Taxi Medallions, Once a Safe Investment, Now Drag Owners into Debt

https://www.nytimes.com/2017/09/10/nyregion/new-york-taxi-medallions-uber.html

83 87 9 years ago

troydavis2• 9 years ago

Sohan Gill once saw his medallion as such a good investment — ”better than a house”

If something looks like it's an impossibly good investment, it may actually be.

It's a shame that US city governments let this happen by retaining the medallion monopoly system. If cities let the taxi supply adjust to demand, a taxi license would have been worth the same as any other business license.

api2• 9 years ago

They do the same thing with housing. If supply adjusted to demand a starter house would not be 500k to 1m. Nothing about it costs that much.

djrogers• 9 years ago

Nothing except the land it sits on...

imcrs• 9 years ago

If you thought eliminating interference in the taxicab market was difficult...

ProblemFactory• 9 years ago

Even if cities decided that it is in their best interest to limit the number of taxi drivers, there is no good reason why the license should be transferable property that can be bought, sold and rented.

If a taxi driver quits, the city, and not the previous driver should choose who is the best candidate to replace them.

brandur• 9 years ago

Likewise, we should have seen the rise of middlemen who put up the capital to buy medallions, rehire drivers at suppressed wages, and proceed to collect rent forever, as bad.

This is essentially the same problem that we see reoccurring everywhere in modern society. We put in a system that seemed like a good idea, but after some time being exercised in reality, turns out to have some serious flaws.

Fixing those flaws is so time consuming and expensive that it becomes a bureaucratic impossibility. The result is that the profits pass onto the few, and everyone else suffers for it. (e.g. politician buying in Washington, software patents, prop 13 in California, etc.)

delazeur• 9 years ago

If something looks like it's an impossibly good investment, it may actually be.

Probably not a fair criticism of the investor in this case. 20 years ago, it would have been a totally accurate assessment.

troydavis2• 9 years ago

The risk/outcome - that the taxi supply becomes responsive to taxi demand and licenses/medallions become worthless - has existed as long as medallions have. While the risk is hard to forecast and thus price, it's not new. Investors succeed by pricing risk and investors who bought in 2013 significantly mis-priced this risk, so criticism seems reasonable.

tim3332• 9 years ago

Trouble is if you don't regulate taxi numbers under the old system you end up with 30 taxis hanging out in the same prime location fighting over customers and causing congestion. Hailing apps solve that problem.

kstrauser• 9 years ago

I feel very badly for the people in the article who lost their life savings on a failed investment.

I also feel very badly for people who went broke on Beanie Babies and tulip bulbs, for almost precisely the same reasons.

Edit: I'm serious. Medallion prices peaked in 2014, well after the start of Uber and Lyft's explosion onto the spotlight. It seems like a bad idea for someone in 2006 to have invested a life's fortune in an arbitrarily limited commodity, but fiscal insanity to do the same in 2014. Those things were only ever valuable because the government issued so few of them, not because of inherent worth. When the demand for them fell below even their meager supply, they became (relatively) worthless - as predictable.

I wish the people in the article had sold their medallions to corporations in 2014 when they were still worth a mint. Failing to do so was a tragic miscalculation.

erikb• 9 years ago

I think this comment is bringing it to the point. Investment wise it was a bad idea to begin with, and when competitors start to hit and easily conquer the same market, then of course it becomes really stupid to invest in that market.

In that regard my pity is also limited. Yes I feel their pain with them. But we also have a responsibility to investigate before making such a huge bet. And sadly if you discuss with people who lost their life savings like that, many actually think they are not responsible BECAUSE they didn't think about. The "logic" being, if you don't think about it, you can't be responsible for the result.

skookumchuck4• 9 years ago

It's always very risky to bet everything you have on one investment. Investments are never sure things.

jimmaswell• 9 years ago

Could it be comparable to going to college for a major in one field that was projected to stay lucrative but went downhill right before you were going to graduate?

bsder• 9 years ago

I feel very badly for the people in the article who lost their life savings on a failed investment.

San Diego did a good thing with this. They bought back the medallion at some price relative to what was paid minus some amount for time owned, interest, etc. Then when they redistributed those bought back medallions, they slightly increased the medallion count.

That sequence stopped a lot of the problems. Anybody who got caught out by medallions collapsing could just get out. Anybody who bought in at this point knew what they were getting into.

JamesBarney• 9 years ago

Actions like this always seems to weird to me.

Given the limited resources of government and the large number of people who need help, it seems strange to ration that aid on the basis of previously making a bad financial investment.

user5994461• 9 years ago

I wish the people in the article had sold their medallions to corporations in 2014 when they were still worth a mint. Failing to do so was a tragic miscalculation.

