Who’s Killing the Taxi Industry?

Uber and Lyft may have moved fast and broken things, but their timing couldn’t have been worse for cab drivers.

Art by Sophia Valdes

Average rents for a studio in San Francisco go for upward of $3,000, but that’s the least of David Smith’s worries. As an independent cab driver of more than 20 years, he has to make $4,000 a month just to operate his cab and pay off a $250,000 medallion, the metal plate that signifies a taxi operates in the city legally.

“At best, it’s death by a thousand paper cuts,” says Smith, who still owes $150,000 to the San Francisco Federal Credit Union. “Do I just take the $100,000 loss and walk away, and let the credit union and MTA fight over it? Or do I hang in there and hope something happens?”

San Francisco didn’t always charge taxi drivers a quarter million dollars for an operating license, leased out to drivers by cab companies or by other individual drivers. Starting in 1978, drivers were awarded medallions at no cost — but only after sometimes waiting more than a decade for one to free up — until 2010, when the city started selling them at high prices, New York City-style. At the behest of then-Mayor Gavin Newsom, San Francisco sold hundreds of medallions, conveniently bringing in about $64 million amid a recession and subsequent budget shortfall.

However, that proved to be an unwise decision. Uber launched in San Francisco the same year the medallion sales program was piloted. Within a decade, taxis went from a vehicular near-monopoly to accounting for just one-twelfth of all trips generated by rideshare vehicles from companies like Uber and Lyft. The San Francisco Municipal Transportation Agency hasn’t sold a medallion since April 2016.

Smith often borrows money from friends and family to get through bad months with fewer customers, using the better months to pay it back. He’s considered defaulting on the loan, accepting the hit to his credit, and finding a minimum-wage job — which might be an improvement for the 44-year-old living with his father, also a cab driver. Smith doesn’t have children, as many other drivers do, nor can he imagine supporting any.

Since 2010, medallions have plummeted in value, netting hundreds of dollars in fares per month when they once brought in thousands. But even drivers without a medallion loan — those who obtained it from that now-defunct waiting list, or those who lease it from owners — say they’re working 10-plus hour days, six or seven times a week, to make up for low pay.

“We suffer, and our families suffer, and people are having bad health issues,” Smith says. “It’s just terrible.”

In 2019, taxis compete with roughly 6,000 additional ride-share vehicles clogging San Francisco’s streets during peak periods. Consequently, some 170 medallions have been foreclosed on — out of today’s total of 625 — and the SFMTA faces two major lawsuits. The San Francisco Federal Credit Union has sued them over the devalued medallions, while on the other end, a group of drivers calling themselves the Taxi Coalition have filed suit over the agency’s allegedly botched attempt at medallion reform. While some veteran cabbies, the quintessential seen-it-all types, seem to be waiting out what they imagine to be Uber and Lyft’s inevitable implosion — neither company makes a consistent profit — it just seems to be a terrible time to make a living from behind the wheel.

But the rideshare revolution didn’t just happen to the city. The SFMTA declined to enforce taxi-related laws on rideshare apps until state regulators took over, while the fractured nature of the taxi industry failed to respond to customers desires, like tracking the car on a smartphone. In the meantime, the David Smiths who used to ferry people around town in Crown Victorias and other cars with ample back seats are caught in the middle. But just how much of the blame for the decline of the taxi industry sits squarely on Uber and Lyft?

Taxi companies fail to unite

San Francisco’s taxi industry comprises 24 cab companies, eight dispatch services, and roughly 1,500 medallions, which fall under six distinct categories. Individual drivers often pay a daily “gate fee” to companies known as “color schemes” for the cars they own and manage. Historically, medallions have been highly coveted, and owners often lease them out to companies or the 4,000 currently active drivers, collecting a cut of the ride profits. 

In the past, these varied interests have not been inclined to cooperate for the industry’s greater good.

“It’s the tragedy of the commons,” says Kate Toran, SFMTA Director of Taxi and Accessible Services. “If one group likes a certain policy, one or two of the others won’t. It makes it really challenging to move forward.”

