$2 Million Dollar McKinsey Study Has ZERO Good News For Big Taxi

If anything, its findings seem to be as favorable as Uber or Lyft might have wanted them to be.

—Arun Sundararajan, a New York University business school professor who was solicited for advice in the city’s study

[We don’t]…want another fight with…Uber…dispute was getting out of control…de Blasio losing politically on an issue that wasn’t central to his brand

— Aides to deBlasio in private statements

Things pretty much will stay the same..this study wasn’t worth $2 million, and it didn’t have to take all this time…but I think we already had the idea that this was dead, and the study is the funeral notice

—Nicole Gelinas, a transportation expert at the Manhattan Institute

These definitive excerpts were published in The Wall Street Journal January 15, 2016
McKinsey’s For-Hire Vehicle Transportation Study January, 2016 is available here.

Flourishing in the Post-Uber World

In my opinion, leaders of the community of owner operators and small medallion owners now need to focus on how to prosper in a post-Uber world.

In the 1/15/2016 article, Bhairavi Desai, executive director of the New York Taxi Workers Alliance, faulted the report for not adequately taking into account the turmoil on drivers’ incomes, saying it failed to confront the consequences of Uber’s business model.

Desai is EXACTLY right.

Driver’s income saddled with medallion debt service payments or medallion leasing fees month after month after month can NEVER compete with the income an UberX driver will receive without this heavy burden.

Hoping that regulation will still stop Uber is an extremely bad strategy for providing competitive income for drivers who do not drive for Uber. The only solution is abolition.

After taxi medallions are abolished in New York, Chicago and Boston, like in thousands of jurisdictions, taxis will receive permits to operate at a total annual cost less than $500.

Taxi permits are occupational licenses. If it ever did, its no longer reasonable for them to be tradable securities.

Should permits to operate hair salons be tradable securities?

New York taxi permits would continue to grant the exclusive right to use street hails and taxi stands to generate passenger revenue. Uber does not want, nor will ever be granted the license to pick up passengers unless they are pre-arranged. It’s just not part of their business model. However, pre-arranged rides will become a smaller and smaller percentage of total rides given by former medallion taxis.

There will be a tightening of share between street hails and “near-hails” where a passenger contacts Uber around the corner from a stand or a passing taxi. However with improved quality non-Uber taxis can substantially limit that tightening.

There will always remain a lucrative revenue stream from street hails and taxi stands in New York, Chicago and Boston.

Liberated from indentured servitude to Big Taxi, former owner operators and former owners of small businesses with less than ten medallions each will capture this sustainably profitable revenue.

However, complete victory will only be reached AFTER the restructuring of the industry following write off of $7.5 billion in taxi medallion debt and the abolition of taxi medallions in New York, Chicago and Boston.

Like in all industries disrupted by technology, the remaining survivors will successfully adapt to the new world created by the disruptors.

Uber Won’t Face Limits on Surge Pricing Under NYC Council Legislation

By Josh Dawsey and Andrew Tangel
The Wall Street Journal
January 15, 2016

Uber had a good day in New York City.

The package of bills regarding the taxi and for-hire vehicle industry came at same time as a $2 million study. The San Francisco app-driven car service won’t face regulations or limits on its so-called surge pricing from the New York City Council, Speaker Melissa Mark-Viverito said on Friday.

Meanwhile, Mayor Bill de Blasio’s administration also released a traffic study that didn’t pin the blame for worsening congestion in Manhattan’s central business district on Uber, whose rapid growth has upended the city’s yellow taxi industry. It warned, however, that traffic could slow further in coming years if trends continue.

The $2 million study’s findings were laid out in a 12 -page report that was produced by the consulting firm McKinsey and Co. and former city transportation official Bruce Schaller. The study, its release delayed two months, was commissioned after Mr. de Blasio last summer proposed a cap on the city’s for-hire vehicle fleet, which failed. The report also didn’t recommend such a cap, and it called for hire-vehicles “vital” for the city’s transportation system.

“Reductions in vehicular speeds are driven primarily by increased freight movement, construction activity, and population growth,” the report said, saying Uber and other for-hire vehicles might have “inadvertent impacts.”

Tensions are now likely to ease between Uber and the de Blasio administration. The company put out a statement praising Mr. de Blasio and Ms. Mark-Viverito for being thoughtful and said they planned to work with city officials on legislation that could require them to provided more cars that are accessible to the disabled. The City Council also will consider legislation to eliminate the written English test for taxi drivers.

Uber has pushed back against regulations that could limit its ability to add supply to meet demand, as well as restrictions on surge pricing—when it charges more during times of peak demand…

…The report offered a glimpse of potential new regulations for the for-hire vehicle industry that policy makers have been considering, but it was short on specifics.

