
If Lyft can't keep its drivers as contractors, it may never be profitable - pseudolus
https://www.latimes.com/business/technology/la-fi-tn-lyft-ipo-drivers-20190309-story.html
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newprint
I'm kind of torn on this. My father has been truck driver his entire life and
for the last 20 years worked as a contractor, while driving his own truck and
trailer, since it gives him more $$$ than average driver who works as
employee. However, he has non-existent social net. No health insurance, no
pension benefits. If he out of work or has serious health issues that ground
him for months, he has to dig into savings and I also have to help him.

So, if Lyft driver who was "gigging" for them for years gets sick and he is
out of work, what kind of help would he get ? None, at least in US.

~~~
chrisseaton
If he's earning more than average, and professional truck drivers are pretty
well paid, then can't be purchase that social net himself?

He can buy health insurance, pension, group income protection, everything you
mentioned.

I know poor people can't do that, and that's the issue, but why can't a well-
paid truck driver do it?

~~~
relaunched
The supply side dynamics of trucking is crazy. There has been a driver
shortage for 10+ years, easy. About 2/3 of the trucks on the road are owned by
fleets of 5 or less, with most trucks being a 1 unit, owner operator.

The entire industry, small and large fleets, use owner operators as perverse
cost savings. In some cases, you lease the truck from the large fleet, they
charge you for gas and maintenance, insurance, etc; deducted straight from
your check. You integrate with their comms / cpu systems, their tracking
systems, etc. all for a price. You go where they tell you and when.

It's an industry that's almost impossible to run profitably as an owner
operator, because those folks are skinned. But, people are in love with the
idea of owning their own business - it's kinda like an MLM that way.

Now, I founded a trucking company that had as many as 15 trucks that ran over
the road, both owner operators and company owned vehicles. At my size, there
were very few economies of scale and we ran at a break even, at best - closing
after a few years. We paid teams .40 cents a mile, all miles, backing out the
per diem and paying SS / payroll taxes on the balance - an ridiculously high
workmen's comp (first year was 24%, went down to 16.5% later).

I could go into more detail, but you get the point.

~~~
ohaideredevs
I would be very interested in the details. I keep hearing about friends of
friends who pull $80,000 driving a truck, $120,000 when they own one and half
a mil once they own a couple. Too lazy to actually do the research, but
curious how close these claims are to the truth.

Obviously you are seeing a very different picture, and yours actually comes
from experience.

~~~
michaelmrose
Maybe they are quoting the money coming in before expenses like gas/lease etc?
Maybe they put it an above average investment of time?

~~~
TylerE
Actually, time is pretty strictly regulated by the DOT. No more than 60 hours
duty hours a week, no more than 14 duty hours in a row, of which no more than
11 hours can be actually driving, and must go off duty for at least 10 hours
to reset the clock.

Sounds more complicated than it is... once the duty period begins, any stops
(fuel, breaks, meals, etc) do NOT stop the clock.

This is why most long-haul operations use pairs of drivers... one will sleep
in the bunk while the other drives.

~~~
michaelmrose
By most jobs definitions how much of an individuals waking life is consumed by
work in this scenario over the course of a year?

~~~
relaunched
Trucking is a little different. I'm not sure the current regs, but driving
time is logged differently than "on duty not driving" different than off duty.
Typically, drivers are paid by the mile, so on duty not driving is unpaid,
while doing tasks like DOT inspections, vehicle walk around, fixing stuff,
tire pressure, break adjustments, shifting trailer pins, etc.

Long haul teams can drive as much as 300+k miles per year. This typically
consumes 50 weeks of being in the truck at least 6 days a week, simplifying at
little.

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maehwasu
This entire issue is a product of US health care costs. No one would give a
shit about the classification of workers, if it weren’t for the fact that
health care is insanely expensive and brutal to manage without insurance.

The US needs to address this issue, and now. However, as someone currently
working in the field, I’m starting to think that the size of the country, and
the sclerotic, poorly incentivized bureaucracy that controls health, will make
it impossible to address until there’s a true crisis.

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seanmcdirmid
This is really one of the bad problems with the gig economy in the USA. Even
Switzerland, which requires private insurance, disallows group plans to detach
insurance from employment, making labor markets more liquid and flexible (as
well as preventing huge distortions in the individual healthcare market).

Your dad does have one social net: even 1099's must opt into SS and Medicare
(paying both employer and employee shares, unfortunately), at least.

