For San Francisco Cab Drivers, Once-Treasured Medallions Now a Burden
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On the other hand, people face investment risk all the time, i.e. when franchising a restaurant. When Chipotle or whoever comes in and devours the fast food market, I wonder if the local struggling burger franchisee asks the city for help?
I can't speak on behalf of other cities, but anyone who has lived in SF pre-Uber has no shortage of nightmare stories from taking cabs. For people who had to wait years and pay enormous costs for their medallions, many taxi drivers acted smug, entitled, rude, and sometimes even downright shady. I know you can't say this about _every_ taxi driver, but there's no doubt that the current ecosystem treats the consumer many orders of magnitude better.
From the MTA site: By capping the sale price of medallions, the MTA insulates medallion holders from market fluctuations, either up or down. When drivers want to resell, the price is what they paid, minus a 5 percent transfer fee. The agency said it is unlikely to cut the price. For those cabbies who paid nearly nothing for their medallions, the new sales system is an even better deal; they receive $200,000 when they surrender it for resale."
I'd argue they did pay for them, they worked for below-average wages for 10 years in the hopes of a payoff. Long-term drivers tend to see getting a medallion as a retirement plan.
Since cab drivers are bidding against each other for a medallion-car, if they bid more to get a car that shift/day/week, they earn less.
If, after 10 years of driving a cab, one could get a $250k wind-fall, one would be willing to earn less during those 10 years than if the wind-fall did not exist.
I imagine the waitlist was 10 years not because medallions were cheap, but because there wasn't enough of them issued to satisfy the demand.
Notably, this is illegal by federal law for auto manufacturers and other franchisors: if you promise a 25-mile exclusivity radius and get a franchisee to build a dealership, you cannot renege on that without being liable for damages. Interestingly, it's auto manufacturers who lobbied for these laws, wanting to kickstart a dealership ecosystem and knowing that franchisees would not invest money in building and marketing dealerships if they did not have suitable protections. Taxi drivers are a form of franchisee, and they are asking for similar protections.
One possible solution is for the city to buy back all the extant medallions at some fixed price, do away with the system, and finance the purchase with an excise tax on all types of transportation going forward, whether rideshares, taxis, etc. You can imagine how Uber feels about that, and how they can mobilize their vast PR capabilities against such a concept.
While local governments are arguably failing to require newer livery services like Uber and Lyft to meet e.g. higher insurance requirements, they are not reneging on the medallion promise, which still gives holders the exclusive right to pick up street hails. That right is still enforced, and the Uber/Lyfts of the world are not infringing on it. The situation is much closer to "street hail pickup rights aren't valuable anymore" than "governments enable encroachment on the right to pick up street hails".
And before you dismiss "arranged hire" (livery) vs "street hail" as a technicality, there are very good reasons to put a cap on the latter but not the former (and otherwise subject the latter to harsher regulation):
- By necessity, street hails require clogging of "Schelling points" where drivers can expect to get line-of-sight to a potential fare, and vice versa. That doesn't happen with livery, where they go only where requested, not significantly different from a private car.
- Street hails create a risk of fighting over fairs, livery doesn't.
- Street hails enable you to pressure naive passersby/tourists to take your rate, livery requires you to ask for the fare from a central service.
- Medallion holders get use of the scarce privileges to use taxi stands and bus-only lanes, livery doesn't.
- Livery creates a central, auditable record of the event, while street hails can rip you off without showing up on an audit.
To be sure, Uber/Lyft are flouting even some of the requirements of livery services ... but the medallion case looks more like "street hails are becoming obsolete in the information age, so of course they'll lose value".
I don't want to live in a society where government regulation leads to financial disaster for individuals, and the society and government response is "tough luck".
For example, if I pay for rights to drill for oil somewhere and oil becomes obsolete, should I be reimbursed by my competitors?
The upside potential of one of these medallions was unlimited. After buying it once, you could use it to make an unbounded amount of money. Part of that is accepting the risk that it might make no money. Otherwise you're asking the rest of society to subsidize a private interest.
Therefore, it is well known that both a) regular property and b) medallions can lose value from either 1) governments not enforcing exclusivity or 2) legal alternatives becoming better. Governments never made any promise (either for property or medallions) that thy wouldn't lose value from 2). (To extend the analogy further to the car dealership case, the manufacturer makes no promises about eg Chevy demand falling because public transit gets better.)
To be sure, it certainly does suck when you put all your net worth in one asset and it loses value, but it does not thereby follow that your rights were violated or that a promise was broken. Nor does it necessarily make sense for the government to spread out the losses from this, because, well, why stop there? Why not socialize the losses from tepid real estate markets for leveraged homeowners, or for leveraged investors in local industries when their foreign counterparts get better?
