvious at the time of acceptance of the trip at the given fare.
There may be some efficiencies for some trips but not for others and the soccer mom in the bay area that drives a black BMW may be content to make her car payments doing a few airport runs per week and charging accordingly may have a very different experience and set of needs than the Mpls/St Paul metro area committed driver stuck driving people to Cub or Target or work at Dominos. The soccer mom operates like a contractor and is compensated accordingly why as the Cub or Target trip driver is actually like a very poorly treated employee with the illusion of choice, the preponderance of risk, and subpar compensation and no benefits.
The fact that Uber and Lyft are publicly held companies further complicates and compounds the wealth depleting issue- precious moneys are taken out of the local economy to appease a national staff and shareholders. Please see Publicly Held TNCs Taking on the Low Margin Taxi Industry.
We believe the Minneapolis City Council is on the right path with insisting on some element of wage protection as it diversifies and encourages other TNCs to enter the market- some with significantly more prudent business models that may indeed generate wealth.
We encourage drivers to look into developing Co Op Taxi Companies and to work closely with government officials as they are now doing. Just because Uber and Lyft dominate does not mean they know what they are doing- especially with an undifferentiated service and a lower priced offering nor does it mean it is good business.
We applaud the courage of the drivers and the Minneapolis Council Members willing to take this on and the legislators standing up for righteousness.
We hope you find our writings helpful and thought provoking, If so, we’ve done our job. We will soon be posting this body of work on our website and will notify you once that has taken place.
Merci,
Susan Lein
Ms. Susan Lein
Co-Foundress, Secretariat, Artist-in-Residence
Civilitiville USA
5832 Lincoln Dr. #263
Edina, MN 55436 U.S.A.
1-(952) 426-3720
An Umbrella of American Humanitarian Efforts