Last week I wrote about my experience commuting to work with Yellow Cab vs. Lyft, one of the new on-demand, smartphone-based “ridesharing” services that has recently started operating in Seattle. Personally, my experience with Lyft was much more efficient and pleasant. But that leaves out some important points for policymakers attempting to craft sensible regulations for a growing car-for-hire industry.
For starters, I’m fortunate enough to have the option of owning an iPhone, which gives me the choice to use services like Uber, Lyft, and Sidecar. Those new companies use smartphone apps as their dispatch systems, which put their services out of reach for certain consumers. There are plenty of people who need rides but can’t afford expensive data plans or who are intimidated by new technology.
Also, it’s important to remember that taxis are required to pick everyone up, including all the trips that are undesirable and less profitable: the tourist who doesn’t want to walk five blocks to the Pike Place Market in the rain from their hotel, the Medicaid patient being discharged from the hospital, the person who needs a ride to the airport at 4 a.m. They’re the ones driving the streets every hour of the day, not just cherry picking the morning commute or bar closing time. So it’s important to preserve that equal opportunity service, as well as a robust phone or text-based dispatch system. And in a perfect world, that service should be equally as efficient and respectful as my experience with Lyft.
So regulators have a lot to consider. The first, more straightforward issue is how to ensure that these new, evolving, and unregulated “ridesharing” entries—which can be powerful drivers of sustainability by broadening alternatives to car ownership and single-occupancy trips—are safe for customers.
The second issue is how to allow these new companies to grow that market without giving them unfair advantages over existing taxi, for-hire, and limo drivers and owners, many of them African and South Asian immigrants, who must follow a thicket of rules including license caps, price caps, driver tests, insurance requirements, city vehicle inspections, metering requirements, and other regulations.
Did you miss Part 1 of this discussion? Find it here.
Those include requirements in several Northwest cities that complicated and time-consuming demand studies be conducted before any new taxi licenses are issued (which they rarely, if ever are). This vestigial practice makes no sense. Imagine if we refused to let new doctors practice within the city limits unless they could show that there’s enough demand from sick people to support their business. Or if a hotel developer had to prove there was a shortage of beds for tourists before the city would issue a building permit.
The fact that new ridesharing companies are a) apparently finding people happy to pay them for rides and b) that it can be impossible to get a cab home on a weekend night, and c) that Northwest cities have among the lowest cabs per capita rates in the nation suggests that there probably is a much larger audience of people who would prefer not to drive their own car everywhere. (In Seattle, we should find out next month whether the results of the city’s much-awaited taxi demand study bear out this obvious conclusion.)
So, as policymakers in Seattle and Portland and elsewhere consider how to support a more robust, competitive, and equitable for-hire industry, here are some other general principles to follow:
1. Create more openness and opportunity
We need to move to a system where there are more—not fewer—opportunities for people to reject car ownership or driving alone. Caps on existing taxi and for-hire licenses should be eliminated or phased out to encourage healthy competition and create a more level playing field that gives existing taxi and for-hire drivers the same opportunities to control their own destinies as drivers being hired by Uber, Lyft, and Sidecar (which, in some cases, are one and the same).
At the moment, it is unfair that a whole host of new drivers have started picking up fares in their personal cars when thousands of taxi drivers have been unable to increase their hours or go into business for themselves because of limits on legal taxi licenses. Moreover, those caps have depressed competition, made it possible for poorly run businesses to stay afloat because consumers have few choices, and created an unequal system of haves (owners with precious taxi licenses) and have-nots (drivers who start out every shift $70 or $80 in the hole because they have to lease a licensed cab from a more fortunate owner).
Prying open the taxi market and allowing more open entry begins to solve both problems. If negative consequences arise—such as crowding at taxi stands or a decline in customer service that occurred when Seattle deregulated taxis more than 30 years ago—focus on addressing those problems. Let the market sort out supply and demand.
2. Regulate for health and safety
The new ridesharing companies are more than just glorified carpools. They are operating as businesses and it is entirely reasonable for them to be subject to basic health and safety regulations. The state of California, where many of the new ridesharing companies are based, recently issued proposed regulations, allowing them to operate under a new category of “transportation network companies,” that could be a useful model.