Some of the people mentioned in the articles were running corporations. They wouldn't by 2+ medallions for themselves.

totalZero3• 9 years ago

You shouldn't back-trade a peak in any market.

Peaks always look like peaks in hindsight, but there are plenty of rallies that keep on rallying, too.

Would it have been nice to sell a medallion on the 2014 highs? Sure.

Is it insanity to have bought one there? No.

It was simply an investment in rights to a regulated business, which has faced headwinds from unregulated competition since that time.

And please keep in mind that a million dollars in NYC isn't the same as a million dollars in Iowa.

tpxl• 9 years ago

It's not insane because of the high price, it's insane because of the emergence of Uber and Lyft as competitors (even if illegal).

sschueller• 9 years ago

Funny how Uber didn't fix that but instead put new drivers in another Debt., Uber sub prime car loans.

toomuchtodo• 9 years ago

"Disruption" doesn't eliminate rent seeking; it only creates a new class of rent seekers.

eicossa• 9 years ago

Don't know why you're being downvoted. Seems like a nice point to debate about.

adrianratnapala• 9 years ago

Let me put my chairman Mao hat on, and say this is why the needs to be perpetual disruption.

More seriously: the world is changing all the time businesses and business models face challenges all the time. This produces churn where the current crop of winners have little political clout, but start to gain it as they settle in.

Of course if they succeed in gaining political clout, they might be able to dig in and prevent change for a long time until something big and rare comes along and undermines the whole system.

rebuilder• 9 years ago

You could easily argue disruption is likely to result in worse rent-seeking.

Premise: The main way you disrupt an industry is by radically increasing financial efficiency.

You increase profit margins by finding innovative ways to decrease spending on e.g. workforce, letting you shift a larger percentage of your revenue to funders, i.e. the owner class. Those profits are used to further innovate in ways that increase profits, decreasing the working population's share of profits and increasingly centralizing wealth.

How does that not happen?

MichaelGG2• 9 years ago

In Guatemala, ex-taxi drivers tell me the daily spend on the car went to 1/3rd the amount when they bought a car versus renting a taxi. So they were paying 3x as much per day, and in a few years would have nothing to show for it. So even with Uber's 25% cut and lower prices, they say they're doing way better.

In the US, I'm not sure you can compare a medallion costing nearly a million dollars with a car loan for a few dozen thousand. The medallions can swing in price (as we see), a car probably will follow a well-known decrease.

yazaddaruvala• 9 years ago

What would be even better is car "pooling". 4 drivers really only need two cars. i.e. Share the cars between the night, and the day.

bww• 9 years ago

The medallion system pretends to regulate the taxi industry, but in actuality it’s a scheme that allowed people to buy into a monopoly. This unusual arrangement has insulated the taxi industry from normal market forces at the expense of pretty much everyone living in or traveling to New York.

Riding in a New York taxi is unpleasant and expensive, but since it was a monopoly it had no incentive to do better and there were never any real consequences for failing to provide decent service – even as it became increasingly aggressive in soliciting outrageous tips and jamming advertising down its customers throats.

But it’s not a monopoly anymore and that’s a good thing for New York. I won’t shed a tear for the taxi industry.

djchung23• 9 years ago

Totally agree with you wrt to the taxi industry, but it's the individual stories that are heartbreaking :(

"While the auction has drawn attention to the precipitous fall of the once-mighty taxi industry, it does not reflect the hardship — and heartbreak — of individual owners like Mr. Isac. It is their stories that often get lost in the larger debate over new technology and commutes, and tell of the human cost of the city’s rapidly evolving transportation landscape."

chii• 9 years ago

it does not reflect the hardship ...of individual owners

they bought into a system that really shouldn't have existed. Investments that fail are tragic, but losses of this nature can't really be protected from those who make it (otherwise, there'd be moral hazzard).

unlmtd1• 9 years ago

Crying for those poor people who bought into a racket? They lost a bunch of money dealing with criminals. Not sure how it's heartbreaking. Ppl using even slightly dirty combustion engines are committing a crime against everyone else. So they're double criminals. Still heart broken? Iv got a license to kill anyone, emitted by our committee for world order. It's a safe investment. Want in?

BurningFrog• 9 years ago

it’s a scheme that allowed people to buy into a monopoly

It is a rather ingenious "free market monopoly hybrid" that I can't think of existing in other fields.

kristopolous• 9 years ago

sure there is ... any centrally allocated system of real or artificially scarce resources based on market dynamics works this way. For instance, radio frequencies, water rights, domain names and ticket scalping. In some municipalities liquor licenses, mobile network providers, broadband, and now marijuana licenses work this way too.

