Uber’s Manhattan Invasion Is Killing the Loan Market for Taxis
bloomberg.com
bloomberg.com
When an externality came in that reduced demand, they were caught off guard, but they should never have been in this place to begin with.
To blame Uber here is obvious, but far from fair. Sorry guys, you ran an artificial market, took out loans against that artificial market, and an externality came and popped your bubble. You had great times for a long time – now it's over.
And it's not just Uber that people are picking over taxis. They are picking their time over taxis. If you read the last two paragraphs of this (terrific) article, the 'time' concept will make more sense: http://www.newyorker.com/tech/elements/the-long-history-of-t...
As a New Yorker, I love Uber and find it absurd that the mayor basically makes decisions about the cabs. Over the last several years, the "improvements" such as adding TVs to the cab seem completely unnecessary and not based on actual customer demands or preferences. Not to mention pricing by government decree leads to shortages during rush times and every cab honking at you looking for a pick-up during the off-hours. Oh, and if you're going somewhere the cab can't pick up a return, you'll be sure to hear about it.
The other thing is that this objection seems way too premature:
> By his count, only about 500 of the city’s medallions, or about 3.7 percent, are trading below their purchase price. That means that if banks foreclose, losses would be “insignificant,” he said.
Surely the lending institution has to take some risk in regards to the value of the collateral. Unfortunately, the US has a precedent for bailing out financial institutions
Ah, but in fact you're mistaken. Actual customers did demand that they be added to the taxi fleets. Only the customers in this case are tangentially associated marketers who wanted to serve their products to a captive audience. :P
> Mr. Yassky (taxi commissioner) said that in lieu of demanding advertising revenue, the city hoped that the additional income for vendors might encourage them to lower the fees they charge to cab owners, which could in turn reduce the pressure to increase fares. “I don’t think advertising is so much an opportunity for city revenue,” he said, “so much as an opportunity to keep fares down.”
Looks like NYC government isn't really benefiting but (presumably) bearing the cost of fitting these TVs. Government officials always associate price with cost rather than price with demand.
Externality has a very specific, economics meaning: https://en.wikipedia.org/wiki/Externality
As an occasional customer of NYC transportation services, I'd just like to throw this out there: I AM NOT YOUR PROPERTY! YOU DO NOT OWN ME! I CANNOT BE "STOLEN"!
Cab drivers - the actual workers? almost below the middle class level despite apparently being in the center of 2.5Billion industry.
Here in Perth Uber provides a clean, calm experience where you don't have to worry about being scammed. Almost every time I've taken a taxi they have pulled the "No change for your fifty" trick, driven the long way which devolves into you having to tell the driver the directions which save you $15 off of the fare or even the times that my Taxi driver has pulled over mid-trip to purchase themselves some energy drinks (without asking me if that's ok).
I can't wait until the taxis and their Government issued monopoly are over. All that matters is that their business model built upon bad experiences, arrogance and scamming is finally being challenged and they deserve to lose these artificially inflated "assets".
On a serious side, the experience is similar in other cities as well. My friend had to do an early AM ride from Harlem to EWR. No taxis on the street, companies she called flat out refused (and she hates to make calls). Compare it to Uber who showed up on time, was very polite, she did not have to pull out cash or credit card, did NOT charge her the full cash fare tunnel toll charge, and cost 30% less overall.
Even in Toronto where taxi drivers are generally a nicer bunch, I am regularly told that "my card machine is broken/not charged".
If taxis want to compete with Uber, at the bare minimum they should "embrace and extend" what Uber is already doing: smartphone apps, rating system, card-less and cash-less billing.
In New York, for example, Uber drivers are... OK. They're usually polite enough but they're utterly dependent on their GPS - half the time they don't even seem to know street intersections. Most of the time that's fine, but if the GPS has something wrong or fails they're hopeless. Now, NYC cab drivers can actually be even worse. They're often rude, and sometimes have no idea where they're going - they can't use GPSes, so they know more often than Uber drivers, but still.
So, in NYC, Uber is the better choice. But then go to London, where cabbies are polite (to be point of being too chatty) and know exactly where they're going because of studying for "the knowledge". I'd trust a London cabbie over an Uber driver to get me to my destination every time. So in London, cabbies win out.
TL;DR: I don't think there's any universal measure of taxis vs Uber that can be applied to, say, all users of HN.
That's the complete opposite of my previous experiences with Uber (and this wasn't just one time. I took multiple Uber trips and they all resembled each other).
That is so rich, the people who want to force competitors out are calling their competition Mafia like. This article is so bizarrely worded ... Uber is "invading" "stealing" customers. Nope, no bias there. (/sarcasm)
I understand someone is lashing out at losing their cash cow but I don't think I've heard Silicon Valley described as a Mafia before.
Can anybody explain how this is even a remotely comparable thing to say?
You haven't ?
http://www.telegraph.co.uk/technology/11106473/The-PayPal-Ma...
* > [C]redit unions with a combined $2.5 billion in medallion loans are suing the city for failing to stop Uber from stealing customers.*
Um, what? It's not the government's job to stop competitors from stealing customers, it's up to businesses to stop their competitors from stealing customers.
