Publicly Held TNCs take on Low Profit Taxi Industry

Publicly Held TNC Companies Taking on the Low Margin Taxi Industry

Considerations and Complications for Developing Public Policy

Developing public policy for private industry that perform a public function such as the Taxi Industry being the last and most flexible leg of public transport is an iterative process, like putting together a jig saw puzzle.  It helps immensely to have a correct picture of the puzzle and the assurance that all the pieces are included.  Unlike most Taxi companies, Uber and Lyft are publicly held companies traded on U. S. stock exchanges- this is both relevant and problematic for a number of reasons:

• The profit margins of the industry- especially for a strategy of lowest fare may be insufficient to provide sufficient profit to appease shareholders.

• The gross over-valuation of both companies is problematic and makes obtaining reasonable internal rates of return on equity very difficult.

• The passive nature of U.S. stock markets today create an injustice in that shareholders may earn more than laborers and be a higher priority for management.

• The business models of both organizations push the limits and perhaps exceed the limits of reality regarding employee/contractor reality and status and have defied local regulations quantity of Taxis and fare rate which past experience and most academic studies have concluded that are typically necessary at the local level and safety and protection/insurance regulations are necessary at the state or national level.

• The immense capital has allowed for predatory (under cost) pricing and the perpetuation of business models that have no obvious path to profitability at a geographic market level.  The likelihood that these companies may be best served by venturing into other areas or continuing to cut contractor compensation is very real as the have a need to appease shareholders

• If shareholders were more engaged, initial investments may not have not have been mad and the decimation caused by the unprofitable and predatory business model might have been curtailed due to lack of funding prior to the decimation of the Taxi industry offerings and ecosystems at local level.

• The enormous venture capital and cash flow allowed for the façade of predetermined assurance of success and wealth generation and the courting of national level politicians and disregarding local officials served to cement this façade that would have been readily exposed if members of the actual ecosystem for the Taxi Industry had been heard.  It also served to push the necessary allowance that drivers are contractors verses employees and that private unmarked vehicles could and should be used.  The creating of a panacea fait de complis is not unprecedented in today’s “tech” venture capital world- think Amazon, WeWork, Crypto and assorted Unicorns.  The cash flow is so immense, it literally buys time.

• Uber and Lyft may be at best and in reality $1-$2 billion dollar app/software companies providing service in the Taxi industry to municipalities and Taxi companies.

• A 2016 Study of the Taxi Industry by Sustainable Urban Transport Project-which supports decision-makers worldwide to plan and implement innovative and sustainable mobility solutions with the Norwegian Federal Ministry for Economic Cooperation and Development-published “Taxis as a Part of Public Transport”   Key conclusions and findings of report show that there are little economies of scale in the Taxi Industry, that Taxis are part of public transportation, that Safety and Insurance regulations can be done at the State or National level but fare rates and Taxi Supply quantity decisions should be left to local municipalities.  There is a propensity for innovation amongst those that see and live with the problems, the city of Hollywood revealed that its hands were tied once the state passed TNC legislation and that this is problematic.  The share strategies with the  neighboring cities of Los Angeles, Santa Monica and Beverly Hills and have a clever strategy for handling the poor- for $16 each time they can twice monthly purchase $100 of Taxi service credit.  They subsidize the customer vs forcing lower wages that might be too low for the market at large.

• Allowing two companies to set fare rates within their “fleet” of drivers pits driver against driver at the expense of driver for the benefit of Uber and the customer and the use of “dynamic pricing” can serve to keep the dedicated/full time less affluent/poor drivers that live in poor neighborhoods obtaining fare requests for their poor neighborhood while the affluent casual driver that drives a luxury vehicle in his/her nice neighborhood can make more money in absolute and per hour by driving a few airport runs of affluent clients from the affluent areas.  “Dynamic pricing” can readily serve to perpetuate the halves and halve nots.

• The innovation of Uber to develop and use an app and initially luxury private black vehicles was not revolutionary and readily copied.  Likewise rating drivers and using GPS to match customers with drivers are improvements in efficiency, good ideas, but not proprietary.  The dynamic pricing is problematic when used with the majority of the fare suppliers- airlines too use “dynamic pricing” but no one airline controls a given market so there are legitimate competitive forces in play- which is not the case with Uber and Lyft due to their similar strategies and market concentration and even sharing of suppliers of fares.

• Uber and Lyft believe that the efficiency they claim to achieve by masterminding the matching of the majority of providers with the majority of customers yields a significant savings over Taxis and hence they can charge a lower rate- sadly this is a great simplification and not a mathematical truism.  Some academic studies have suggested that the greater percentage of time Uber drivers have with a fare earning passenger in their vehicle per hour suggests they can charge a 28% less fee than Taxis.  The reality is profitability is determined fare by fare and the Uber leaks have suggested that Uber is well aware that the drivers that provide the most fares in many cases make below minimum wage- similar to the findings of the Minnesota “Transportation Network Company Driver Earnings Analysis and Pay Standard Options” (March 8, 2024),  Study.