I wouldn't be surprised if banks, cosmetologists and realtors were like this too, but I don't know enough about them.

ekianjo• 9 years ago

many countries grant pharmacists the monopoly of selling drugs and limit the number of pharmacies per area. This kind of system is used across many fields.

njarboe2• 9 years ago

Medical school?

hkmurakami• 9 years ago

Dentistry.

Housing as a cartel.

afsina2• 9 years ago

Agreed. In Turkey, taxi medallions are part of a terrible system. They are extremely expensive in big cities. In many cases, Taxi drivers do not own them. Different drivers work in two or three shifts and pays a predetermined amount to medallion owner (a hefty sum). Sometimes medallions are rented by a third party and he manages the taxi drivers and pays to the top dude.

Government does not allow Uber like systems. Also Taxis are very expensive especially in smaller cities. And no, many does not behave nicely. They are also reckless in traffic.

So we stuck to this monopoly and nobody questions. Why is driving a Taxi a profession in this age of technology? Anybody with decent driving skills can do this yet Taxi drivers are the first to prevent any competition. This pattern is quite noticeable in many other areas of industry. They make restrictions and regulations with good intentions, later it turns to a monster.

jacobush2• 9 years ago

"Traditional" taxi does not have to be bad. I think (I may be mistaken?) London taxi drivers are quite polite and also have to memorise the geography of London, which I imagine keeps a lot of would be but lower quality drivers out.

KozmoNau72• 9 years ago

"Government does not allow Uber like systems"

Uber is banned in Denmark as well, but this is because there are absolutely no security requirements for Uber drivers, no mandatory first aid traning, nothing.

Proponents of Uber call it a "ridesharing system", but it really is a taxi system, and must abide by the same rules, namely driver training, verified fare metering and other security and fairness measures.

Uber has refused to respect the rules, so they have been banned from operating here, until they can abide by the rules, which are in place mostly for passenger safety and to prevent fraud.

"Why is driving a Taxi a profession in this age of technology? Anybody with decent driving skills can do this"

This can only come from a person who does not know what it actually takes to be a taxi driver (not just a person who happens to drive a taxi, but an actual bona fide taxi driver). There is a certain level of customer service, competency and training involved. You can't just blindly navigate by GPS, you have to know the city, know the traffic, know the shortcuts that a GPS can only guess at.

bobthepanda• 9 years ago

To be fair, the reason the medallion system exists in New York is because road space in Manhattan is limited, and the taxis cause a disproportionate amount of traffic. Traffic conditions have gotten notably worse post-rideshare, although there are a bunch of confounding factors as well that could also explain that.

molteanu• 9 years ago

I'm reminded of the 2005' Man Push Cart movie about a Pakistani immigrant that sells coffee from a rented push cart in New York. His only dream is to save enough to buy his own cart one day.

pseingatl• 9 years ago

I can't feel too sympathetic for the owners--they've been riding high on the back of their drivers for years. The drivers, who in fact are their employees, get no benefits of any kind due to a legal fiction that classifies them as independent contractors. If the drivers--who are actually operating the taxis--want to take calls from the street, from dispatch, from Uber, from Lyft, it should be up to them. After all, if a driver wants to simply park his leased taxi and not drive, he's free to do so--he's an independent contractor. The medallion owners got themselves into this mess by becoming vehicle lessors, not taxi operators. Once upon a time driving a cab was a good job with good benefits. Now it's not a job at all, which is why immigrants rush to drive.

taxicabjesus• 9 years ago

due to a legal fiction that classifies them as independent contractors.

The taxi industry pioneered the independent contractor model. They provide the car, I lease it and do whatever I want with it for the duration of my lease. The company has very little control over what their drivers do - they would offer bonuses on certain fares to try to get drivers to go get their contracted fares in outlying areas...

Renting a car is much cheaper than leasing a taxi, so the only reasonable use for my leased taxi was to try to make some money with it.

I met a few other taxi drivers who thought that ppl like me, who drove for the biggest taxi company in Phoenix, were getting screwed by Big Taxi. One of these drivers was a solo owner-operator. He did everything himself: regulatory compliance (meter certification and whatever else the department of weights and measures cares about), advertising, etc. The other guys drove for smaller companies because they didn't like Big Taxi's corporate culture. I thought the arrangement with Big Taxi was acceptable.

