Taxi medallions have been the best investment. Now Uber may be changing that

http://www.washingtonpost.com/blogs/wonkblog/wp/2014/06/20/taxi-medallions-have-been-the-best-investment-in-america-for-years-now-uber-may-be-changing-that/

by nthitz • 12 years ago

64 81 12 years ago

washingtonpost.com

higherpurpose• 12 years ago

Taxi medallions have also been a great barrier to entry in the taxi business. John Stossel investigated this a while ago:

http://youtu.be/anKCO99_O8s?t=1m53s

astazangasta• 12 years ago

Ugh, Stossel. Taxi deregulation has been done many times before. Try this: http://toomanytaxis.com/2009/01/taxi-deregulation-brings-onl...

rahimnathwani• 12 years ago

How much can someone who already has their own car make doing Lyft, UberX or Sidecar? It might be a good option for empty-nesters who need extra cash but don't want to sell assets or dip into pension pots.

autarch• 12 years ago

I took UberX yesterday. The driver told me he used to be a cab driver and he loved Uber. He made more money and spent less time doing it. For reference, when he drove a cab he had to spend $600 per month to rent the car!

greenyoda2• 12 years ago

If you use your own car as a taxi, your depreciation, insurance and maintenance costs would also be significant.

pjscott2• 12 years ago

There's a fairly detailed discussion of that, with numbers, here:

https://www.quora.com/Ride-Sharing/How-much-does-the-average...

Most of the numbers quoted seem to be in the general neighborhood of $20/hour, more if you do it as a part-time thing during peak hours.

raverbashing2• 12 years ago

"The threat to medallion owners isn’t that they’ll lose passengers to these services. It’s that they’ll lose drivers — who have been aggressively courted by Uber. “Without the drivers, we’re dead,” "

Oh really? Please tell me again how people were thinking a gimmick that's valuable only because of a government imposed monopoly is a sound investment.

The bubble is popping. And it would be interesting to ask why did the price started going up around the 2000s...

chaz• 12 years ago

a gimmick that's valuable only because of a government imposed monopoly is a sound investment

City streets are a limited public good. Aside from ensuring quality and consumer protection, regulation & limiting the number of taxis ensures that traffic can actually flow. A traffic consultant says that NYC's plan to add 2,000 medallions could slow down all traffic by 12% because taxis don't park -- they roam the streets constantly.

http://www.npr.org/blogs/money/2012/07/31/157477611/does-new...

raverbashing2• 12 years ago

The problem is not the regulation or limiting the available licenses per se, it's rather the ability to transfer or sell them.

If the current license holder can't or won't use it for another year there's absolutely no reason he should be allowed to transfer his permit. The regulator should just keep a list of people interested in it and let the next one have his turn.

praxulus• 12 years ago

If you limit taxis, more people will drive their own cars. To make up some numbers, if you want to take 2000 cars off the road, you might have to eliminate 2500 or 3000 medallions.

Instead, traffic-limiting measures should target all vehicles using congestion tolls, gas taxes, vehicle taxes, or something more innovative.

greenyoda2• 12 years ago

I don't buy that analysis. In NYC, you don't need a medallion to operate a taxi - you only need one for a yellow taxi that can legally stop when hailed on the street. Having more medallion taxis just means that these taxis will take business away from the "black car" (reservation-driven) companies and from services like Uber (and those cars never park either - if they're not moving, they're not making money). Increasing the number of medallions won't magically increase the usage of taxis - the people who can afford them already use them, but for the vast majority of New Yorkers, the prices are way out of reach and they take public transit.

vaadu• 12 years ago

Just another business model that refuses to evolve. Driverless cars will be here soon enough and the model will have to change again. That's life.

If history has proven anything, it is that evolution always wins.

aagha• 12 years ago

When driver-less cars come, Uber too will be redundant too. That's a while away though.

hibikir• 12 years ago

At that point, something like Uber still makes sense as a centralized ride brokerage. Cab companies will have driverless cars that go everywhere, but on many cities, no company will have enough cars for you to just want to go to their website to request a ride.

It becomes a mix of Expedia an an auction site. You say where you are, and where you want to go, and get bids from car companies that claim to be able to get to you in X time, and charge you Y to get to your destination. You get to pick. With automated cars, their bids are all by algorithm.