The companies (not the individual drivers) must be licensed by the state, perform criminal background and driving record checks on drivers, establish driver training programs, have a zero tolerance policy for drugs and alcohol, conduct a 19-point inspection on vehicles, and carry a $1 million per-incident liability insurance policy. I’ve not seen a good explanation of who will ensure the companies are following those rules and how that enforcement effort will be funded, which is obviously an important piece of the puzzle. The rules also ban the new companies from accepting airport trips without permission from airport authorities.
As for the current system, if some of the existing health and safety regulations for taxi and for-hire companies are arguably unnecessary, we should streamline them in the interest of fairness. Do we really need Seattle taxi drivers to get medical physicals?
3. Leave no rider behind
Left entirely to its own devices, the for-hire industry would likely be inclined to stop serving some segments of the population who need rides the most, such as the elderly person who needs a five-block (and from the perspective of the taxi drivers, unprofitable) ride to the grocery store.
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The new smartphone services also allow drivers to rate customers and screen out requests from customers who aren’t a barrel of laughs. With services that market the ridesharing experience not as a business transaction but as a ride with a cool new friend, it’s not hard to see how the rating system could foster unintended discrimination against riders who are old, or crabby, or non-English speakers, or who just don’t fit in the cool crowd. (The proposed California regulations include requirements for the companies to keep records on refused rides, which are designed to prevent this from happening.)
Some part of the for-hire industry still needs to serve people who need rides at inconvenient hours, or who aren’t traveling that far, or who may not be scintillating conversationalists. The current mandate that taxi companies serve all calls—at least in theory, if not in practice—needs to be preserved in some part of the system, and the drivers who accept this responsibility need to be incentivized or compensated in some way (airport trips seem popular.)
4. Arm consumers with better information
When it comes to price regulation, I’m going to punt on making a recommendation, except to argue for transparency and giving customers better tools and information to make informed choices. Right now, the bewildering array of car-for-hire options that all price trips differently is confusing at best. And I had no idea what my Lyft ride would cost until the end of the ride when my “suggested donation” popped up. Consumers with the time and inclination to comparison shop could benefit if taxi, for-hire, and ridesharing services have more flexibility to compete on price, and if those prices were more readily comparable.
Yet that presumes customers and tourists are always in a position to choose, and in situations like airport and hotel queues that’s not generally the case. One potential solution is to establish maximum fares, letting companies that can provide service for less market themselves accordingly, or to regulate fares in special circumstances such as airport trips.
It’s also important to acknowledge that, at least in Seattle, any scenario that allows more entry and competition would hurt current owners of the roughly 1,100 taxi and for-hire licenses floating around Seattle and King County. Because they’re scarce and they can be sold to new users, current values reportedly range from $40,000 for a county-only license to $360,000 for a cab that can take airport trips. If caps are lifted, the value of those licenses will eventually decline to zero. (Portland doesn’t have this problem because taxi permits essentially are owned by the city and can’t be sold when a current user is done with one.)
Some owners have amassed multiple taxi licenses purely as a business investment and never get behind the wheel. Some are drivers who jumped at the opportunity, and in some cases may have borrowed against homes or from family and friends, to purchase a single license and become their own boss. Those individuals make a compelling emotional case that changing the rules in midstream would unfairly hurt them.
So this is the thorniest political question that regulators, at least in Seattle, must confront. Gradually phasing out license caps might give owners the ability to recoup some of their investment, while signaling to new purchasers that the secondary market for licenses will not continue to escalate. Depending on how the city chooses to regulate new ridesharing companies, though, could also perpetuate a two-tired system that puts a much greater number of taxi drivers at a disadvantage. And then there are the persuasive arguments that the city shouldn’t be in the business of protecting private investments and propping up an inefficient monopoly. In this day and age, it seems like some fairly basic technology upgrades could have radically improved the customer service experience by now, yet taxi dispatch companies apparently had no incentive to do so.
It is easy to see how the for-hire system could be better. It’s less clear how to move from the regulatory system we have now, with limited access and different categories of drivers all following different rules, to the one we want, an industry that works for consumers, offers equal opportunity, and can grow the market for car-less or car-light lifestyles. But using these general principles as guideposts could be a place to start.