That’s what made 1978’s Proposition K monumental in successfully putting medallions in the hands of veteran drivers, instead of cab companies or any individual who came to own them. That system, however, got thrown out the window partly thanks to politicians like Mayor Newsom and Supervisor Aaron Peskin, who led the 2009 transfer of the Taxi Commission’s regulatory authority to SFMTA — something cab companies cheered and individual drivers opposed. This marked the beginning of an era of destabilization for the industry.

Under Toran’s predecessor, Christiane Hayashi, San Francisco’s medallions were set at $250,000 and financed through the credit union with controlled interest rates — a move designed to prevent even higher prices from auctions similar to those in New York City, in which medallions were sold for upward of $1 million. In the end, SFMTA reported that it eventually made $64 million from about 700 medallion sales. (It charged half-price for the 150 drivers closest to the top of the waiting list.)

But as Donald Trump fixer and one-time taxi medallion owner Michael Cohen can tell you, the value of a medallion ain’t what it used to be. Before the value of medallions plummeted, a bigger crisis of competition would emerge — one that exposed some of the problems customers had with cabs.

Dispatch of taxis had always been inefficient, leaving customers unsure of just when the cab was coming, if at all, Medallion Holders Association leader Carl Macmurdo acknowledges. The industry even opposed credit cards, until the city forced cab companies to accept them in 2011. Some drivers were selective about who they picked up, leading to accusations of discrimination. Too often, riders couldn’t count on them to show up.

“The industry really served the people poorly in the past,” says Macmurdo, the owner of an earned medallion. “That was the biggest downfall of the cab industry — they couldn’t guarantee a ride. That’s what led to the wild popularity of Uber.”

Photo by Kevin N. Hume

 

 

Uber takes ride-hailing by storm

In 2010, Uber began marketing rides in luxury cars. It cost more than a cab at the time, but passengers could simply tap a button on their iPhones and track its movements, instead of calling a taxi dispatch number with no map showing them how close their ride was. It seems ordinary now, but the ability to summon a nice car from the ether felt like magic — especially compared to standing on the curb and hoping a cab passed by or calling one and wondering when it would show up.

SFMTA reacted to this development with a cease-and-desist letter, threatening a $5,000 penalty for each time Uber operated a car without a taxicab permit. It took particular umbrage with the company’s initial name, UberCab.

“The name ‘UberCab’ indicates that you are a taxicab company or affiliated with a taxicab company, and as such you are under the jurisdiction of the SFMTA,” the letter reads. “Again, the SFMTA demands that UberCab, LLC cease and desist all activities, operations, and advertisements related to car service in San Francisco.”

That opposition was short-lived. Although Uber removed ‘Cab’ from its name, it continued picking up passengers without permits and used the seductiveness of its app and some hard-knuckle tactics to spread to cities worldwide. In 2011, the newly inaugurated Mayor Ed Lee welcomed the so-called sharing economy, dodging calls to enforce taxi regulations as Lyft and Sidecar joined the scene.

The regulatory battle soon shifted from city to state. By 2013, the California Public Utilities Commission, which already had jurisdiction over limousines, created a new category: Transportation Network Companies, or TNCs.  In responding to public-safety concerns like vehicle inspections and driver screenings, California became the first state to establish rules around ridesharing without counting the vehicles as traditional taxicabs. Suddenly, the rest of the country had someone’s lead to follow — one that charted a path to let TNCs more or less off the hook.

“They were operating as illegal taxi cabs,” says Chris Sweis, CEO of Yellow Cab. “They hid behind this concept of being an app. It’s effectively on-demand service.”

Sweis and just about everyone in the taxi industry stands by this point, and continues to plead with regulators to do something. Yet those same cab companies failed to coalesce behind an app of their own, including a city-funded one in 2013 that would have digitized rides. Instead, Flywheel emerged in 2015 as an Uber-but-for-taxicabs but kicked off some 1,000 medallion owners in 2018. Hansu Kim, who owns both the Flywheel app and cab company, then told the Examiner he sought to improve the industry’s reputation by ridding the app of drivers with poor customer service.

Although the taxi industry has criticized SFMTA for passing responsibility to the CPUC, Toran notes they’ve sent dozens of letters to the state regulators. Plus, the local agency has begun to take action — with reforms that have unified the industry in a rare way.

