Two takes on Uber

Two recent articles about Uber suggest that the car service and others like it might destroy the taxi driving profession, with one stating plainly that that would be a good thing.

In "Will Uber Destroy the Driving Profession?" New Yorker writer Eric Goldwyn suggests that Uber's employment of "semi-professional drivers" may ultimately force traditional taxis out of business. If this happens, Goldwyn quotes New York Taxi Worker's Alliance chief Bhairavi Desai as saying that  the emergence of Uber is part of a long term undermining of labor:

 “Forty years ago, drivers went from laborers to independent contractors,” Desai explained. In the seventies, corporations lowered costs by hiring contract labor and leasing medallioned cabs to drivers. As contractors, drivers lost basic labor protections, like health insurance and paid vacations. 

Ed Rogoff, a professor at Baruch College’s Zicklin School of Business (and a former New York City cab driver), tells Goldwyn, “The independent-contractor taxi model is like sharecropping. Previously, cabbies and garage owners split proceeds fifty-fifty, with drivers keeping tips. The new system totally changed the structure of the industry by shifting all of the risk to the drivers.”  

This discussion, like many concerning Uber, omits that taxi apps are used to summon both traditional taxi and, in other cases, non-taxis, with unlicensed drivers (that is, unlicensed to drive a taxi) driving their own cars rather than vehicles dedicated as cabs.

A few days earlier, the Boston Globe ran an opinion piece by John Sununu, "Uber isn’t the problem; taxi regulations are," arguing that "In most big American and European cities today, taxi services look more like a bureaucratic conspiracy than the product of a competitive marketplace. In London, regulators consider use of a taxi meter to be a privilege and have erected exorbitant barriers to protect that status."

Sununu, a former U.S. senator from New Hampshire, continues that Uber "operates more like an information broker than a transportation company. They own no vehicles or medallions, but vet local operators, manage the application connecting drivers with users, and provide a rating system for both."

This view is close to how Uber sees itself, as technology or information company, not  a taxi company subject to taxi regulations.  Many in the industry, including regulators, have disagreed at least in part. So does Sununu, who says: 

Uber’s success and popularity should inspire legislators to take a hard look at the wasteful mass of ancient taxi regulations already on the books. Ostensibly, they were intended to protect consumers. But now they block access to faster, more reliable service.

TLC Inspectors Cry Foul about TLC Car Seizures

The TLC seizes more than 9000 private cars annually, but apparently that's not enough. According to an article in the New York Post. "TLC chiefs are threatening inspectors with summons quotas and other stiff punishments if they don’t take enough illegal cabs off the road." The Post also says it has roll-call recordings to back up the inspector's claims.

The chiefs of the TLC inspection unit pressure their officers by issuing a target number of summonses a day.

“You are going to be doing 15 summonses a day . . . I’ll ride you for a week. If you see that you’re not getting the seizures, you see you’re not getting enforcement . . . then start with the street hails,” one chief says to an office on one of the tapes. The chiefs also threaten other subtle punishments, such as assigning an officer a day-shift just after a night shift.

TLC officers have already charged that "many seizures [are] bogus" in that the officers don’t have reasonable cause, and grab the cars done to fend off pressure from higher-ups.

Just this month, there have been allegations that the TLC seized the car of a black man who was driving his white wife, the car of a Turkish-American who was taking his neighbors to the airport, and that of a driver who gives free rides to cancer patients.

TLC inspectors are being backed by their union, the Teamsters. Randy Klein, of Teamsters Local 237, told the Post: “The ideal situation is they treat them like human beings, they are trained well, and have the tools to protect themselves and the public.”

That would be ideal, too, for the drivers whose cars are nabbed by the TLC.

Uber $3 billion, but how much uber?

Early this month, taxi hailing app Uber completed its latest round of funding and was said to have a valuation of $17 billion. Following that news, New York Times business columnist Andrew Sorkin suggested that the $17 billion figure might be too low, that Uber could be worth more. Sorkin's take can be summarized:

Think about the basic math. There are a lot of numbers floating around about the global revenue for taxis, but here are the basics: In the United States, the taxi business generates $11 billion annually, according to IBISWorld.

In big cities like New York and London, The Financial Times reports that the average person spends $238 a year on taxis. If you extrapolate that Uber could one day control a quarter of the current global taxi market, the investment would turn out to be a home run.

The business is currently in 128 cities in 37 countries and says it is doubling its revenue every six months. (TechCrunch reported Uber’s revenue last year was $213 million on more than $1 billion of bookings; Uber takes a 20 percent cut of all driver’s receipts.)
If Uber were to take just half of the taxi market in the United States — and nowhere else — it would generate more than $1 billion in revenue a year.