For more on taxi regulations, see Sightline’s earlier articles on the topic:
- Freeing Taxis: Unleashing cabs to boost affordable, green transport
- Freeing Taxis, Addendum: A few responses
Thank you for mentioning how dependent some of the emerging transportation choices are on so-called smart phones and payment plans that go with them. To suggest that the only people who get by without them are either too poor or too frightened of technology misses some key points.
Here are two more: 1) the wise choice to avoid the now well-known misuses and abuses of phone customer data, and 2) the responsible decision to limit the legitimacy of and financial support for practices of manufacturers and carriers that operate out of sync with essential environmental and social justice values.
In designing a flexible transportation system that is equitable and just for all, all the time, let’s keep those democratic values in front of the conversation, too. That could mean, for example, integrating publicly-available, basic-level, properly-regulated communication options with such a dynamic transportation system.
re: “I’m fortunate enough to have the option of owning a…, which gives me the choice to use services like… Those new companies use smartphone apps as their dispatch systems, which put their services out of reach for certain consumers. There are plenty of people who need rides but can’t afford expensive data plans or who are intimidated by new technology.”
With regards to the elderly person who can’t walk 5 blocks to the grocery store, I contend that if the trip is unprofitable, it’s because the price is too low, not because short trips are inherently unprofitable.
The current system provides drivers with windfall profits on long trips (operating a motor vehicle doesn’t cost anywhere near $2.50 a mile), while short trips might actually be at a loss, depending on how far the driver has to deadhead to reach the passenger.
The obvious solution is a restructuring of rates in favor of a higher meter drop, in exchange for a lower per-mile rate. At the right price, carrying an elderly person 5 blocks should be profitable.
There’s no perfect system for everyone. As a female, taxi driver, I feel the occasional short trip for an elderly person is just being a good human to another human.
You made a comment about the “windfall profit” for a longer trip. That may be true, but keep in mind, I pay for everything; the vehicle, the fuel, the maintenance, my insurance (in addition to the company,) my chauffeur license with the city (repeated annually @ $200 total), special permits for entering the port, etc, etc. After all of that, yes, I do want to make a wage for my time. Do you work for free? I’m sure you don’t, and no one expects you to.
A passenger sees only the taxi base charge and mileage charge without realizing all of the expense that goes in to keeping that taxi on the road.
The problem with having a high meter drop is that then the “profitable” ride for the elderly person becomes unaffordable. Jennifer Langston makes the point that some part of the for-hire system MUST serve everyone, with the implicit argument that it must be affordable for those who need it.
Another big issue in regulation is that private auto insurance companies may be denying coverage specifically for car-share services. I had completed several of the steps to sign up to be a Sidecar driver, when I happened to read the fine print in my GEICO policy that specifically excluded coverage if you use your vehicle for ride-sharing. So I decided not to become a driver. It’s not a risk I’m willing to take. If the company had a liability policy and made it clear that I’d be covered while participating, that would make me reconsider.
I also think it’s just a matter of time before we hear of some horrible crime related to ride-sharing – either a driver or rider being abused or assaulted – and that will be a big barrier to public acceptance. As the services move beyond the early-adopter “hipster” phase and grow larger, it becomes more likely. I hope the safety regulations can keep up, and that we don’t see a great idea for the vast majority of good people ruined by a few bad apples.
Jenni – yes, the question of just what the company’s liability insurance would do for drivers is murky, as the policies are described on the companies’ websites. I’ve asked for some clarification on that. Did you ever ask Sidecar that question
directly? I’m curious what the answer would be.
This is a must-read for anyone and everyone considering either being a ride share driver or for using the service: http://blogs.sfweekly.com/thesnitch/2013/08/uber_wont_pay_for_uber_driver.php#more
Taxis have more than 1,200 rules to follow in the City of Seattle, and that’s after they’ve completed numerous tests, background checks, and so on. Uber, Lyft, and others? Nada. Not only is there no assurance the drivers can, well, actually drive, there is no assurance the driver isn’t some sex offender looking for his next victim.