Just a little background on medallion finance:
A few summers ago, I worked in commercial credit and we did a financing for a "taxi mogul." He was replacing several cars in his fleet, and wanted to take out term loans for the full purchase price of the cars (approx. $30k each, IIRC).
The loans would be secured by cash flow, but the business also posted medallions as collateral. Each loan was attributed to the vehicle purchased with the proceeds and secured by that vehicle's medallion.
It's hard to value something like a taxi medallion. Medallions aren't liquid -- they are usually sold in very low volumes at auctions controlled by the TLC (in NYC). Additionally, the TLC limits the number of outstanding medallions. In practice, most of the medallions are concentrated in the hands of "taxi moguls" who started taxi businesses in the early 20th century when medallions were cheap (think $30k). The best approximation for value we had was the prices commanded by medallions at auction. When I was doing diligence on this deal a few years ago (before Uber), prices were accepted as $1.1mm per medallion. (In reality, that was at best the value of the "marginal" medallion sold; i.e. you could probably not put 10 medallions up for auction at $11mm.)
That means that a $30k term loan would have a loan-to-value of about 3% -- a dream for a bank, assuming the medallions can be seized and sold at market value upon default. That also meant that the loans would be approved almost regardless of the integrity of cash flow. Those characteristics allowed the more cunning taxi moguls to borrow a lot of money against their medallions, securing low rates due to the strength of their collateral posting, and lend the money out at higher rates to earn arbitrage.
There was a good amount of discussion about the medallion bubble -- all it would take is a significant increase in the number of medallions authorized by the TLC or a few failed auctions, and a medallion sold at a large haircut, for the value of all medallions to plummet. Granted, the drop in value might not trip loan covenants, but it would significantly erode the balance sheets of these businesses. At the time, we didn't expect that there would be an external force that would hurt medallion values.
Honestly, skyrocketing medallion prices made it clear that additional ride capacity was needed/demanded. The interesting fact is that the medallion market wasn't disrupted by the issuance of additional medallions, but rather a drop in the demand for yellow cab rides -- a scenario that taxi moguls likely hadn't planned for.
All in all, an interesting asset class that most people aren't aware of -- those 4-letter signs on taxis hold no meaning to riders, and almost nobody on the street would guess that they represent assets worth over one million dollars.
Your example shows that a lot of businesses take advantage of credit to increase their returns but probably are never able to see where the problems are going to come from. Even ten years ago if you'd have said we would be in this situation it would have been unimaginable.
The angle most taxi sympathisers are going for is the 'poor taxi driver' angle. But in reality the taxi drivers can just switch. It's the people who are all-in on taxis who are in trouble, with their business model built around a constant amount of passenger miles which probably hasn't changed in years.
Though it makes me wonder if you could start a business that rents out cars to potential ride sharing drivers. You get $X per hour that they use it and at the end of their shift they drop it off with another rent. Basically reinventing the taxi cab model.
Car services flourished because even today, cabs will refuse to go to Brooklyn. This was a form of "redlining" that profiled customers by race, even now that Brooklyn has added white hipsters to its ethnic and religious minorities.
So in NYC there is nothing new about this form of competition; it is only that Uber has made it more convenient.
I don't want folks reading this to think cabs really don't go to BK.
So, even if there is hailing via an app (Which afaik exists for some black cabs), you're still paying the regulated and more expensive fare.
You get what you pay for.
The taxi business as we know it ought to die. Let these thieving, exploitive 'mogels' go bankrupt.
Then customers will cry out for regulation, insurance, etc. And it'll put the prices up.
I don't understand why you'd put your life completely in someone elses hands without any sort of vetting, regulation, insurance etc. Just so you can save a few $
Maybe a startup should disrupt the medical industry. Just provide "doctors" to patients based on online feedback scores. After all, all that regulation and training just pushes prices up.
There are numerous events of murder and rape in regulated taxi cabs. (Google is helpful). If you have any evidence that Uber is more dangerous than a cab is love to see it.
As for your final question, yes. Regulation has artificially held back the medical industry and ridiculously inflated prices. People aren't stupid, they can decide what's best for themselves. Choice and free competition is the foundation of progress.
Look at airbnb and the detrimental effects it has on cities. Residential areas are residential for a reason. It must be horrible to wake up one day and find that your neighbour has decided to turn into an unregulated hotel.
Secondly if the prior taxi system is evidence of regulation i think it's a safe assumption to make that regulations helped neither the consumer or the providers. Uber in SF is doing 3-4x what the entire taxi system was doing prior, that's evidence of demand not being met. Artificially restricting supply is never a good idea.
Uber is only doing so well because people prefer their service to the alternatives, people aren't stupid, they can do what is best for themselves.
New service is introduced and is preferred by consumers.
Existing service wants more regulation to kill new service.
Sounds about right.
I welcome anything that rids us of "rent seeking" and helps with market efficiencies.
I can't help but think it's not a good idea to convert an entire industry to contract workers...