The problem with this math that that Uber only gets something like 20% of the fares of the rides that it arranges. So even if Uber arranged a quarter of all the taxi rides in the U.S. -- which is a huge 'if'-- it would get 20% of 25%, or 5%. If the taxi market in the U.S. if $11 billion, Uber's share of that gross would be $550 million. No one believes that Uber grosses this much now-- Techcrunch says the revenue is less than half that-- but it might in the not-too-distant future. Whether it makes a profit now, or is likely to see any profit soon, is anyone's guess. 

Still, a half a billion in gross revenue is quite a bit for a four-year-old company, and Uber is international. But there are also many other Uber-like companies, some big, like Hailo. I have heard that some of the the car services, like Carmel, have their own app. So the technology part seems ubiquitous and not proprietary. Thus a 25% share would seem hard to maintain in an industry with so many small companies, widely dispersed. 

Writing today on Nate Silver's fivethirtyeight.com, Aswath Damodaran, a finance professor at New York University’s Stern School of Business, argues that Uber is actually worth something like $5.9 billion, which is still nearly double what valued at before its latest round of financing. Of course, the "correct" valuation varies wildly depending on what one assumes to be the future size of the taxi market and Uber's share of that market.

Damodaran is skeptical of Uber, or any taxi company's ability to obtain a large share of such a disintegrated market:

The bad news is that the market will be tough to dominate. Unlike technology companies in other businesses, like Google, Facebook and eBay, the network effect and winner-take-all benefits are limited. Having a global network of tens of thousands of cabs doesn’t make a difference to a customer looking for a cab in New York City. That, along with the regulatory restrictions protecting the status quo and the competition Uber faces from Lyft, Hailo and others, lead me to estimate a market share of 10 percent.

Increased competition has already forced Uber to cut its take of gross receipts in some cities. My instincts tell me that Uber’s slice will decrease over time, but I’m going to make the optimistic assumption that the company will find a way to differentiate itself and continue to claim 20 percent of gross receipts.

But even if Uber does get a 20% share of a global $100 billion market, Damodoran doesn't think the valuation makes sense.

The market would have to be three times my estimate — about $300 billion — or Uber’s market share would have to be more than double my base case estimate — more than 20 percent — to justify a $17 billion valuation. The former may hold if you see Uber’s market more expansively than I do, and the latter may come to fruition if you believe Uber will have an easier time overcoming the competition and the regulatory constraints on its growth.

Of course, the money backing Uber is said to be smart money-- Fidelity Investments, BlackRock, Kleiner Perkins Caufield & Byers, Google Ventures, Menlo Ventures and Wellington Management and Summit Partners. Everyone assumes that they must know something that makes their investment make sense. And maybe they do. But even the most successful venture capitalists lose more often than they win. The profit comes from winning big when they do win. Thus Damodoran says, "I wouldn’t be that quick to conclude that smart investors always make smart investment judgments."

A few have made small and even large fortunes in the taxi business, usually after a generation or two of accumulating licenses. But there is no taxi billionaire. It remains to be seen whether Uber's backers become the first.

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In an addendum to the Uber valuation story, the Wall Street Journal today ran an article suggesting a way for investors to profit from Uber even if they are not venture capitalists who have access to Uber shares.  The Journal's idea: Sell Medallion Financial short:

Medallion is a specialty finance company that services loans used to purchase city-issued “medallions” that are required to operate yellow cabs. Shares of the company have slumped more than 18% this year and on Thursday fell to the lowest level since December 2012. The company sports a market capitalization of about $300 million, according to FactSet.

After peaking at $17.85 in November, Medallion shares lost about 1/3 of their value, a decline that has coincided with a rush of short sellers betting that the stock will keep falling.

The Journal figures that shares in the company that lends on medallions is indicative of the decline of the traditional taxi business as it loses out to Uber and its ilk. 

Canceling Tomorrow Could Cost Big Bucks

Mayor Bill de Blasio has he indicated he might cancel the Taxi of Tomorrow program even if the city continues to prevail in court. But doing so could cost the city as much as $100 million, according to a capitalnewyork.com report
Following a lengthy competition, in 2011 Mayor Michael Bloomberg agreed to give Nissan near-exclusive rights to supply yellow taxis for New York City Streets. Its winning design was the big and ugly, but feature-rich NV200, which sports amenities like back-seat airbags, moon roofs, phone-charging ports and passenger reading lights.
Nissan apparently claims that developing the vehicle cost Nissan about $100 million, and that the city would be on the hook for that sum. 
De Blasio, as public advocate, opposed the Taxi of Tomorrow on the grounds that Nissan had investments in Iran and that the vehicle was not wheelchair-accessible-- which is now even more awkward nowadays in that the city has also promised to make half of the city's taxis wheelchair friendly. 
Taxi fleet owners, who gave hundreds of thousands of dollars to the mayor's campaign have battled the program in court, first successfully, but lately unsuccessfully.  That battle could continue if the mayor decides to proceed with the program. Presumably, if the NY Court of Appeals, which may have the last word, decides that the program was unlawful after all, the city would no longer own Nissan for canceling the deal.