There isn't a lot you can do about limiting investment downside risk beyond preventing people from having too much net worth in any one thing ... which maybe they should have done for medallions (or should start doing for homes, for that matter).
I cannot live in a society where profits get concentrated when things go well and losses get spread around when things don't, because that is not a sustainable society.
You can't make a contract with a legislature. Exchanging anything of value for changes to the law is literally illegal. Imagine what would happen if you could bribe Congress to pass some corrupt legislation granting you untold powers and the next Congress was prohibited from undoing it. The only thing that binds Congress is the constitution.
Obviously that leaves you in a tough spot if you have to rely on the state of the law, but legislatures know that. If they make huge unexpected changes to the law it tends to have a negative effect on the markets, so they try to avoid doing that, and people then rely on them trying to avoid doing that. But sometimes they have to, or sometimes they do it when they don't have to, and you take your lumps (or vote the bums out).
I found quite a bit of irony in this quote, The taxi industry has historically been very corrupt. Bribes to city officials to artificially keep the prices for medallions going up (not adding new ones) and to prevent competition are common. I do feel bad for this driver but at some point if you're paying $250k for a chunk of metal you have to stop and think that what you're really paying for is a monopoly in performing a specific action I.E picking up passengers that hail you and this is not a guarantee that that business continue to be worth what it was.
Chicaco: "Once a sure bet, taxi medallions becoming unsellable" https://news.ycombinator.com/item?id=9564478 http://www.usatoday.com/story/news/2015/05/17/taxi-medallion...
New York: "New York City Taxi Medallion Prices Keep Falling" https://news.ycombinator.com/item?id=8856231 http://www.nytimes.com/2015/01/08/upshot/new-york-city-taxi-...
Philadelphia: "Philly medallions fetch less than 17% of asking price" https://news.ycombinator.com/item?id=9528301 http://observer.com/2015/05/the-taxi-industry-is-in-total-co...
Don't forget their most unfair practice of kicking out rude and bad drivers that provide terrible customer service. If the cabs can do that, people would like them too, but that's just a totally ridiculous thought.
In others jurisdictions it is gray territory and some govs err on the side of the taxis. But I don't really know of many jurisdictions were it is outright illegal.
In this case, I think it's key point out, the pain felt is due to economic regulation. Which was/is putting up barriers for entering and exiting the market. The government removed competition, it raised prices, and was generally bad (I.e. State santioned monoplies). When innovation, and change, eventually moved around those economic barriers it was bad for those protected by 'em.
I hope going forward any regulations are strictly safety and soundness related with taxi service. It'll save a lot of pain on all sides.
* If you've taken enough Econ, you'll know strictly and always are going "depend on ..."
For every poor hardworking cab driver who has taken a mortgage out to buy a medallion, there are a dozen sleazy operators who own piles of them, do not drive, and have leased them out to cabbies at horrific rates.
How is that sleazy? If cabbies are willing to pay then it sounds like the market is working.
Full article: (heavily discussed on HN a couple weeks ago) http://www.bloomberg.com/features/2015-taxi-medallion-king/
Sleazy business operators are those who take advantage of employees, who do things like allocate risk from the highest earners to the lowest. In taxis, this is commonly done by charging a fixed rate for a limited asset (medallion/cab) used in a highly variable business. Individual drivers then carry the risk rather than the millionaire. Legal, but sleazy.
This is the source of the problem.
A basic SWOT analysis would have made me hightail out out of the taxi business instead of taking on debt to spend $250k committing myself to it.
If he gets his $250k back less the processing fee that feels like justice to me. He shouldn't have to wait for a buyer to come up though - it should just automatically be an option now that not regulating Uber seems to have become policy.
The government might sometimes compensate people, but that would depend on many factors such as 1) To what extent the person was unable to avoid the risk, and to what extent they willingly bet on the price of the medallion, and 2) Whether the government did all in its power to keep policies predictable, given the unpredictable nature of technological change.
Yet... what are we supposed to do about it?
He made a bet that value would stay
He was wrong
Sucks
Sad? sure. But not anyone's fault
I think Uber / Lyft etc should either have to play the medallion game (which obviously wouldn't work) or local govts should just do away with medallions and the cities should buy them back from the people they sold them to ... as it is now, it just seems like selective enforcement of taxi laws on the guys with the yellow cars.
The cities have failed to comply with their duty and so, in my opinion, owe damages to the holders.
If the city has an unfair practice of restricting business and charging for the privilege of doing something that should be a basic right available for everyone, and somebody relied on that unfair practice to extract rent, and it stopped working, I don't see how one has a claim for damages anymore than Mafia racketeer can claim for damages when a racket victim refuses to pay protection money, or one victim could claim damages because the other victim does not pay anymore and thus has "unfair advantage".