The whole insurance thing is bureaucratic bullshit. Unlike speeding or driving drunk, carrying a passenger for money doesn’t increase the risk of an accident, so it is not a real justification for charging a higher premium.
One could argue that the presence of a passenger increases the maximum amount of liability the insurance company could have to pay out in the event of a catastrophic accident. However, if the driver is transporting a friend for free, rather than a customer for profit, the potential liability for the insurance company is exactly the same, yet the insurance companies behave as though the risk is substantially higher for the paying passenger than for the free-riding passenger.
What it’s really about is the insurance companies’ desires to “milk to cow”, to squeeze as much money from its customers as possible. Just like phone and cable companies charge vastly higher rates to businesses for the same service because, after all, if you’re a business, you must have money to spend, what we are seeing here is insurance companies’ desire to do the same. After all, if taxi services are essentially a monopoly business, it is trivial for them to simply pass on the higher insurance costs on to consumers.
There is also the side motive that the insurance companies’ long-term interests are best served in an environment where car ownership (and personal auto insurance) is mandatory, as each person who uses car-related services, in place of a personally owned vehicle, is not paying premiums to the insurance company every 6 months. So, anything that proposes to seriously challenge the notion that if you want an affordable ride in a car, you have to own your own car, expect the insurance companies to fight it, tooth and nail.
Matt the Engineer
“The problem with having a high meter drop is that then the “profitable” ride for the elderly person becomes unaffordable. ”
But surely it isn’t the low-paid taxi driver’s job to subsidize cab rides.
Just curious why there is such interest in services like Lyft, Uber and Taxi’s. In the end these are all services which are quite expensive and out of the hands for most commuters.
Why has there been no encouragement or comment about car shares or ride shares (drive on demand), which seems to be much sensible, low cost and efficient, and could ultimately help fill a niche for peoples weekly driving habits?
Brandon — if you’re talking about ride sharing in the look-on-a-college-bulletin-board-and-share-gas-money sense, online venues like Craigslist’s ridesharing category are full of people looking to give or receive rides. So that still exists, and technology has made it easier for those people to find each other informally.
The focus on the new services is because they are a) new b) offer a different experience from traditional taxi service and c)are charging money as a business but aren’t regulated. So there needs to be more oversight of those transactions than two people mutually agreeing to carpool to work together.
You’re right Jennifer, as transportation technology evolves, we need to think about how it can be of greater benefit to our communities.
Unfortunately, the word ‘ridesharing’ is being widely misinterpreted at the moment and as a result, services such as Lyft and Sidecar are being labeled as something they definitely are not. These are peer-to-peer taxi services, not ridesharing. Period.
Ridesharing is defined by the US Government (MAP-21 Bill) as the use of and payment for shared car seats ON A COST REIMBURSEMENT BASIS ONLY. The reimbursement rate has been set by the IRS at $0.565 per mile as of June 2013.
Why is this important? Well, insurance for one thing. If you offer use of seats in your car to passengers and charge above $0.565 per mile (like Lyft and Sidecar drivers do), your private motor insurance becomes invalidated, meaning neither you nor your passengers are covered in the event of an accident. THIS IS ILLEGAL!
For full disclosure purposes, I work for Carma. We are a real-life, real-time ridesharing app that lets you pre-arrange carpools with people going your way. Our payment system always stays below the reimbursement rate, meaning you can share the cost of your journeys without affecting your insurance. Also, because of this payment rate, any money you receive is non-taxable (unlike fares received by Lyft and Sidecar drivers).
Single occupancy vehicles are causing way too much congestion on our roads and we are all coming under increasing pressure to keep our CO2 emissions per individual journey down (four people in one car is 75% better than four SOVs!). Using Carma also gives you access to carpool lanes, getting you to work way quicker 🙂
In short, Carma is on a mission to make our car journeys more fun, more affordable and more sustainable. It’s a relatively new app, so the best way to expand your personal carpooling network is to download our app at https://car.ma and invite your colleagues and friends.
Thanks again for such an interesting article and I hope you will try ‘real ridesharing’ some day!
All the best.
A reimbursement rate of $0.565, while appropriate for long trips, seems too small to make it worth the driver’s time for short trips. Not many people making a 2-mile run the grocery store are going to be willing to go through the time and trouble of picking up a passenger, just to receive $1.
