By Dow Jones Business News
Katy Stech contributed to this article.
January 24, 2016
Yellow Cab Cooperative Inc., San Francisco’s largest taxi company, filed for bankruptcy protection Friday, the latest in string of traditional taxi companies to turn to chapter 11 amid the rapid rise of ride-hailing rivals like Uber Technologies Inc. and Lyft Inc.
Pamela Martinez, the co-op’s president, said in court papers that her company faced a host of challenges, including a high number of accidents-related claims and liabilities, a steep decline in ridership and competition from newer app-based ride-sharing services, namely Uber and Lyft, which have also increasingly poached Yellow Cab drivers.
In June, a jury awarded $8.1 million to a woman who was partially paralyzed in a Yellow Cab accident, court paper show, and the company said it faces some 150 open claims valued as high as $10 million.
The plight of yellow cab companies elsewhere in the U.S. shows newer ride-hailing services are slowly displacing the traditional taxi model, adding to pressures that have landed some taxi companies in bankruptcy.
Chicago’s Yellow Cab taxi service filed for bankruptcy last year, blaming its financial woes, in part, on pressure from “on-demand app-based private transportation networks,” bankruptcy court papers show. The company also had recently been hit with a $21.9 million judgment owed to a passenger who sustained brain damage as a result of a 2005 highway accident.
Brishen Rogers, an associate professor at Temple University’s Beasley School of Law who has studied Uber’s effects on the taxi market, said traditional cab companies are clearly threatened by newer competitors, and he expects many more will go out of business as a result.
Fears that Uber, Lyft and other upstarts pose serious challenges for traditional cab companies are evident in the price of New York’s yellow cab medallions, which license cab drivers to operate in the city. The price has plummeted from more than $1.3 million in 2013 to between $700,000 and $800,000 last year, according to industry estimates.
“The value of the medallions was based on their scarcity,” Mr. Rogers said. “Once the scarcity is gone, the value goes away.”
Taxi companies have been loath to pin their troubles on their start-up competitors. Evgeny “Gene” Freidman, known as New York’s Taxi King, put several of his cab companies into bankruptcy protection last year, in a move to stop his lenders from seizing 46 medallions, a fraction of the more than 860 his company controls. In court papers, he dismissed the notion that Uber and other tech-savvy competitors were hurting his business.
Nevertheless, those same court papers show his lenders, including Citibank, expressed concerns about the effects that “nontraditional ride-sharing companies” would have on the city’s traditional medallion-based business model.
Lending money to taxicab companies that possess medallions has historically been a safe business, but the market has tightened as major lenders worry how the new competitors will affect the business.
Uber, a startup currently valued at more than $ 50 billion, has managed to lure away passengers with app-based payments and promotional free rides. The company claims an average Uber driver makes significantly more than the average hourly wage, including tips, that the U.S. Bureau of Labor Statistics estimates for taxis and chauffeurs.
“Apps like Uber appear to be growing the overall transportation pie,” a spokeswoman for Uber said Thursday. “This is not a zero-sum game; more options are better for riders and drivers alike,” she said.
Lyft declined to comment.
Uber and chief rival Lyft, both based in San Francisco, have grown rapidly in recent years, benefiting from new technology as well as a more favorable regulatory environment.
“I think the taxi regulators are doing some soul searching now,” said Kate Toran, who oversees taxi regulations in San Francisco. “Some of the regulations may not be needed in this environment.”
San Francisco recently waived fees for taxi-license applications and renewals in an effort to boost the industry, but the loosened regulations proved too little to save Yellow Cab from bankruptcy.
San Francisco’s Yellow Cab, which operates a fleet of about 520 cabs, recently released its own ride-hailing app, Yo Taxi, meant to compete with the likes of Uber and Lyft. The company, which filed for chapter 11 protection in U.S. Bankruptcy Court in San Francisco, plans to continue operating normally.
“From the perspective of individual drivers nothing will change,” Ms. Martinez said Friday. “We should come out on the other side better and more in tune with the 21st century.”
According to the company’s website, San Francisco’s Yellow Cab was born out of bankruptcy in 1976 when local cab drivers and other local investors, organized as a cooperative, bought the company. The cab company listed assets of less than $10 million and debts in the range of $10 million to $50 million in its chapter 11 filing.