

Uber’s Manhattan Invasion Is Killing the Loan Market for Taxis - adventured
http://www.bloomberg.com/news/articles/2015-07-15/uber-s-manhattan-invasion-is-killing-the-loan-market-for-taxis

======
davidu
Medallion prices are a function of demand. As prices soared, the taxi
commission should have been releasing more medallions as it meant that demand
for taxi's had soared. Instead, the actual mafia-like taxi oligarchs pushed to
limit medallions and thus drive up the price higher. This was an artificial
market, not a demand-based market.

When an externality came in that reduced demand, they were caught off guard,
but they should never have been in this place to begin with.

To blame Uber here is obvious, but far from fair. Sorry guys, you ran an
artificial market, took out loans against that artificial market, and an
externality came and popped your bubble. You had great times for a long time –
now it's over.

And it's not just Uber that people are picking over taxis. They are picking
their time over taxis. If you read the last two paragraphs of this (terrific)
article, the 'time' concept will make more sense:
[http://www.newyorker.com/tech/elements/the-long-history-
of-t...](http://www.newyorker.com/tech/elements/the-long-history-of-the-fight-
against-uber)

~~~
bko
The taxi commission and banks at least are not trying to hide their real
intentions. They think it's unfair that they have to compete. Maybe I live in
a bubble but everyone I talk to sees right through this. But for some reason I
feel the media is more apologetic and gives the TLC way too much benefit of
the doubt.

As a New Yorker, I love Uber and find it absurd that the mayor basically makes
decisions about the cabs. Over the last several years, the "improvements" such
as adding TVs to the cab seem completely unnecessary and not based on actual
customer demands or preferences. Not to mention pricing by government decree
leads to shortages during rush times and every cab honking at you looking for
a pick-up during the off-hours. Oh, and if you're going somewhere the cab
can't pick up a return, you'll be sure to hear about it.

The other thing is that this objection seems way too premature:

> By his count, only about 500 of the city’s medallions, or about 3.7 percent,
> are trading below their purchase price. That means that if banks foreclose,
> losses would be “insignificant,” he said.

Surely the lending institution has to take some risk in regards to the value
of the collateral. Unfortunately, the US has a precedent for bailing out
financial institutions

~~~
Mtinie
> Over the last several years, the "improvements" such as adding TVs to the
> cab seem completely unnecessary and not based on actual customer demands or
> preferences.

Ah, but in fact you're mistaken. Actual customers did demand that they be
added to the taxi fleets. Only the customers in this case are tangentially
associated marketers who wanted to serve their products to a captive audience.
:P

~~~
bko
Fair point.

> Mr. Yassky (taxi commissioner) said that in lieu of demanding advertising
> revenue, the city hoped that the additional income for vendors might
> encourage them to lower the fees they charge to cab owners, which could in
> turn reduce the pressure to increase fares. “I don’t think advertising is so
> much an opportunity for city revenue,” he said, “so much as an opportunity
> to keep fares down.”

Looks like NYC government isn't really benefiting but (presumably) bearing the
cost of fitting these TVs. Government officials always associate price with
cost rather than price with demand.

[http://www.nytimes.com/2010/12/13/nyregion/13taxitv.html](http://www.nytimes.com/2010/12/13/nyregion/13taxitv.html)

------
fennecfoxen
> _and credit unions with a combined $2.5 billion in medallion loans are suing
> the city for failing to stop Uber from stealing customers._

As an occasional customer of NYC transportation services, I'd just like to
throw this out there: I AM NOT YOUR PROPERTY! YOU DO NOT OWN ME! I CANNOT BE
"STOLEN"!

~~~
fennecfoxen
Postscript: If you're willing to listen to the likes of the New York Times,
perhaps you'd believe the fall in medallion prices is a good thing:
[http://www.nytimes.com/2013/11/15/nyregion/1-million-
medalli...](http://www.nytimes.com/2013/11/15/nyregion/1-million-medallions-
stifling-the-dreams-of-cabdrivers.html)

------
josephagoss
Uber is such a good experience in comparison to Taxis.

Here in Perth Uber provides a clean, calm experience where you don't have to
worry about being scammed. Almost every time I've taken a taxi they have
pulled the "No change for your fifty" trick, driven the long way which
devolves into you having to tell the driver the directions which save you $15
off of the fare or even the times that my Taxi driver has pulled over mid-trip
to purchase themselves some energy drinks (without asking me if that's ok).

I can't wait until the taxis and their Government issued monopoly are over.
All that matters is that their business model built upon bad experiences,
arrogance and scamming is finally being challenged and they deserve to lose
these artificially inflated "assets".

~~~
mynegation
The irony or Russian tycoon, owner of "Vodka taxi", talking about mafia, is
almost palpable. (I am Russian, so I am allowed to make this kind of non-pc
joke /s)

On a serious side, the experience is similar in other cities as well. My
friend had to do an early AM ride from Harlem to EWR. No taxis on the street,
companies she called flat out refused (and she hates to make calls). Compare
it to Uber who showed up on time, was very polite, she did not have to pull
out cash or credit card, did NOT charge her the full cash fare tunnel toll
charge, and cost 30% less overall.

Even in Toronto where taxi drivers are generally a nicer bunch, I am regularly
told that "my card machine is broken/not charged".

If taxis want to compete with Uber, at the bare minimum they should "embrace
and extend" what Uber is already doing: smartphone apps, rating system, card-
less and cash-less billing.

