Death of the taxi medallion: SF cab company ponders major change
By Jessica Kwong
The San Francisco Examiner
July 23, 2014
DeSoto Cab Co. might not like the under-regulated and fast-emerging alternative-ride service industry, but company President Hansu Kim knows an opportunity when he sees one.
If Uber, Lyft and others are allowed to expose loopholes in the regulatory process — which boost their bottom lines exponentially — then so too can the traditional taxi industry, he realized.
During public comment at many recent San Francisco Municipal Transportation Agency board of directors meetings, Kim has explained that his 204-vehicle operation is “bleeding money” due to competing ride services subject to a different set of rules enforced by the state, not The City.
If DeSoto were to change the model of its operations, it would cut its highest cost — nearly half a million dollars in monthly payments to taxi medallion holders — but not become another Uber or Lyft (the app-based ride services dubbed transportation network companies). Instead, DeSoto — The City’s third-largest cab company — would seek charter-party carrier, or TCP licenses, intended for limousines and Lincoln Town Cars but legally obtained by nonluxury vehicles.
“Uber isn’t putting me out of business,” Kim said, speaking hypothetically. “What Uber is making me do is retool — and given the same rules, I’ll beat them all day long.”
The California Public Utilities Commission’s Transportation License Section states, “The most important operational difference is that TCP transportation must be prearranged” whether by telephone or writing, whereas, “Taxis may provide transportation ‘at the curb.'”
To have a livery plate, a type of TCP permit, a vehicle can be any sedan or SUV that seats 10 or fewer passengers including the driver.
“If a driver has applied for and received a livery plate and then becomes a driver with a TNC, that driver can provide TNC service in that vehicle,” CPUC spokesman Andrew Kotch said.
AN ALTERNATIVE PLAN
Technology-driven companies like Uber have blurred the definition of prearranged transportation and the code has not since been amended, said Barry Korengold, president of the San Francisco Cab Drivers Association. That has allowed TCP-licensed cars to use smartphone apps and act as taxis.
“Somehow, they’ve played with the words so much that ‘on-demand’ is ‘prearranged,'” Korengold said.
Together, Kim said, the TCP and TNC ride services are a “double-whammy” to taxis.
“I hate to say it,” he said, “but all this deregulation is, from a financial standpoint, an opportunity for me.”
The cost factor is also important to DeSoto, as Kim pays $2,200 per month each to his 204 medallion holders for an annual total of nearly $5.4 million. If Kim decided to pull the trigger, it would take him three months to remove the cab meters and infrastructure while keeping his dispatch system, DeSoto name and two-toned blue colors. Each TCP license would be a one-time $1,500 fee plus $100 to renew annually. Kim said he would do just fine because he has built a loyal customer base over the company’s 80-year history and now receives an additional 2,000 hails daily through the hailing app Flywheel, which he hopes would adapt with him.
Since 2010, medallions have been sold to drivers at $250,000 each. Up until a few months ago, Kim was paying medallion holders $2,500 per month, but that dropped to $2,200 with competition from other ride services. The monthly rate could drop to $1,800 by September, Kim said. Yet a medallion does have advantages, like allowing drivers to pick up street hails and airport customers.
“The SFMTA is going to kill their golden goose, which is their medallion sales,” Kim said.
NO CONCERNS FROM CITY
The repeated warning from DeSoto Cab Co. about retooling was not a major concern for the San Francisco Municipal Transportation Agency Taxis and Accessible Services’ interim director, Kate Toran. DeSoto’s medallions are a small fraction of the roughly 2,000 citywide, she said, and the medallion holders could do business with other taxi companies.
“That could be a business decision that they undertake and really that’s [Kim’s] choice,” Toran said. “There would be no loss for the SFMTA taxi fleet.”
There continues to be a “strong demand” for medallions, she said, with about 1,000 people ready to buy them.
“If the industry continues the positive work of adapting to the new challenges, we believe that the value of the medallions will remain strong,” Toran added.
Ed Healy, 69, a taxi driver for more than 25 years, said he sold his medallion a year ago because it appeared to him The City was not going to regulate the app-based ride services. He now drives for DeSoto two or three days a week.
“The state is allowing these people to put in all the vehicles they want, whether they are needed or not,” Healy said of the app-based ride services.
WILD, WILD WEST
Korengold said his main issue is that The City still cannot crack down on the state-regulated ride services. A state audit last month found that CPUC failed to enforce safety laws around limousine and bus companies and lacks properly trained investigators.
Luxor Cab, the second-largest taxi company in The City, is not considering converting its entire 220-vehicle fleet to a sedan service, Assistant Manager Charles Rathbone said. But it is keeping an open mind about getting TCP licenses for vehicles to operate them commercially or getting TNC licenses.
“We’re not about to abandon the medallion system that has worked so well in San Francisco for generations,” Rathbone said.
While there are cabs that aren’t leaving company lots, a number of drivers are returning to the cab industry, noted Steve Humphreys, CEO of the app Flywheel that is working with every taxi company in The City.
Kim’s own reservations around the sedan service route are based on his belief that vehicles transporting people should be subject to regulation.
“Of course I want to be a business that is not losing money, but I don’t want to see the industry become deregulated, because it’s not in our public interest,” Kim said.