I'd be shocked if the Uber people weren't thinking about this problem today.

sudont• 12 years ago

Maybe not. http://techcrunch.com/2013/08/25/uberauto/

I think the general idea behind driverless cars is that they can be JIT-rented, and since Uber would have the infrastructure in place, they would be the natural market leader.

saryant2• 12 years ago

I've always thought that was Uber's endgame. Get in now and establish a brand with existing technology (taxi drivers) so that you're ready to capture the new market when it's ready (driverless cars).

hackaflocka• 12 years ago

I loved Nassim Nicholas Taleb's discussion of why being a taxi drive can be better than being a banker (Antifragile).

This Uber stuff is throwing a twist into his conclusions.

lukasm• 12 years ago

The arguments about chaos without regulations is bullshit. There are proofs around the world.

It's going to be very interesting to see how the industry will change.

1. Almost all will switch to Uber, Lyft etc. 2. Driveless cars take over. 3. Distributed network of driveless cars backed by bitcoin like transactions. No need for central logistics like Uber.

What will happen first: 2 or 3

saryant2• 12 years ago

Under 3, doesn't there still need to be a dispatch system?

crazy1van• 12 years ago

There's a kind of live by the sword, die by the sword theme here. If government rules can be enacted to make an item's value go up, they can also change to make the same item's value go down.

skosuri8• 12 years ago

Am I the only person that thinks government regulation is a reasonable thing for the taxi industry? Regulations on work hours, car safety, tougher environmental standards, driver training, requiring pickup if called, etc all seem reasonable. It's unfair that Uber is able to skirt most of these rules. The same could be said for hotels (noise, safety regs, etc) and restaurants (food safety, etc). Should all services be unregulated? Anyways, I do think things like Uber and Airbnb are very cool and innovative, I just feel a little uncomfortable about where it's leading us to.

Meekro• 12 years ago

All the things you listed are perfectly reasonable. But, in some regions, the government deliberately issues too few medallions. This means consumers pay higher prices, and all that money goes to well-connected people who managed to get the medallions. Those people don't actually drive the taxis, they just take the money.

Better regulation, like what you describe, seems better than no regulation, but I'd be willing to accept no taxi regulation if it gets rid of the political cronyism and high prices that go with it.

skosuri8• 12 years ago

I don't use Uber, but is it generally cheaper than taxis?

Justen• 12 years ago

I don't see why a special set of rules have to apply to just taxi drivers. Isn't working hours regulated already by OSHA? Car safety by the NHTSA? Requiring a pickup might be something that doesn't even need enforcing when there are dozens of drivers in your area.

skosuri8• 12 years ago

Well taxi's are on the road a lot more than normal cars. There are separate rules for commercial vehicles for instance. Also, since most of the driver's are freelancers (and not Uber employees), I don't see how OSHA rules apply (although perhaps I'm wrong).

imroot• 12 years ago

The biggest issue that I have with this is that the government regulations are meaningless these days due to lack of code enforcement.

Two great examples: 1.) Staying in Fremont, CA, needing a trip to the San Jose airport at 4:50 in the morning. I had a cab 'scheduled' but a few drivers didn't show up, and they didn't bother calling me to let me know that they were not going to show up. The dispatcher didn't speak english well and didn't understand the questions that I asked. If I had instant feedback that nobody was coming, I would have made alternate plans the minute that I knew nobody was going to pick me up. 2.) In Chicago for a business trip. I generally don't carry cash, but, needed a ride from point a to point b. Taxi driver's sticker said he took credit cards, but his machine was 'down.' A "standoff" of sorts occurred between me, the taxi driver, and Chicago PD; ultimately, after the police harassing him (and reminding him that a working credit card reader was required in the city), he reluctantly ran my credit card and let me out of his car.

