0070: A License to Drive

I recently had reason to take two cab rides in New York City. Without prompting, both drivers complained about Uber, the world’s largest taxi company, which employs no drivers and owns no cars.

My Yellow Cab drivers pronounced Uber like they were trying to expel a bone caught in their throats – “OOOBer.” They said it with disgust and disdain, mixed with a dose of self-righteousness and just a smidgeon of fear.

Uber and its primary competitor Lyft have not just upset the urban individual rider transportation system; they have turned it on its head.

Pick any iconic movie scene in Manhattan, whether the actor is fleeing a lover or racing to meet one, he or she steps into the street, raises an arm or whistles sharply and a taxi slides up to the curb. It’s always a boldly colored Yellow Cab, usually with a surly driver in a hurry. Taxis go with city streets like pretty fish go with Koi Ponds. 

Not just anyone can run a taxi in our major cities. Taxis are business and municipalities issue licenses for them to operate. Those licenses are restricted in number to keep their value high and to limit – in New York City’s case – the number of cabs to about 15,000.

Potential owners buy the license at the occasional auction. The high bidder receives a medallion to display on the cab as proof he is operating legally. At its peak in 2013 the price of a two-medallion license reached $2.5 million, seven times the $350,000 it fetched in 2004.

Much like homeowners were encouraged to do during high inflation, many cab drivers borrowed against the increased equity of their medallion to buy a house or a boat, send the kids to college, enjoy some vacations.

A year later, the value dropped 25 percent.

Today, my drivers told me, an individual medallion for an owner operator, which cost as much as $1.3 million, could be had for $350,000 – if the city, which issues the medallions, and the bank, which loans money to buy the medallions – would allow it.

They won’t because of the huge losses that would involve.

In the meantime, Uber and Lyft, which are not required to have medallions or to be licensed because, hey, they don’t own any cars or employ any drivers, are tapping the sap from Yellow Cab drivers’ tree of life.

So these independent businessmen, who drive their storefront for 12 or 14 hours a day through congested Manhattan streets, are worried. They are carrying fewer than half of the passengers they carried just a few years ago.

In the meantime they see men and women on street corners, looking furtively about, glancing back at their smart phones, trying to talk their Uber drivers to their location. One of my drivers said he was worried for those potential passengers’ safety, because while they are concentrating on their phones, they’re not paying attention to potential purse-snatchers around them.

The fact is the world has changed dramatically for taxi drivers. An entirely new system of individual transportation is disrupting a business that just three years ago looked rock solid, with a stable future.

When the drivers, in frustration, asked, “Why do people call an OOBer,” I offered a simple observation: Price. An Uber rider attending the same conference as me paid half of what my Yellow Cab ride cost. The price is arranged before pickup, and that’s the cost.

When my Yellow Cab was stuck in traffic, the meter kept ticking.

Other disruptive technologies will appear in our near future.

I asked a riding buddy who drives for UPS if Sunday delivery by the US Postal Service is disrupting his income. “No,” he said. “With Amazon Prime, there are plenty of packages for everybody to deliver.”

Then he said the real fear of package delivery services is if Jeff Bezos, head of Amazon, starts his own delivery system. That would leave them all shaking in their boots.

Maybe that’s an opportunity for those of you in the boot manufacturing industry.

 

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