The report addressed increasing the city’s notoriously slow bus speeds and how to get Uber and other car-services to contribute more to the subsidizing mass transit. It also called for increased pricing transparency and greater data-sharing with city taxi regulators…

….The Metropolitan Taxicab Board of Trade, which represents major city fleet owners, praised the report for recommending a more level playing field for more tightly regulated taxis and less-stringent rules for black-car services such as Uber. The group noted stricter requirements for taxis to accommodate disabled passengers, and a per-trip surcharge dedicated to the Metropolitan Transportation Authority.

The study’s findings contrast sharply with previous assessments of Uber coming from the de Blasio administration.

Tony Shorris, the city’s first deputy mayor, said last summer the company’s cars were clearly adding to congestion and that he couldn’t think of a policy solution that didn’t involve limiting Uber.

While Mr. Shorris said that the yellow cab industry’s generous political donations to Mr. de Blasio didn’t affect policy, polls overwhelmingly showed people believed otherwise…


Uber’s New York Win

By Jared Meyer
January 19, 2016

After a nearly two-month delay, Mayor Bill de Blasio’s office on Friday released its study on Uber and other for-hire vehicle (or ridesharing) companies. The mayor’s report does not support his previously-proposed 1% cap on the annual growth of ridesharing companies. The stated reason for his cap was concerns over ridesharing’s effect on Manhattan traffic.

The report, for which the consulting firm McKinsey was paid $2 million, is a stunning turnaround from de Blasio’s position in July. To support his proposed cap, de Blasio penned an oped for the New York Daily News titled “A Fair Ride for New Yorkers.” Referring to Uber, he wrote, “No company’s multi-billion-dollar political war chest gives it a blank check to skirt vital protections and oversight for New Yorkers.”

De Blasio was upset with Uber because the company mobilized its customers to oppose restrictions on ridesharing’s growth. He was forced into a truce where, in exchange for access to Uber’s private ride data, ridesharing companies were allowed to expand while the traffic study was conducted.

A cap would have squared poorly with de Blasio’s progressive principles. As I wrote in my report Manhattan Institute report Uber Positive, ridesharing has increased transportation options for low-income, outer-borough New Yorkers.

As Uber grew, its trips moved from Central Manhattan and the airports to outer-borough neighborhoods such as Astoria, Harlem, Jackson Heights and Washington Heights. These areas experienced more than 1,200% growth in monthly UberX rides over the course of 2014. Throughout New York, Uber grew most in low-income zip codes.

If Uber’s growth had been capped in January 2014, lower-income, outer-borough residents would have had access to 200,000 fewer rides in December 2014. Almost 7,000 UberX trips a day would have never occurred. Policymakers now realize that these sorely-needed transportation options should not be removed over unfounded traffic concerns.

Even as ridesharing grew dramatically and New York City traffic slowed, total vehicle-miles traveled in Central Manhattan remained flat over 2014 and 2015: The traffic slowdown was due to other causes.

The city’s report states that the 10% reduction in Manhattan traffic speeds over the past two years cannot be attributed to ridesharing. Instead, the culprits were construction activity, double parking and the city’s general economic and population growth.

Even if the cap is no longer a threat, there are other New York City policies that hinder ridesharing’s growth. Before they can begin to work, ridesharing drivers in New York City have to gain Taxi & Limousine Commission commercial licenses. New York is the only U.S. city that requires this step. As ridesharing’s success and safety record across the nation has shown, licensing is not necessary to protect the public.

The city’s report does call for speeding up the licensing process, to help both ridesharing and taxi drivers. Online options that would reduce processing time are being evaluated, along with licenses that last longer than the current two years.

The city is also turning its sights to shaking down ridesharing companies for additional mass transit funds. The report states, “As an intensive user of City streets, it is appropriate that for-hire vehicle companies participate in funding these needs, and… pay their fair share.”

In the absence of any sales tax, there is a $0.50 surcharge on each yellow and green taxi ride that goes to support the Metropolitan Transportation Authority. An additional $0.30 per rides goes to promoting accessibility for disabled passengers. Ridesharing passengers do not have to pay these fees, but they do pay an 8.875% sales tax, of which 4.5% goes to the city and .375% goes to the MTA.

Ridesharing passengers are paying their fair share because for trips that cost over $9, ridesharing passengers are paying more in taxes than taxi passengers pay in fees.

Taxi passengers should not be subsidizing the MTA. Transit users, rather than taxi riders, should fund the system. But if MTA and accessibility fees are applied to ridesharing companies, the sales tax requirement should be eliminated to promote an equal playing field with taxis.

The report concludes that, “differential regulations for taxis compared to other categories of for-hire vehicles limit traditional yellow taxis’ ability to compete effectively with e-dispatch services.”

With those words, New York City is waking up to the reality that it should make taxis more like Ubers instead of making Ubers more like taxis. Now it is up to de Blasio and the New York City Council to embrace a regulatory framework that allows a multitude of transportation options to thrive.



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