Bumpy path to reform

In an attempt to level the playing field between taxi drivers and TNCs, the city relaxed several regulations and fees, allowing some taxi vehicles to stay in service longer than the previous limit of nine years, and expediting driver screenings from two weeks to one day.  In doing so, the SFMTA forfeited almost $10 million in revenue between 2014 and 2018.

But the value of the medallions had plummeted so far that the agency was no longer able to find buyers — and still hasn’t since 2016 — so the credit union pressured SFMTA to reinvigorate the industry by doing more.

First, at the taxi industry’s request, SFMTA enlisted the help of a consultant to determine the next steps. They tackled what Toran described as an “oversupply” of medallions, with only 17 percent of medallion holders like Smith earning a living wage. The initial plan was to recall two of the six types of medallions, but some of those are owned by elderly or retired drivers like Macmurdo who rely on them for income by using them themselves or leasing them to others. After the backlash, SFMTA retreated from a proposal to revoke medallions established before 1978.

“They’ve invested the most in the industry and earned the least,” Toran says about purchased-medallion holders like David Smith. “This has been a very long-standing effort and conversation and process. We vetted a medallion-reform package in 2016 for, I think, almost a year.”

The credit union was not satisfied with the agency’s response, feeling stymied by promises made to boost cab profits. That same year, the Treasurer’s Office estimated that 37,000 Uber and Lyft vehicles operated in San Francisco, versus 2,000 medallions and an indeterminate number of active taxi drivers.

Meanwhile, things only got uglier. In 2018, the credit union filed suit, seeking not only $28 million in damages but also to buy back the medallions — something that could provide relief for drivers like Smith. That October, to help the people who Toran says earned the least, SFMTA approved a plan involving lucrative airport fares. Only drivers with purchased medallions — as opposed to the legacy drivers who never had to pay for them — could pick up passengers at SFO. Consequently, irate drivers flocked to City Hall to protest the threat to one of their last reliable sources of business. SFMTA acquiesced, allowing another 570 earned medallion holders to make airport pickups.

But hundreds more are still restricted from SFO, so the cab drivers decided to join forces as the Taxi Coalition. This group of cab companies and drivers with different medallion types formed in late last fall after SFMTA introduced the airport ban.

“The business is not great to start with, and then on top of it, the SFMTA is stabbing us in the back,” says Bernard Dethiers, a Taxi Coalition member. “The main purpose of this policy is to pretend the city is doing something. It’s a smoke screen.”

In March, the Taxi Coalition filed a suit against San Francisco alleging discrimination, as it benefits one type of medallion holder while harming others (who tend to be elderly). However, a federal judge denied the group a preliminary injunction to stop the new rules in June. In other words, the mess keeps growing.

“In the scale of human suffering, they’re at 99 percent,” Macmurdo says about drivers who paid for medallions. “The rest of us are in the low 90 percent scale. There’s so much human tragedy, it’s off the charts.”

He would know. Macmurdo, 68, had to stop driving a few years ago after having three hernia operations, but may have to return in order to make a living. It may not be much of a living, though. The medallion he earned in 1997, after about 14 years on the waiting list, went from bringing in roughly $25,000 a year to a paltry $5,000, he says.

Toran, who leads SFMTA’s taxi program, denies that the Taxi Coalition lawsuit prompted the agency to prioritize purchased-medallion holders. But if it concedes that failure, it will be out millions of dollars amid a projected $521 million budget shortfall by 2020. When it first partnered with the bank, SFMTA agreed that if the program ceased or failed, it would buy back the medallion, according to the credit union lawsuit.

And none of this has restored much value to the medallions. While Smith no longer borrows money at the same rate to stay afloat, the medallion loan is still unsustainable as a cab driver. Drivers like Smith who are saddled with debt are also calling for the city to buy them back, potentially through a ballot measure.

“The medallion-sales program has failed,” he says. “If the MTA can’t regulate Uber and Lyft, and they can’t use their influence with the PUC with any other aspect of the industry to regulate or restrict them, then we just need to call it a day. All it’s doing is beating a dead horse.”

Waking up

In Martin Scorcese’s Taxi Driver, Robert De Niro’s character Travis Bickle is a symbol of urban decay. For decades on, taxi drivers have come to represent a different transformation of cities into app-driven spaces of disruption. Although S.F.’s cabbies fault the local and state government for failing to step in, they can’t deny that Uber and Lyft have changed the business permanently.