It's unfair that the Taxi companies skirt these rules too -- Uber and Lyft just give their ecosystems a quicker way to get ride of bad actors and focus on customer service, where the Taxi companies are focused on keeping the medallion owners happy.

skosuri8• 12 years ago

I've seen the other way around just as much if not more so. People calling taxis and then not waiting for the one they called, with a driver just hanging around. My experience in Boston was quite good over many hundreds of taxis rides. As far as I saw, the rules were generally followed.

dkarapetyan2• 12 years ago

I've never had this issue. Every dispatcher has spoken very clearly and my cab orders have arrived on or ahead of time every time. As for the credit card issue that is easy enough to fix. I always give them a cash tip and then ask them to put the actual travel charge on a credit card.

silencio2• 12 years ago

I think that's a very underestimated reason for why taxis and Uber alike are hated by many. There is an artificial medallion shortage, sure, but I'm in the same bucket as skosuri and think that code enforcement would solve a lot of problems. I think that even forcing Uber et al to participate in some of the codes - or creating new ones for rideshare services - would be great. Stuff like working with local paratransit services, 24/7 availability with decent coverage, choices that are more like "I have a wheelchair/need a ramp or lots of luggage" vs luxury or not (uber SUVs are occasionally super hard to come by!) and a standardized, routinely enforced safety program for vehicles and drivers alike.

Then the argument for overhauling taxi medallions and restrictive rideshare laws wouldn't be sidelined so often by stories of shitty uber drivers/practices and bad taxis alike. I also feel that everyone would benefit from this kind of government regulation _if done well_, because if left alone with little enforcement and only free market choices to influence business decisions, nobody would want to deal with servicing half of San Francisco, or folks with disabilities. Like your story of getting to SJC from Fremont - have you tried to catch an Uber on the east side of the Bay Area when you're not in downtown Oakland or near airports? It takes forever and a half even during the day. It's easier to just walk/use AC Transit to a BART station or wait and call for a regular cab five times than it is to wait for an Uber from OAK or worse for me, even though there were a whole bunch of times where I _wanted_ to pay for an Uber from Hayward to SF multiple times in a week (read: BART strike).

DenisM2• 12 years ago

It's a nice theory, but in my experience taxi drivers are often clueless and/or cheating, and their cars are often run-down. Literally every single time I have used a taxi in the last couple of years it was at least one of these three problems.

The current regulation regime does not produce safety, fairness or improve quality, but it does stifle competition.

skosuri8• 12 years ago

Well it's one against one. I didn't own a car for the last 12 years. I've had an overall great experience with taxis over many hundreds of taxi rides. So we can compare our usage, but your anecdote is just that.

insertnickname• 12 years ago

Should all services be unregulated?

They should be regulated by the market. Consumers will buy what they want and suppliers will conform to demand or go out of business.

skosuri8• 12 years ago

Doctors, lawyers, pharmacists, etc as well?

runn1ng• 12 years ago

That's a nice theory, but I think that's what got us into the regulation in the first place. People basically don't know the place, don't know the cabs drivers, and you can't really choose based on quality if you are stuck in an unknown city with same-looking cabs.

Now Uber is probably changing all that thanks to mobile internet, but that wasn't possible before.

rhizome2• 12 years ago

Regulation is one thing, but I think a buried innovation of on-call driver services is the disintermediation of reservations that removes the dispatcher's judgement that serves to decrease service in certain situations.

skosuri8• 12 years ago

That just means that there is room for a company to develop and create better dispatch software for the taxi industry, not that all regulation should be decimated to make dispatching better.

dkarapetyan2• 12 years ago

What people don't realize is neither Uber nor medallion owners care one bit for the people they are meant to serve. Arguments on all sides are driven by selfish parties that only want to set up a system to benefit them. At the end of the day Uber would like to be the only game in town and Uber investors would like nothing more than a well-oiled corporate machine that prints money. So all this talk of consumer choice and safety is a red herring. It's definitely good marketing but don't be fooled into thinking Uber is helping anyone but themselves when they push for deregulation.

So yes I'm with you on this one. I also find it a little funny that everyone brings up anecdotal evidence about shitty cab drivers and awesome Uber drivers as an argument for deregulation. Such micro activities are meaningless in the face of what happens at the macro-economic scale.

michaelochurch5• 12 years ago

I agree.

The medallion system is a disaster. In fact, it's systemized government corruption. Most of these medallion-owning assholes have never driven a taxi in their lives. They're just rent-seeking vampires.

The purpose of limiting the supply of drivers is to prevent a race to the bottom-- and I would generally support that, for a variety of reasons. But the effect of the medallion system is that drivers do no better under the system than without it, because they have to pay enormous leasing fees.

A fully unregulated system is a bad idea (it means you're screwed if you live in the outer boroughs, it will encourage unsafe conditions and driving) but the medallion system needs to be shut down.

