Uber cars now outnumber taxis on the streets of New York City. Credit: engadget.com.
by Fleurat Dedushaj
August 7th, 2015
Founded in March 2009, Uber is an on demand transportation company now valued at up to $50 billion. Their concept is very simple; with an app on your smart phone, you’re able to set a desired location to be picked up from. Before you place your order, you can view your estimated fare, estimated arrival time, and driver. For many, this is more convenient than waving your arm on the bustling streets of Midtown hoping that a cabbie notices you amongst a sea of bodies. No one will steal your Uber and you won’t have to wait in the rain.
New York City taxis have been around since 1897. It wasn’t until 1971, when the New York City Taxi and Limousine Commission (TLC) was established to regulate the city’s taxis. To be able to drive a taxi, you are required to purchase a medallion from the TLC – and these aren’t cheap. On nycitycab.com, medallions are currently being sold for $700,000 to $900,000. In 2011, medallions were selling for upwards of $1 million. That’s a decrease in value of about 40%, but medallions still remain a relatively pricey endeavor.
Due to the high price of medallions, many don’t have the means to pay for one out-of-pocket. Credit unions and companies like Medallion Financial and Signature Bank provide loans to buyers looking to purchase a medallion. Before 2014, companies had no problem lending to people who wished to purchase medallions and taxi drivers had a solid income stream. In June 2013, average daily revenue per medallion was upwards of $580. The medallion, the collateral on the loan, was seen as a safe investment. If drivers fell behind on loans, the lender simply repossessed their medallions and held it until they were ready to sell. This however, is no longer the case; the taxi industry is losing business to Uber.
According to a report on thestreet.com, between June 2013 and March 2015, meter revenue and the number of taxi trips has declined by 12% and 16%, respectively. With taxi drivers earning less, they are increasingly coming up short on their loans. The number of foreclosures on medallions has increased. From 2011 to 2013, there were four medallion foreclosures each year. In 2014, there were eight foreclosures. Recently, Citigroup attempted to seize 89 medallions from Gene Freidman, the “Taxi King,” but a temporary deal was made to avoid the foreclosures.
Additionally, those looking to sell their medallions are having trouble doing so since medallions are no longer seen as a hot commodity anymore. Why would a driver purchase a medallion when he can drive for Uber without one? The market for taxi medallions has evaporated. According to the 2014 Taxicab Fact Book published by the TLC, there were 13,437 medallions in existence in NYC as of 2014. Throughout April 2015, only 11 medallions traded hands. If owners were to start selling, medallions would further depreciate in value and put other owners underwater. Aside from taxi drivers, the stock value of Medallion Financial (TAXI) has also plummeted. Compared to NASDAQ, TAXI has decreased by 35.79%.
Uber’s assault on the taxi industry isn’t finished there. The number of drivers in the city has increased from 7,000 to 16,000 – and Uber only continues to recruit more as we speak. Furthermore, they recently announced a 20% fare reduction for off-peak hours. Companies similar to Uber such as Lyft, Via, and Gett are also taking business from taxi drivers. In order to compete, NYC has introduced green cabs in other boroughs and increased the number of yellow cabs. This has further diluted the amount of trips and meter revenue for cabs that were already on the streets.
The taxi industry continues to decline and with Uber only growing in value and size, they are poised to overtake the city’s taxi business. The only way this can be stopped is if Uber were to be regulated by the TLC; that will be a legal battle to come.
The Economics Review 