The series of events which forced my retirement from taxi driving were about 2 years ago, and I haven't kept up with the industry news... One of the guys I used to drive with gave it up when the owner-operator he leased from three in the towel. He did two or three trips for 'duper, rapidly realized that was a waste of his friend's new Prius, and got a 7-day-a-week job at a golf course. Another guy just went back to taxi driving after a year and a half "working his ass off" for a funeral home that didn't actually appreciate his efforts. This one said the call volume is significantly down, but call quality is way up. He recently got to take a fellow from Phoenix to Tucson - the guy had to be in federal court by 9am... It was a good fare.

chx5• 9 years ago

This only happened because Uber broke the law, actually undermined the rule of law and they got away with it. Think of what would happen if every corporation could pick at will which legislation they ignore.

firefoxd• 9 years ago

Think about this, a business is disrupted to the point where they can't make any money at all. Yet, no customer is hurt in the process. In fact the customer is happier because now at least, he has a choice. I would break a monopolist law for that.

chx5• 9 years ago

Of course a lot of customers are hurt in the process, actually the entire society is: by weakening the rule of law and by rolling back most advances organized labor made in the last 100+ years. You have been bamboozled by calling this the "sharing economy".

All you see is a cheap ride -- sponsored by VC money and you gladly take it.

Edit: thanks for the downvotes. Care to educate me where I am wrong?

viraptor• 9 years ago

And since people get a better service out of that, on average (yes, I know everyone can bring up a terrifying anecdote), it looks like we're better off making a few changes. You seem to paint it black & white, but really if some laws are still being broken, they can be enforced. Or changed. Or reconsidered from the beginning for the new situation.

The change proved that medallions were either a bad idea, or a badly managed idea. Some change would occur anyway.

stale2002• 9 years ago

It only worked for Uber because they provided a valuable service that consumers loved and because the law was corrupt in the first place.

I do not care that rich people who spent millions on a medallion, only to rent it out to actual workers, are losing money.

The self made man taxi driver, is a rare exception, not the rule. The people who own these medallions are rich taxi companies, that then force workers to pay them rent. Good riddance.

chx5• 9 years ago

The people who own these medallions are rich taxi companies,

Or poor immigrants from Ghana. https://www.washingtonpost.com/news/wonk/wp/2014/06/20/taxi-...

jpatokal• 9 years ago

Good riddance. I was in New York recently, and hailed a taxi for the ride to EWR instead of Uber/Lyft because my phone's battery was flat. The same ride that cost me <$50 on the way in on Uber was over $100 the way back, including effectively mandatory 20% tip -- and this was the lowest of the "suggested" options of 20%, 25% or 30%! And yellow cabs are a lot less comfortable as well, you're separated from the driver by a Plexiglass cage with a TV screen bolted on, attempting to blare ads into your face.

I sympathize with cabbies who spent a lot of money on buying a medallion of their own in the early 2000s and drove their own cab. I have less sympathy for the guy who invested $2.6 million in 2013.

yodsanklai• 9 years ago

including effectively mandatory 20% tip -- and this was the lowest of the "suggested" options of 20%, 25% or 30%

I moved to NYC just before you could pay by card in the cab. At the time, my friends told me to give $1 if the ride was less than $10, and $2 if it was less then $20 and so on. Most of the time, I think I effectively tipped between 10% and 20%. I kept with that habit after they introduced card payement with these insane suggested tips. How is it now? are you really expected to tip that much?

epc3• 9 years ago

The default tip on most machines is $0.00, but there's usually three buttons for 20%, 25% and 30% (or 20, 25 and custom).

I personally tip 20% most of the time, 25% rarely. If I'm paying cash then typically $1-2.

epc3• 9 years ago

The fares between EWR and NYC are insane because New York State and New Jersey don't have reciprocal taxi licenses. That $100 covered the "lost" fare back to NYC as well as the fare to EWR. If you take a taxi from EWR to NYC you'll also pay effectively a return fare since the taxi can't (in theory) pick up a legal return fare.

Most metro-area car services are cross-licensed in both states (so an NYC black car service can pick up in NJ and vice versa).

kamaal• 9 years ago

People are missing the point.

Unless companies like Uber and Lyft can continue to raise billions of VC money almost forever, they eventually have to turn themselves into a medallion system eventually.

This or, expect drivers to get paid way below minimum wage to sustain their current pricing model. Which won't happen.

So medallions are here to stay. Uber and Lyft never had a revenue model apart from subsidize-until-competition-dies. The best case scenario is Uber will be the new medallion system, the worst case will be older system will be back.

The transportation and logistics industry is one of the worst industry to be in. Its a capital intensive market with very low profit margins. Minus VC money Uber and Lyft won't go too far.

Taxi Medallions, Once a Safe Investment, Now Drag Owners into Debt

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