I do think things like Uber and Airbnb are very cool and innovative

Uber is an evil company. It's not surge pricing alone that makes it evil. It's the complete lack of transparency around surge pricing, and the fact that (unlike Lyft) it increases its own take when surge is in effect. It's one thing for prices to go up when the supply of cars can't mean demand. It's an entirely different situation when the (a) pricing algorithm is opaque and (b) it's determined unilaterally by a company with every incentive to manipulate it.

I am glad to see the medallion parasites under threat, though. If I were mayor of any of these cities, my first move would be to scrap the medallion system, with no compensation to their owners.

refurb5• 12 years ago

How is surge pricing "evil"? You are free to use Uber or not. When surge pricing is in effect, you have to agree to it before going forward in the app.

It's not hard. If you don't like the price of something, don't buy it.

Shivetya2• 12 years ago

Where do you stop? I am sure we can point to any service/industry and find enough "reasons" to regulate it.

Did you know in many cities you cannot be a tour guide without a license? Open a hair salon? Want to do business with a government agency, well there might be rules pertaining to the services your business provides in that case, and that case only.

The list goes on and on. Eventually we need to really analyze what really is important. I would say if life is on the line then you might be justified, but driving a few people between points on a map?

MarkMc3• 12 years ago

Car safety and work hours; yes.

But it's not clear to me that other types of regulation are desirable. Environmental standards should be the same for all cars; driver training has been made almost redundant by sat-nav systems; a reputation-based system might be better than a 'requiring pickup' system.

In particular, I want a regulatory system that makes it easy for someone to be a taxi driver only from midnight to 2am on Saturday nights. Or only to and from the airport between 3pm and 6pm. This is the sort of flexibility that brings down costs overall.

nostromo• 12 years ago

Imagine if driver's licenses were treated the same way cities treat taxi licenses and liquor licenses.

The number available is limited, so if you want a driver's license you have to wait for someone to die, and then buy the license from the estate. Since it's artificially scarce you'd have to pay a pretty penny to get one. Some companies might step in and buy up driver's licenses to rent them to drivers for only a few hundred dollars a month...

Treating any form of license as transferable private property seems to be against the public interest.

Shivetya2• 12 years ago

rent stabilization seems to fit that bill.

michaelochurch5• 12 years ago

New York's rent stabilization isn't that bad, but it also doesn't have a major effect on rents, either for those who have it or those who don't. (Rent-stabilized apartments can go up by a few percent per year.) It's the 1947-era legacy rent control that is patently ridiculous.

Most people underestimate the harm of that program because they don't understand price elasticity. It's true that only ~1-2% of apartments are under that system. However, 1-2% supply destruction can actually double prices. (See: oil shocks.)

Another problem is that this country is run by scumbags and pussies who allow foreigners to own real estate (many countries don't). Now, I'm all for a reasonably open immigration policy, and letting foreigners live here is not the issue. (The people who move here to live here don't have a major effect on the rent, and are good for the country overall.) But the types of foreigners who buy U.S. real estate are usually corrupt officials who want a place to live if their own country brings them to trial. (In China, corruption is a death-penalty offense.) This is the real reason why Silicon Valley is so expensive: every fucking Communist Party scumbag in China and murdering Russian oligarch and Arab slave state billionaire has bought a place (even if it goes uninhabited) in California. It doesn't affect a large number of houses, strictly speaking, but it's enough of a margin to have massive impacts on the price level.

I am amazed at Americans' willingness to be "patriotic" about stupid things and get into nonsensical wars... but then we go and let corrupt, murdering dictators and billionaires from all over the world buy California and Manhattan real estate. It's fucking disgusting.

cliffbean• 12 years ago

If you're going to argue against taxi licenses or anything else, please explain why you think the reasons why some people believe the good outweighs the bad are wrong, rather than just pointing out that there is bad.

imurray• 12 years ago

Singapore has a quota system for vehicles. The cost of a 10-year vehicle license under their auction system can exceed the value of the vehicle: https://en.wikipedia.org/wiki/Certificate_of_Entitlement

The situation isn't the same as your hypothetical situation though. The licenses aren't perpetual or (for the most part) transferable.