Yes, there is little difference between street hailing and dispatch these days. But the law never guaranteed them immunity from dispatch innovation.
No one was scammed. But you can still feel sorry for the guy.
If there is one thing to learn - DIVERSIFY YOUR INVESTMENTS!
How do you diversity your investment in your employer?
At 250k, buying them back would cost $450 million.
The city could tax the new cabbies on a percentage of each fare, while buying back medallions over the next few years.
They've been doing it for a while -- this app used to be Taxi Magic. It's slower to respond than Uber, and more expensive.
Uber did start the shift to using apps instead of hailing or calling cabs. Now, the idea is in the "fragmentation stage" with the early adopters, where everyone and their brother has developed a different app. Once some of the underperfomers fade away, there will hopefully be more centralization when late adopter customers start using this market.
No accountability or recourse in traditional cabs.
For example, a couple of days ago I took an Uber. The driver that picked me up was a student. I asked him why he was driving, and he said, "Oh, well I came [to this city] to hang out with my friends, but they can't do anything for another hour. So I decided to do a few rides while I wait."
Uber was able to take the unused potential of someone just messing around in a city and use them to pick me up.
They are able to do that because they can watch everything that happens via the app. If someone tries to screw you over and take a long route if you're new to the city, Uber gives you a refund and the driver doesn't get paid. If the driver is driving like a maniac on bald tires while they talk on their phone, you can give them a low rating. Enough of those and they get kicked off of the service entirely. In other words, instead of an expensive and burdensome network of licensing and regulations, Uber was able to better regulate what was happening using technology.
The first time I ever took an Uber a driver came and picked me up, opened the door for me, gave me a water bottle and some candy, turned on the music I like, and was very safe and professional. And the whole thing cost less than a taxi. I haven't been in a taxi since.
So the app is the main attraction, but not because you can hail a car (though that's nice, especially when you're in underserved areas). It's because the app allows Uber to create a completely different economy around the supply and demand of ridesharing.
It would be a hell of a lot cheaper than funding lawyers and lobbyists like they have been.
Take one element of it - say the taxi companies said, "OK, you're now getting rated, and if you drop below 5 stars you lose your medallion." Drivers would lose their minds.
Imagine them saying, "Also, now your trips are going to cost 50% less" again, would not fly.
Or even, "You can use your own car, because that's way more efficient" (would never happen, because taxi drivers rent their cars for $40,000/month).
The taxi industry has done a hell of a lot to entrench itself and make itself irreplaceable, no matter how awful it is. In doing so, it has created a system completely resistant to change and innovation. The industry was ripe for someone to come along and replace it with a parallel system that was better and more efficient.
Where is that figure from?
I badly broke my leg and, because I lived too far from public transportation to crutch over, had to take taxis to work 4-5 times a week, often both ways. No taxi company in sf will reliably come, even if you make it clear that you are going to take a cab at least 4 days a week for most of the next year. Instead, even when you are in the middle of the mission in a relatively dense location and going to soma, dispatch simply lies and says "10 to 15 minutes". A 95% wait time was 3 hours, and a 85% time was 1 hour 15 minutes, for what should be an approximately 15 minute drive. Even simple requests like calling a couple minutes before the taxi arrives so I could get down 2 flights of stairs on crutches without detaining the driver or having the driver leave couldn't be followed. Needless to say, this causes significant disruption to your life when you have to leave 90 minutes plus the length of the drive before going somewhere if you want to have any hope of reliably getting there on time. And god forbid you have to see your surgeon or something else with a hard deadline. The taxi services should be ashamed of themselves, and frankly participated in a violation of my civil rights as done by a quasi-governmental monopoly. And there are other issues: when I would occasionally have to pay with a card, the meter would suddenly be broken until you made it clear drivers had two choices: call the card in or not get paid. A fucking miracle would occur, and the card reader would start working. The taxi system literally shat on their customers.
The advantage of uber is simple: when requested, they either come, or say they won't. That allows you to be an adult and either make alternative arrangements or tell the other party you'll be late. I used uber even when they cost 2x as much as a cab just for this reason.
In conclusion, fuck taxis. Also, fuck sf. Only in sf is "a taxi that comes" a disruptive service.
To me requiring a special kind of driver's license to transport passengers makes a fair amount of sense iff it's reasonably easy to get.
Uber doesn't require that for UberX, which is the main point of conflict in many of the trials Uber lost over here.
Class A license - certified to drive tractor-trailer trucks.
Class B license - certification to drive non-tractor trailer multi-axle vehicles; kind of an amorphous collection, but think buses, large commercial panel trucks, dump-trucks, highway plow trucks, etc.