~~~
frandroid
Have you tried the trick where you ask the driver before entering the cab if
they take cards? A friend of mine says the prospect of losing the fare somehow
fixes most card machines. ('tis Toronto)

------
GeorgeOrr
“New York must stand up to the hostile takeover being attempted by a Mafia-
like Silicon Valley"

That is so rich, the people who want to force competitors out are calling
their competition Mafia like. This article is so bizarrely worded ... Uber is
"invading" "stealing" customers. Nope, no bias there. (/sarcasm)

------
nextw33k
"New York must stand up to the hostile takeover being attempted by a Mafia-
like Silicon Valley, in conjunction with predator banks,” Freidman said.

I understand someone is lashing out at losing their cash cow but I don't think
I've heard Silicon Valley described as a Mafia before.

Can anybody explain how this is even a remotely comparable thing to say?

~~~
jobigoud
> I don't think I've heard Silicon Valley described as a Mafia before

You haven't ?

[http://www.telegraph.co.uk/technology/11106473/The-PayPal-
Ma...](http://www.telegraph.co.uk/technology/11106473/The-PayPal-Mafia-Who-
are-they-and-where-are-Silicon-Valleys-richest-group-of-men-now.html)

------
copsarebastards
I'm struggling to find a reason why I should care. Stuff like this makes me
think it's a good thing:

* > [C]redit unions with a combined $2.5 billion in medallion loans are suing the city for failing to stop Uber from stealing customers.*

Um, what? It's not the government's job to stop competitors from stealing
customers, it's up to businesses to stop their competitors from stealing
customers.

------
parm289
I posted this comment on another taxi medallion article, but figure it's
hopefully more relevant here:

Just a little background on medallion finance:

A few summers ago, I worked in commercial credit and we did a financing for a
"taxi mogul." He was replacing several cars in his fleet, and wanted to take
out term loans for the full purchase price of the cars (approx. $30k each,
IIRC).

The loans would be secured by cash flow, but the business also posted
medallions as collateral. Each loan was attributed to the vehicle purchased
with the proceeds and secured by that vehicle's medallion.

It's hard to value something like a taxi medallion. Medallions aren't liquid
-- they are usually sold in very low volumes at auctions controlled by the TLC
(in NYC). Additionally, the TLC limits the number of outstanding medallions.
In practice, most of the medallions are concentrated in the hands of "taxi
moguls" who started taxi businesses in the early 20th century when medallions
were cheap (think $30k). The best approximation for value we had was the
prices commanded by medallions at auction. When I was doing diligence on this
deal a few years ago (before Uber), prices were accepted as $1.1mm per
medallion. (In reality, that was at best the value of the "marginal" medallion
sold; i.e. you could probably not put 10 medallions up for auction at $11mm.)

That means that a $30k term loan would have a loan-to-value of about 3% -- a
dream for a bank, assuming the medallions can be seized and sold at market
value upon default. That also meant that the loans would be approved almost
regardless of the integrity of cash flow. Those characteristics allowed the
more cunning taxi moguls to borrow a lot of money against their medallions,
securing low rates due to the strength of their collateral posting, and lend
the money out at higher rates to earn arbitrage.

There was a good amount of discussion about the medallion bubble -- all it
would take is a significant increase in the number of medallions authorized by
the TLC or a few failed auctions, and a medallion sold at a large haircut, for
the value of all medallions to plummet. Granted, the drop in value might not
trip loan covenants, but it would significantly erode the balance sheets of
these businesses. At the time, we didn't expect that there would be an
external force that would hurt medallion values.

Honestly, skyrocketing medallion prices made it clear that additional ride
capacity was needed/demanded. The interesting fact is that the medallion
market wasn't disrupted by the issuance of additional medallions, but rather a
drop in the demand for yellow cab rides -- a scenario that taxi moguls likely
hadn't planned for.

All in all, an interesting asset class that most people aren't aware of --
those 4-letter signs on taxis hold no meaning to riders, and almost nobody on
the street would guess that they represent assets worth over one million
dollars.

~~~
brc
Ot of everything that surrounds uber, the interplay and economics of the taxi
industry hitting the rocks is interesting to me in an economic case study.

Your example shows that a lot of businesses take advantage of credit to
increase their returns but probably are never able to see where the problems
are going to come from. Even ten years ago if you'd have said we would be in
this situation it would have been unimaginable.

The angle most taxi sympathisers are going for is the 'poor taxi driver'
angle. But in reality the taxi drivers can just switch. It's the people who
are all-in on taxis who are in trouble, with their business model built around
a constant amount of passenger miles which probably hasn't changed in years.

~~~
thenipper
It's pretty disingenuous to say that taxi drivers can just switch. My gut says
that most taxi drivers aren't in a position to easily invest in a capital
resource like an automobile.

Though it makes me wonder if you could start a business that rents out cars to
potential ride sharing drivers. You get $X per hour that they use it and at
the end of their shift they drop it off with another rent. Basically
reinventing the taxi cab model.