Incidentally, the traffic flows pretty well there.

michaelochurch5• 12 years ago

Singapore is a different case, because it's such a small country. Between the size of the island and the climate (hot/humid) they can't afford uncontrolled growth of car usage. It's also a place (like Manhattan) where you don't need a car.

Frankly, I think car usage should, ideally, cost 2-3 times what it costs in the U.S. to account for all the externalized costs. (Those taxes could be used to modernize the train system and public transportation.) That wouldn't be practical, unfortunately, as the country is set up now.

johansch• 12 years ago

My primary memory of my first Singapore visit a few years ago is how nearly impossible it was to find a taxi in the afternoon/evening. Ended up spending an hour walking back to the hotel instead.

CamperBob22• 12 years ago

It flows pretty well in Pyongyang, too.

rdl• 12 years ago

Sounds like Singapore (vehicle registration/COE, not licenses, but essentially the same thing.)

mathattack• 12 years ago

It is very much so. It's a form of capturing rent. Look at how crazy the taxi companies go to protect this revenue stream. They keep this because they are tenacious 1 issue voters. (And in NYC, the current mayor was elected on the basis of unions and 1 issue voters like this)

In my view the taxi licenses should be of fixed length. It's ok to say "The roads only allow for 13K (or however many) taxis." It's wrong to give people a lifetime annuity based on it, and create a barrier to entry in the industry. Better to have a fixed term like 5 or 10 years. Long enough that it's worth investing in the business. Short enough that others can enter. And the total # should be flexible, perhaps linked to traffic and population.

refurb5• 12 years ago

Anyone else find the graph of medallion values a little weird?

Looking at the DJIA, It was ~11,700 in Jan 2000 and by March 2009 it was down to ~6,600. The graph makes it look like it was about 100% of what it was in 2000. That makes no sense.

Also, they have the CPI plotted, but it's a straight line at 100. So they might be correcting for CPI, but in that case, you'd expect the 2009 DJIA to be even lower.

CamperBob22• 12 years ago

From the article:

   In February, he sued the city on behalf of medallion  
   owners, brokers, managers, financiers and cab 
   affiliations. The suit argues that the city has violated 
   their rights by allowing new companies to provide an 
   essentially identical transportation service without 
   complying with existing regulation. By eliminating the 
   exclusive right of medallion owners to provide that 
   service, the suit argues, the city has taken away the 
   thing that gives medallions their value as property  
   under Illinois law.

   “If you think it’s an improvement to change the rules, 
   maybe you can do that,” says Edward Feldman, a partner 
   with Shakman. “But you have to provide compensation for 
   the property rights you’re destroying. And that’s the 
   Constitution.”

   Medallions represent a promise, he says. And on that 
   promise, medallion owners took out mortgage-size loans. 
   If the city backs out of that promise, it must make them 
   whole.

So, if I buy a fishing license but fail to catch any fish, can I sue my state's Department of Fish and Wildlife for a refund of my $50? I wonder what people would say if I tried?

7Figures2Commas• 12 years ago

That's an invalid analogy. A valid analogy would be that you purchased a fishing license from your state's Department of Fish and Wildlife because you were told one was legally required to fish in a certain location, but the Department of Fish and Wildlife then failed to take action against others who began fishing in that same location without a license.

Good idea or horrible idea, certain cities created licensing regimes that promised to protect taxi drivers from competition if they paid for medallions. Now that others are flouting the law and circumventing the licensing regime, the taxi drivers want their protection money back if they're not going to receive the protection they were promised.

xmodem2• 12 years ago

In terms of individual taxi drivers who took out massive loans this is a valid argument. In terms of the rent-seeking institutional investors who lobbied the government to create an asset class which diverts most of the profits away from the people actually doing the work and makes taxis more expensive for no return in public benefit.

I have no issue with government regulation of the taxi industry - quite the opposite. Certainly I think that it's important to mandate vehicle safety inspections. But if taxi licenses are going to be supply constrained, they should be issued by the government for a flat fee on a first-come first-served, use-it-or-lose-it basis. They should only be purchasable by the driver that will be driving the taxi and they should not be transferrable.

MarkMc3• 12 years ago

Why don't cities issue taxi licences for 1 or 3 years, instead of permanent medallions?

Taxi medallions have been the best investment. Now Uber may be changing that

Related Stories