Even in 2006 — years before either Uber or Lyft even existed — an analysis of the taxi industry revealed warning signs. It pointed to several cities that tried deregulating cabs only to see the “unanticipated and unattractive side effects” of more cars, more highway congestion and pollution, higher fares, reduced driver income, and rotting customer service.

After more than a decade, that trend of light regulation is beginning to change. New York became the first jurisdiction to crack down on Uber and Lyft in 2018 by freezing permits, requiring a minimum wage for drivers, and requiring reports on every trip. Unsurprisingly, Uber sued to stop the changes, reiterating the position that it’s a platform, not a taxi company.

“Lyft was never about building a better taxi. Our goal is to make car ownership optional,” a company spokesperson says. “In addition to opening up a flexible earning opportunity for people all over the country, Lyft has also connected communities and cities by expanding service to underserved communities, where other transportation services have been historically scarce.”

While CPUC distanced itself from considering reforms similar to New York’s, San Franciscans will weigh a November ballot measure that will make Lyft and Uber trips costlier. The measure, which Peskin negotiated with the rideshare companies, would add a surcharge on rideshare trips to raise up to $35 million annually for transit and street-safety projects, ostensibly to reduce a reliance on TNCs and mitigate vehicle congestion.

Their IPOs open another issue for Uber and Lyft, who each entered the stock market earlier this year. Neither company has generated a profit, and thus far, they’ve used venture-capital funding to subsidize lower fares that catapulted their popularity. They’ve lost billions as they rapidly expanded.

“I do think that Uber and Lyft is largely a Ponzi scheme, and now that the original investors made out, it’s going to collapse,” Macmurdo says. “I don’t think the business model will sustain.”

Uber and Lyft already face a revolt from their contract drivers, who say they can’t make a living due to retooled rate systems that dramatically decreased their incomes. Macmurdo is not alone in the wait-and-see approach.

“We’re certainly watching what happens with the IPOs with interest,” Toran says. “It’s always a great opportunity for the taxi industry to step up and show where they excel, and really step into the customer-service role.”

Can taxis make a comeback?

Though the industry is down, it’s not out.

This month, SFO moved ride-hailing pickups in the domestic terminal away from the curb and into a parking garage, which could spur more passengers to hop in a cab. And SFMTA’s 90-day report on the airport restrictions found that average monthly revenue for purchased medallion holders increased 41 percent, although the goal of having more cabs operate in the city has yet to materialize.

Smith agrees that it’s been easier to break even since then, but he still pockets less than the minimum wage. Lawsuits by the credit union and Taxi Coalition are still pending, leaving his fate up in the air.

But the market for traditional cabs will likely never disappear entirely. Uber and Lyft brag, with some justification, that they cater to underserved populations. But many riders must rely on cabs to get around: people with disabilities, people without credit or debit cards, international tourists without working phones, and people who simply do not have access to smartphones needed to order rideshare vehicles.

Cab companies are also upping their digital game to compete. Yellow Cab is revamping its YoTaxi app (which Sweis called “one of the worst apps we’ve ever seen”). By the end of the summer, YoTaxi users can find features Uber and Lyft passengers recognize: setting your destination, receiving a cost estimate, selecting the type of vehicle (including ones with wheelchair ramps), and direct billing for corporate accounts.

Sweis says he’s opening YoTaxi up to other companies — unlike FlyWheel.

Could these factors send more customers to taxicabs? It’s too soon to say, but drivers are grateful for as much business as they can get. And some supervisors, including Peskin, question why SFMTA still technically allows medallion sales, and why the city hasn’t looked into buying them back. (“I think it’s time to blow it up,” said Supervisor Sandra Lee Fewer about the medallion sales at a June 10 hearing on the airport regulations. “I think it’s time to start over.”)

“What it really comes down to is us having a stable industry in San Francisco,” Sweis says. “We can’t deal with the constant back-and-forth in regulations.”

Whether or not it stabilizes, cab drivers struggle to find a way out.

“Our stress level is out-of-control all the time,” Smith says. “It’s just constant — hard-working-class people are suffering while [SFMTA staff] is still making money. No one at the MTA makes a bad wage. [Toran] could pay off my medallion in one year.”

 

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