~~~
ams6110
They can deduct the employer share though? Or is that just self-employment
taxes?

~~~
vetrom
SE tax _is_ the employer share, and its a bit complicated. As a 1099, you are
required to pay the full SE tax generally minus (a couple?) deductions. But
then, you are allowed to deduct half of what you pay in SE tax from your
income for regular income tax. The SE tax is also paid I believe only up to
some income limit. Then, there's the Medicare tax on top of that, which is not
income-limited.

~~~
dragonwriter
> SE tax is the employer share, and its a bit complicated

SE is equivalent to both employee and employer share, which is why you get to
deduct half of it, equivalent to the employer share (which is not included as
taxable income for other workers, either.)

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jackschultz
Anyone else see these and think about how maybe there should be some other
type of worker other than employee or contractor? Those are hard definitions,
and creating laws to reflect this type of worker is incredibly difficult
considering people and companies figure out loopholes, but really feels like
there should be another category to go with this type of work that's going to
become more and more common.

~~~
nradov
Another alternative would be to decouple health insurance and retirement plans
from employment.

~~~
FakeComments
Are retirement plans coupled to employment?

Neither social security nor 401Ks are, in that you can often keep and almost
always rollover (to a personal) 401K when departing.

Pensions were, but as I understand it, those basically don’t exist anymore.

~~~
nradov
You can't really contribute to a 401(k) plan unless your employer sponsors
one. When you leave the job you can roll it over to an IRA. Some independent
contractors can contribute to an IRA, but it's inferior because the annual
contribution limit is only $6000, and the income limits are lower. And of
course employer matching contributions aren't available to independent
contractors.

~~~
mercutio2
Independent contractors can contribute up to $43k to a solo-401k.

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Axsuul
Isn't this just typical legalese that IPO docs are required to say on caveat
emptor? It's typically worst case.

~~~
m463
This might be like warning labels on the side of ladders. Somebody somewhere
did something stupid with a ladder, and then a warning label is added to every
ladder to prevent a future lawsuit.

and of course, mentioning things like this then becomes "news", spawning
articles like this:

[https://www.tesla.com/blog/misfortune](https://www.tesla.com/blog/misfortune)

~~~
thisacctforreal
That was a shitty response to someone dying in their vehicle.

Tesla's autopilot marketing is extremely poor.

[https://tesla.com/autopilot](https://tesla.com/autopilot)

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temp1928384
Lyft can be profitable today if they wanted to. The only reason they aren't is
because they are fueling growth by propping up the supply of drivers through
driver signup bonuses.

Ride sharing is generally supply constrained (meaning there's plenty of demand
but drivers are in limited supply). If they stopped paying driver bonuses to
expand in new markets or maintain share of drivers in mature markets, then the
number of drivers would likely start plateauing or declining (due to high
turnover) -> prices would increase and/or rider wait times would increase ->
rider demand would fall -> growth would stall.

In short, they're choosing growth over profitability because that's what
investor want to see. As soon as they choose profitability (which they might
have to after IPO), their growth will come to a halt and their share price
will tank. Watch.

~~~
subroutine
I took a look at some of Lyft's metrics [1,2,3], but would be interested in
seeing a more nuanced breakdown of their expenditures. You mention driver
signup bonuses are a major expense, and is _" The only reason they aren't"
profitable today_. Is this a fact?

[1] [https://craft.co/lyft/metrics](https://craft.co/lyft/metrics)

[2] [https://dashboards.trefis.com/no-login-
required/zrRBRShU](https://dashboards.trefis.com/no-login-required/zrRBRShU)

[3]
[https://www.forbes.com/sites/greatspeculations/2018/10/10/a-...](https://www.forbes.com/sites/greatspeculations/2018/10/10/a-closer-
look-at-lyfts-valuation)

~~~
Nasrudith
Wouldn't it be far more sustainable to just boost base rate with the money
instead to reduce churn? It sounds like a perverse incentive of metrics to
reward new drivers instead of total ones.

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godzillabrennus
Self driving cars would change the economics and create profitability in the
markets it’s a viable solution within.

All ride sharing companies have the same problem.

~~~
TylerE
This always seemed obvious to me that this was the play - that the initial gig
economy period was just a stop gap to gain market share (at a heavy loss)
until self-driving tech became available.

That has proven to be a much slower process than they probably expected.

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User23
Human drivers are just mechanical turks to build market share while self-
driving cars become commercially viable.