~~~
jeromegv
Some people have tried that. I think the issue right now is that UberX rates
have dropped so much for drivers, that if you add an intermediate in the
middle, there is either very little margin for the intermediate, or a very
shitty salary (under minimum wage) for the driver.

~~~
brc
So sounds like the taxi industry then.

------
njloof
I feel less sorry for NYC taxis than in most cities -- they have had non-
medallion competition for decades in the form of car services, which work much
like Uber but you have to use the "phone" function of your smartphone.

Car services flourished because even today, cabs will refuse to go to
Brooklyn. This was a form of "redlining" that profiled customers by race, even
now that Brooklyn has added white hipsters to its ethnic and religious
minorities.

So in NYC there is nothing new about this form of competition; it is only that
Uber has made it more convenient.

~~~
nubb
I used to take cabs from Penn to Lorimer Street and back all the time through
2007-11 when I didnt feel like switching trains - no problems.

I don't want folks reading this to think cabs really don't go to BK.

~~~
untog
It was definitely an issue. Not that "every" cab wouldn't, but I learned
quickly to get in the cab before saying that I was going to Brooklyn -
numerous drivers would drive off when they heard it.

------
jhonovich
Why doesn't the NY TLC add hailing via app / smartphone?

~~~
suvelx
If it's anything like London, the price of the black cab is regulated.

So, even if there is hailing via an app (Which afaik exists for some black
cabs), you're still paying the regulated and more expensive fare.

~~~
nicboobees
And in return, you're getting a properly regulated and insured service which
you can pretty much rely on.

You get what you pay for.

~~~
briandear
I've had that regulated dependable service drive me around the block, take
longer distances that were necessary; practically stealing money from me. I
have never had that happen with Uber. Not once. More expensive doesn't make it
better. That's a nonsensical statement especially when government regulation
actually makes markets less efficient and more subject to market distortions.

The taxi business as we know it ought to die. Let these thieving, exploitive
'mogels' go bankrupt.

~~~
nicboobees
It'll come full circle. People will start getting murdered / seriously hurt in
Uber cars, maybe they'll be filmed without their consent while in the car,
probably a few rapes along the way.

Then customers will cry out for regulation, insurance, etc. And it'll put the
prices up.

I don't understand why you'd put your life completely in someone elses hands
without any sort of vetting, regulation, insurance etc. Just so you can save a
few $

Maybe a startup should disrupt the medical industry. Just provide "doctors" to
patients based on online feedback scores. After all, all that regulation and
training just pushes prices up.

~~~
dylanjermiah
Regulation doesn't stop murder, theft nor rape. If it did we wouldn't have
prisons.

There are numerous events of murder and rape in regulated taxi cabs. (Google
is helpful). If you have any evidence that Uber is more dangerous than a cab
is love to see it.

As for your final question, yes. Regulation has artificially held back the
medical industry and ridiculously inflated prices. People aren't stupid, they
can decide what's best for themselves. Choice and free competition is the
foundation of progress.

~~~
nicboobees
Do you really believe that no regulation is the answer?

Look at airbnb and the detrimental effects it has on cities. Residential areas
are residential for a reason. It must be horrible to wake up one day and find
that your neighbour has decided to turn into an unregulated hotel.

~~~
dylanjermiah
I have yet to see any evidence in regards to your claims about Uber or Airbnb.

Secondly if the prior taxi system is evidence of regulation i think it's a
safe assumption to make that regulations helped neither the consumer or the
providers. Uber in SF is doing 3-4x what the entire taxi system was doing
prior, that's evidence of demand not being met. Artificially restricting
supply is never a good idea.

Uber is only doing so well because people prefer their service to the
alternatives, people aren't stupid, they can do what is best for themselves.

------
thadd
Existing service has problems, many of which can be attributed to heavy
regulation.

New service is introduced and is preferred by consumers.

Existing service wants more regulation to kill new service.

Sounds about right.

------
davidf18
The reason for the high cost of NYC Taxi Medallions is because of politically
induced artificial scarcity of limiting Taxi Medallions (Microeconomics term
is "rent seeking"). Rent seeking is a form of market inefficiency that causes
people to pay more of their income for taxis which means less spending on
other things.

I welcome anything that rids us of "rent seeking" and helps with market
efficiencies.

------
B4CKlash
Would there be an overall economic net gain or loss if the Taxi industry was
replaced entirely (or close to it) by Uber?

I can't help but think it's not a good idea to convert an entire industry to
contract workers...

------
dvh
How much does taxi ride have to cost to make place for a competitor such as
Uber to pop up? I live in a city with 250'000 people and taxi ride within city
limits are $3.

~~~
meapix
Where is this city? In africa, you can't take a taxi for less than 3$ in city
limits.

~~~
dvh
Slovakia, Europe

------
of
Am I crazy or is the whole mobile phone industry dumb?

