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Deep in Debt, DeSoto Goes Rogue 

Tuesday, Jul 29 2014
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Hansu Kim, the embattled co-owner of DeSoto Cab Company, made headlines last week when he announced plans to defect from the taxi industry. Rather than continue operating under the San Francisco Municipal Transportation Agency, Kim would enter the gray market generated by Uber, Lyft, and other app-based transportation services. He'd turn in all his medallions (aka permits), remove the meter and taxi light from each of his cars, and obtain charter transportation (TCP) licenses for all of them. He'd recast himself as a limousine sedan service.

The benefits would be astronomical. Kim currently leases 204 medallions. The city charges him $1,000 a month for 32 of them (down from $2,000 last year); the rest come from private drivers who extract a going rate of $2,100 a month. By trading them for TCP permits (which cost $100 every 3 years, plus a one-time fee of $1,000 per vehicle), he'd save almost $5 million annually. He'd be overseen by the state, rather than the city, which would allow his drivers to pick up fares in neighboring areas — like Oakland or San Mateo — with impunity. And he'd have to solicit pre-arranged rides, rather than street hails, which would make DeSoto look more like a tech startup than a cab business.

"The point I've made to the city is, 'You leave me no choice,'" Kim says, explaining that he's found himself in an untenable position — squeezed, on one side, by the strict set of fees and regulations for taxi drivers, and on the other, by a new crop of competitors who aren't playing by the same rules. Uber and its ilk have reinterpreted the state's definition of a "chartered" vehicle to include any hired gun with a Prius.

Meanwhile, the labor pool for cab companies is shrinking, and many of them are hemorrhaging thousands of dollars a month.

Kim has framed his new business model as a form of civil disobedience. He says he'll maintain commercial insurance and worker's compensation for drivers, even while emulating the tech companies he's long reviled. He'll keep DeSoto's brand name and signature blue color scheme. He'll operate a limo-for-hire outfit that has the look and feel of a taxi fleet. Kim admits to being "a big hypocrite," but also characterizes himself as a martyr, of sorts.

In reality, he's been flouting the rules for months.

Financial records at the SFMTA reveal that DeSoto fell behind on its payments in the fall of 2013, and that it owes $415,406 for outstanding fees. The agency essentially let DeSoto's debts languish while competitors paid their dues on time.

Kim disputes the figure, but admits he does owe money. "The cost of running a good quality taxi company with real dispatch services is extremely expensive," he explains, adding that he was waiting for fees to go down before he paid up.

Former SFMTA taxi boss Christiane Hayashi, who oversaw cab companies until her retirement in June, declined to comment on the matter. Her successor, Kate Toran, suspects that sympathy for a partly eviscerated industry may have induced the SFMTA to let the debt slide.

"I think there was an understanding that there were some problems in the industry, and that they needed time to get their fiscal house in order," Toran says. She adds that DeSoto is currently on a payment plan, and that she hopes the company will make good on its obligations before it shifts to a different business model — lest the city fall $400,000 in the hole for its misguided generosity.

It's long been the conventional wisdom that San Francisco cabs were all but decimated by new app-based car-hire services, which poached not only their clientele, but also their driver force. By May, Luxor and Yellow Cab had each returned 20 of their medallions to the SFMTA for lack of drivers. Metro Cab owner Richard Hybels says he now earns $12,000-$15,000 less per month than his peak revenue.

It's also well known that Hayashi was a vociferous booster of cab companies throughout her tenure at the SFMTA. Just six months before her departure, she was busy building an elaborate website to recruit new drivers. It included maps to public restrooms, live-streams of taxi town hall meetings, and curated playlists of songs for drivers. Hayashi saw it as a potential salve for old-school, regulated businesses that were constantly being upstaged by their new, high-tech competition. She saw herself as a protector of the underdog.

Hybels says she went too far in that role. And in the process, she wound up favoring DeSoto, one of the biggest, most well-resourced dogs in the pack.

In fact, the SFMTA has a history of showing deference to big cab companies. "There is a long-standing fee structure by which the larger companies are given a tremendous relative advantage," Green Cab founder Mark Gruberg says, noting that on a per-cab basis, small outfits pay far more than their larger counterparts for color-scheme permit renewal — i.e., the right to operate under a certain trade dress. (Yellow Cab, for instance, traditionally paid about twice as much as Metro Cab to renew its color scheme, even though Yellow's fleet was about 27 times bigger than Metro's.)

When Gruberg complained about that imbalance, he managed to get the fees waived this year. But Hybels says that doesn't address the fundamental problem. Under Hayashi's leadership, he says, the SFMTA bestowed special discounted medallions to companies that it deemed worthy of "economic support." In most cases, he adds, these were companies with digital dispatch systems, which better equipped them to stand up to Uber. Small, scrappy companies saw the system triply rigged against them: They had to compete with wealthy peers and barely-regulated tech startups, while facing a municipal transit agency that coddled the bigger players.

Granted, no amount of economic support quite compares to the allowances given to DeSoto, which owes more than any other cab company but which has also proclaimed itself the first to go rogue. Toran, thus far, has given Kim the benefit of the doubt.

"Hansu [Kim] has indicated to me that he has made some hard decisions," she says, "and those are what he'll have to grapple with." She's confident that if he does, indeed, change DeSoto's business model, his medallions will quickly be snatched up by other companies. "We feel there's strong demand for medallions," she continues, "and the industry has been adapting to external changes in a positive direction."

That said, she's not sure what course the SFMTA will take if DeSoto defaults on its debt. Asked whether it would pursue a lawsuit, or simply suck up the loss, Toran waffles. "We'll just have to cross that bridge when we come to it."

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About The Author

Rachel Swan

Rachel Swan

Bio:
Rachel Swan has been a staff writer at SF Weekly since 2013. In previous lives she was a music editor, IP hack, and tutor of Cal athletes.

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