~~~
gotocake
_Human drivers are just mechanical turks to build market share while self-
driving cars become commercially viable._

Don’t they have to exist before we worry about commercial viability? You’re
not the only one talking like FSDV’s are just minutes away, when the truth is
that when you cut through the hype and wishful thinking, they’re an
indeterminate period of time away. The conversation around this subject reads
like people in the 30’s planning for the dawn of the fusion age.

The technology is not there yet, we don’t know when it willl be or if the
avenues being explored now will lead there. Anyone who tries to tell you
otherwise is trying to sell you something, like shares in a fundamentally
unprofitable endeavor. I get it, self-driving cars would be very cool, and
maybe we’ll even live to see them. Maybe not. It’s still a crazy company that
can only profit if nonexistent technology emerges quickly! On the other hand I
have some shares in my new space elevator to sell...

~~~
threatofrain
Aren't a few of the big players already piloting consumer-accessible taxi
programs?

IMO, the stuff which has already been demonstrated is a bit too creepily good
for comfort, even if we're talking about limited Tesla autopilot.

~~~
FakeComments
Sure, but we’re still easily 5 years from “all traffic, all weather, all
situations” car AI, which is necessary for fully autonomous vehicles.

They already have the cheapest solution for having a driver and a car go
around town, so sending drivers with their “autonomous” cars in good
conditions is an impressive step, but insufficient for full autonomy and not
enough to fix their business problems — they need to be able to send the cars
in real life situations with no driver.

So 5 years of technology and 5 years of regulation before widespread adoption
is a long time for Uber to have to be spending investor money before they
spend investor money on autonomous car fleets in every major city. (Or are
they going to lease cars from other people? — it may be then that the cost of
leasing vehicles from others never comes low enough.)

The better hope for their investors seems to be the rumor they’re profitable
in large, established cities and their costs are expansions and turf wars.

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yalogin
If we assume this is correct what does it mean for the company and it’s
employees? They are going public which means there will be pressure to make a
profit. How does it bode for their recruitment and in general well being of
the company?

Also I cannot imagine Uber to be in any different situation.

~~~
toomuchtodo
It means Lyft and Uber are terminal and their insolvency is not about if but
when. There are only so many $2 bills to sell for $1.

~~~
Judgmentality
I never understood why anyone thought otherwise, unless you believed self-
driving cars would be ready by now.

I'm not going to pretend to understand the intricacies of Lyft and Uber and
their experiments with food delivery, carpooling, and other endeavors. But
scaling up does not solve the problem of paying your contractors more than
they're making you - in fact it only scales up the problem.

Granted, I've thoroughly enjoyed my cheap rides subsidized by VCs for years.
But it's just not a viable business, and I have never heard a convincing
argument to the contrary. I feel as though few VCs are looking to create value
so much as they're looking to get in early and cash out before the house of
cards falls over.

~~~
RodgerTheGreat
Even if self-driving cars _were_ ready right now, why would Lyft or Uber have
an advantage? In theory, their current competitive edge over taxi services
comes from pushing externalities to drivers.

If they had to worry about owning and maintaining all their cars, suddenly
they're in a new and very capital-intensive line of business. I'd expect at
least one of the established rental car chains- which have physical
infrastructure like motor pools, mechanics and relationships with local auto
shops, and logistics experience with all of the above- to eat Uber's lunch!

Every way I look at it, work on self-driving technology by rideshare companies
is 100% smoke and mirrors to drive investment, and not a serious business
plan.

~~~
lykr0n
There was a great post about Avis (I think) who had an incubator to explore
ideas about what they could do with their fleet of cars. I think if you looked
at rental companies, they are actively thinking about the future.

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ratling
I'm fine with this if we get medicaid for all. This won't be an issue if all
the 1099 workers did't have to take a 30% pay cut (or negotiate for 30% higher
wages, I'm ignoring the tax issue of course) to be healthy.

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termau
As far as I can see they have a good market position, if they can hold off the
courts long enough for driverless to happen then they win, it they fall the
other side they lose

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neonate
[https://outline.com/5F2Cyv](https://outline.com/5F2Cyv)

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mishkinf
The epitome of how capitalism can and will cannibalize itself. As corporations
move towards maximizing profits for shareholder value, the individuals upon
whom they depend on for profits are squeezed out of the system. The more
successful companies can produce profits, the less people can afford the very
products and services being produced and the companies will have no customers.

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crb002
I don't see how they can't be profitable with direct hires. Nothing stops them
from having a 75% part time workforce. Have those amazing rated drivers as FTE
with benefits.

