Getting Over Taxis

Taxi Austin

Taxi Austin

I find Susan Crawford’s arguments in Getting Over Uber puzzling and unconvincing on a number of fronts.
First, consider the statement:
Uber drivers have a tough time making a living; they’re responsible for their own cars, fuel, benefits, maintenance, tolls, and certain insurance as well as the kickback to Uber that takes a substantial slice out of every fare they pick up…. Uber consistently squeezes its drivers as tightly as it possibly can; new drivers are paying an even higher cut to Uber than the first generation did.
Most taxicab drivers also have a tough time making a living. They aren’t responsible for their own cars, maintenance, and some insurance, but they do have to pay for their own fuel, tolls, benefits (because 87% of all taxi drivers in the US are independent contractors), and they pay a daily rental fee that is far higher than any possible slice of every fare that an Uber or Lyft driver picks up.
The charged language “kickback to Uber” is particularly loaded and inappropriate, given that the slice of a driver’s daily revenue that is taken by Uber is actually less than that taken by the typical taxicab owner, albeit in the form of a daily rental fee for the taxi rather than a percentage of every fare.
I’m not going to bother rebutting Susan’s statement:
“[Uber drivers] may or may not know where they’re going, and they may or may not be driving cars that are safe.”
given the experience that I have had (and Susan herself must have had) in taxis whose drivers don’t know where they are going, driving old rattletrap cars that wouldn’t pass an Uber or Lyft inspection.
Do the Math: Taxi vs Uber
A taxi driver typically rents his or her taxi from the owner, usually for a fee of $100 to as much as $130 a day (or, assuming the driver works 5 days a week), a total of $2000 to $2600 a month.) This is referred to as “the gate.” The driver keeps 100% of all fares and tips over that amount, but that is the cost of entry.
Now, compare Uber: you provide your own car, but you pay no daily rental fee. You keep 70–75% of every fare (Lyft gives the driver 80%, and if you’re a full time driver with Lyft, you keep 100% of every fare.) For the 25–30% share that Uber keeps to equal a $100 Gate fee for a taxicab, the driver would need to generate $400 per day in fares. That’s the equivalent of $2000/week or $100,000/year!
Given the enormous pushback when Uber claimed that some of their drivers could make as much as $100,000/year, this number seems unlikely. (felix salmon had glowing things to say last year in The Economics of “Everyone’s Private Driver.” After a scathing rebuttal from Tom Slee, Salmon wrote another, somewhat apologetic correction about having misinterpreted Uber’s projections of possible driver income.) That means that the share of the driver’s income taken by a taxi company is far greater than the amount taken by Uber.
This comparison isn’t entirely fair, because the taxi driver does not have to provide his or her own vehicle. But what does that cost?
A quick internet search shows that I could lease a 2013 Toyota Camry from Uber’s leasing affiliate for payments as low as $109/week, and Allstate told me I could insure a similar vehicle for $103/month. That works out to about $25 per day, assuming that the vehicle is driven 5 days a week. That is probably on the low side, but the point remains: it is a fraction of the cost of the daily rental that most taxi drivers pay.
There is one other simple thought experiment that you can make to understand the fallacy of Susan’s argument. And that is to ask how taxi owners make their money. They rent their cars to drivers. If the rental income they received from drivers weren’t higher than the costs of owning, insuring, and servicing the car, not to mention the cost of purchasing the medallion (which can cost many hundreds of thousands of dollars), they would be out of business.
The Path To Ownership
Using this back of the napkin math, it appears that on the cost side, being an Uber driver is a better deal than being an independent taxi driver. And while the amount that you can make as an Uber driver is a matter of considerable debate (see Felix Salmon vs Justin Singer), it is almost surely higher than the median income for taxi and limousine drivers in 2012 reported by the US Bureau of Labor Statistics.
So why don’t more taxi drivers switch? Many do. But I suspect that the reason others do not is the same reason that many low wage workers can’t get better jobs: they can’t afford to. Buying a new car of your own may be cheaper than renting a taxi by the day, but you have to have good credit to make the purchase. As is so often the case, the poor pay more because they can’t afford to pay less.
Uber recognizes this problem, and has been trying to make it easier for potential drivers to acquire their own cars. Their first foray into vehicle leasing was a disaster, with many drivers getting in over their heads with cars they couldn’t afford, paid for with leases they couldn’t get out of. Recognizing this problem, Uber has been working hard to make car leases both more affordable and more flexible.
There is one set of taxi industry players that is particularly hard hit by disruption from Uber and Lyft, and that is medallion owners. (I am particularly sympathetic to the plight of individual medallion owners, many of whom worked their way up from being drivers.) They paid a lot of money for the exclusive right to operate taxis in a particular city, without competition, allowing them to keep fares high, and they are being challenged by upstarts not just with better technology and better user experience but with a different economic theory: that if you can drive down fares sufficiently, you will increase utilization to the point where people choose on-demand transportation over the alternative of owning and driving their own car. And further, they are betting that that increased utilization will provide better income to drivers despite the lower fares. (See my previous piece, Improving Uber’s Surge Pricing, for more details.)
There is no question that there was a path to ownership of a valuable asset in the previous regime of taxi medallions that is no longer available in the Uber era, but that opportunity was available to few, and most taxicab drivers are simply low-paid independent contractors with high costs and little ability to grow their income.
Tim O’Reilly