Class C license - any kind of normal passenger automobile.
What I find interesting about Uber, and the backlash against it, is that it is largely just a scaling of under-the-table, unregulated behavior people have always indulged in. What, really, is the difference between calling up your circle of friends and acquaintances, asking for a lift somewhere, and throwing them some cash for gas money and their time, versus using Uber? They are evil because they enable you to search a wider network then just your personal circle? Or because they take a cut for providing a reliable, safe, centralized payment service? Or because they have enabled a market that competes with a rent-capturing incumbent, and the product they provide is cheaper, more convenient, and higher quality?
With that said, I have to nitpick a few things:
1) This is a problem in many U.S. cities besides SF.
2) Uber has also shown a bizarre reluctance to deal with advance, regular booking. One employee even insisted that it would be anathema to Uber and against everything they stand for. Even though it would a) be trivial to implement, b) let them know of hails sooner, and c) give them greater knowledge of request patterns.
No, not making this up: https://www.quora.com/Why-doesnt-Uber-allow-customers-to-pre...
By law, I still have to use a taxi when returning from the airport here in Seattle (as opposed to Uber). I have had perhaps 2-3 positive experiences, some neutral ones, and many bad experiences with rude taxi drivers on their phones who drove erratically and tried to scam me with overlong routes.
And up until Uber and others arrived, they would either try to make me feel like shit for paying with a card, lie to me about it not working, or they would use carbon paper card readers circa 1985. Uber forced them to modernize in that respect, at least.
In my experience in a number of US cities, these apps get terrible reviews in the App Store/Google Play because they're borderline unusable. They often don't have all the features of Uber and Lyft, like letting you track the cab while it's on its way to you or even handling payment through the app, and they're often poorly designed and even prone to crashing.
My guess is that cab companies want an app that will feed into their existing dispatch workflow, with the limitations that entails. They probably also have no experience picking IT vendors, negotiating with them or evaluating apps.
Also, lots of local cab company owners and medallion holders are probably skeptical that they can compete or profitably do business with a worldwide, hypercompetitive billion-dollar taxi company. It's not easy running a local discount store when Walmart opens across town, but it's not necessarily any easier for a small supplier trying to sell through Walmart.
Looks like an opening for some very profitable startup :)
So the incentive isn't only the app, its also prices. There is a lot of lobbying being done here on the part of Uber and the cab companies have already staged a few demonstrations. Will be interesting to see how this plays out.
Cabbies are there for the cash and their attitude and style reflect that. Cab rides are typically reckless, the drivers rude, and the cars uncomfortable.
Of course, these are sweeping generalizations, so take it with a grain of salt.
Regardless, the game changer is the experience from app to to destination. Not just the app.
The cab system is an entrenched monopoly with a lot of inefficiencies and people stealing value along the way.
Being able to lie on the phone and say "the cab is 15 minutes away!" when it's going to be half an hour is a feature, not a bug - for the industry. It's the equivalent of asking reform from the music industry or Hollywood - not going to happen.
He is better off forgetting the medallion and finding work somewhere else to repay the loan. He should be able to make a few dollars renting the medallion in the meantime.
As for the government stepping in - live by the fake government market, die by the fake government market. I have no sympathy for people who build businesses behind government firewalls or with government subsidies, and suffer when those rules change. Because plenty of legitimate businesses have engine to the wall when the government arbitrarily creates regulations where previously there were none.
I just don't understand why this guy doesn't start getting uber pickups - if that is the problem, just join them.
The government isn't a third party here. Compensating him isn't just handing him money for a bad investment. It's compensating him for the fact that SF scammed him out of a quarter million dollars.
The reason why the government should have to compensate here isn't because he lost money and pour him. It's because the government sold him a license and then devalued the license on purpose.
You could argue that the city never promised to prevent all sorts of transportation competition. And he took that risk knowing that, for example, people could take limos or whatever. But you at least have to have that debate. You can't just write it off as a bad investment. The government is the cause of his loss. Not the market.
>As for the government stepping in - live by the fake government market, die by the fake government market. I have no sympathy for people who build businesses behind government firewalls or with government subsidies, and suffer when those rules change.
You act like cabs were regulated for the cab drivers benefit, but that's not how or why they were regulated. They were regulated for the benefit of the city and the rides. The medallion system was the other side of a compromise between the city and the taxis. The city would regulate pricing and dictate key parts of their business model, but in exchange they would be protected from competition. It was a quid pro quo.
IF you think the medallions shouldn't have been sold in the first replace, why isn't just returning them for the price paid the best solution?
My point is that if you rely on the government to create your business, don't cry when the government takes it away.