Race-Based Seizure?

In another seizure gone awry, TLC inspectors ticketed a black man as an illegal cabbie after spotting him drop off a white passenger. That passenger turned out to be his wife, leading to a lawsuit in a Queens county court, according reports in the Daily News. and in DNAinfo.

The Queens couple, Dan Keys Jr., 66, and Symone Palermo, 53, filed a racial bias action (claiming a whopping $3 million in damages) against the city and the Taxi and Limousine Commission, claiming they were unlawfully targeted on May 2013 by agents who assumed that a black man dropping off a white woman must be a cabdriver, or, in this case an unlicensed cabdriver  providing an illegal ride.

This is the third black eye in a week for the TLC aggressive car seizure program, the first being an claim by one of the TLC's own inspectors that his agency acts recklessly in issuing summons, the second being a summons and car seizure of a driver who gives free rides to cancer patients. 

in the latest case, the husband and wife both received summonses — the wife was ticketed as  the registered owner of the car — and the agents allegedly continued the charade to cover up their mistake, according to court papers.

While the TLC-issued summonses were dismissed, the couple lost use of the car for a week. 

TLC mouthpiece Alan Fromberg, who is rarely at a loss when denouncing drivers, refused comment.

In the past the TLC has boasted that it seizes 8000 cars annually, and that it is looking to increase that number.

Additional links:

Lawsuit: TLC Mistakes Black Man, Bi-Racial Wife For Illegal Livery Cab Driver, Passenger

NYС officials accuse black man of being illegal cabbie for driving wife to work

This Racial Profiling Case Will Have You Shaking Your Head

If your car has been seized, click here.

Taxi of Tomorrow Held Legal

The so-called Taxi of Tomorrow got a legal green light from an intermediate state appeals court today, reversing an earlier trial court decision.  

Read the appeals court decision here.  

According to BloombergBusinessweek report, the Appellate Division ruled that the Taxi of Tomorrow program is a “legally appropriate response to the agency’s statutory obligation to produce a 21st-century taxicab consistent with the broad interests and perspectives that the agency is charged with protecting.” Judge David B. Saxe wrote the majority opinion. That there was a dissent by Judge Acosta makes an appeal to the New York Court of Appeals more likely.

Nissan won a contract with the city in May 2011 that allowed it to be the sole maker of NYC taxis, a deal valued at $1 billion over 10 years. 

Taxi fleet operators sued the city in December 2012 on the ground that the TLC had the authority to issue standards, but not to designate a particular vehicle. A judge halted the program five months later.  The city subsequently revised its rules to allow for more hybrid vehicles, something the TLC had previously advocated. The Nissan vehicle is not a hybrid, yet the TLC made it mandatory.

But in today's ruling, the court wrote: "Where an agency has been endowed with broad power to regulate in the public interest, we have not hesitated to uphold reasonable acts on its part designed to further the regulatory scheme. Here ... far-reaching control has been delegated to a commission charged with implementing a pervasive regulatory program. This far-reaching control granted to the TLC by the New York City Charter gave the agency full authority for its actions. 

Judge Acosta said in dissent that the commission exceeded its authority, “regardless of whether the Taxi of Tomorrow project is rational and consistent” with its objectives, because it mandated the exclusive use of a specific make, model and manufacturer.

The T o T was a darling of the Bloomberg administration. The new mayor, Bill De Blasio, has decidedly different views about the taxi industry so it remains to be seen whether the city and the TLC will seek to revive the program.

  

TLC Car Seizures Run Amok

Former TLC Chairman David Yassky often bragged about the ever-increasing number of cars his agency was seizing as unlicensed taxis, sometimes more than 1000 per month. Indeed, the limiting factor was said not to be the number of unlicensed cabs on the streets, but the space to store seized vehicles. 

Last week, though, a TLC inspector said that he and his colleagues often stopped and seized cars because of pressure from enforcement-unit brass. These inspectors have grabbed cars without adequate evidence or reasonable suspicion that the drivers were working as illegally as unauthorized cabbies. 

Inspector practices appear to often include aggressively questioning passengers who are dropped off at airports about whether they paid for the ride. If the flummoxed passengers-- who naturally wonder wonder why they are being questions-- don't give a sufficiently clear statement that they did not pay, the inspectors stop the driver, issue a summons to the drive and sometimes to the car owner as well. Each can call for a fine of $1500.  

In one egregious example, last week inspectors seized a car belonging to a charity that gives rides to cancer patients.

In addition to the possible fine, the car owner has to to both the TLC and to an impound lot at another location to retrieve the vehicle at an additional cost of several hundred dollars. It's not at all clear, however, whether the seizures are lawful where the car's driver is perfectly capable of driving it away and no crime is charged.    

If your car has been seized, click here.