I just looked at your company’s rides available and most of the rides are calculated between $0.80+ per mile to above $1.10. I am not sure I understand your statement below saying that you guys are staying under the IRS reimbursement rate.
A highly cogent review of the status and challenges. In the look at shortcomings, this move to car services just exasperates the lack of accessible taxi’s and services. With an aging population, the number of vehicles for hire that can handle a wheelchair or mobility device is decreasing. Car services do not address this situation.
[Comment edited for commercial content] Great insight!! I have used lyft several times in different cities and I really do feel like it serves a need. I don’t like traditional taxis and cannot stand public transportation so when Lyft arrived I was super excited!
I live in the country and haven’t even seen a taxi in years except when dropping someone off at the airport. So this was all new stuff for me. I found the article in a Google search, by far the best I have read this morning. Was so grateful to see a side by side comparison of Lyft and a taxi.
I can see a real need for this service for country folk as well as city, and for those that you have mentioned above. I can see the senior citizen who needs a ride to the doctor (20 miles away in my case). A Lyft driver isn’t going to be as busy as in Seattle for sure, but those trips will certainly be longer and would be worth the trip for the many in our area without a job.
This type of business just might change everything.
It’s nice to read a balanced view of this, just at the time when Houston is going through the same motions at this time…
I completely disagree with the author’s demand that it is the government’s responsibility to ensure that there is some form of taxi-like transportation on the streets all the time. People will take care of that themselves as long as people want to be driven places. The government does not need to get involved. This view that the government’s job is to solve every human problem in the end just wastes resources and leads to worse outcomes. How to ensure there are cars on the road all the time? Well, Lyft et al already do that – they pay the drivers more. Money is just a mechanism for transmitting value. That carry cost of having someone on the road at all times has to be borne somewhere. The efficiency of the Lyft system is that it does not require bureaucratic overhead, much regulation, or all those things that slow down the world. And just try getting a taxi versus getting a Lyft. The latter is about 1,000 times easier, and roughly 30% cheaper. Good luck and good night.
Sensible Lyft driver on a soapbox
In the talks about smartphones vs. dumb phones, one other disparity for ridesharing versus taxis is that rideshare companies require having a credit card on file. Lower-income people and teens may not have a credit card.
With that said, it means as a driver I won’t be stiffed when someone “can’t come up with the cash.”
On the flip side, when I’ve tried hailing a cab among the cabs lined up outside a bar, I’ve had taxi guys refuse taking a credit card for short trips — cash only or no go! Or more specifically, $10 minimum trip for credit card.
My experience as a Lyft driver has been that 90% of my rides are people with jobs, most of them working white collar positions. Seattle’s broad base of diversity have all ridden in my car. The intelligent conversations are the most fun part of this job for me — it’s stimulation.
(I imagine there’s also a safety net of how the rideshare drivers are portrayed could be a big selling point for some customers, compared against the unknowns of who your taxi driver might be. But isn’t this just a clear subtext for “I want a white driver” or “I want a Millennial I can relate to” or at the minimum “I want a native English speaker driver”? The author did mention this.)
On the short trip problem:
For a Lyft driver, a short 5 minute trip for a few blocks can amount to about $3.50 in-pocket after Lyft’s 20% fee. It’s theoretically less cost than a gallon of gas as long as you don’t have to travel far to get to them.
As a Lyft driver, you are never told about *where* the passenger wants to go or how far of a trip they want to take until after they are in your car and declare their destination.
The author is right that if the for-hire companies had free will to pick and choose passengers that they might consider not going into poorer communities or less desirable areas.
The author is likely wrong that rideshare drivers are cherry-picking who to pick up. On the Lyft platform, if you cancel a ride request on anyone, it goes against your driver score average that you have to keep up, altho the penalty is something you can flatten out the impact of by doing more rides. (On the other hand, if they cancel on you, they are charged a $5 fee that you pocket.) It’s against the ethics to just cancel on people you “don’t like” the idea of having as a passenger.
In response to Rick’s note that rideshare services in the country areas would be a boost: I agree! But demand in Seattle is driving rideshare drivers from the rural areas to where the supply of passengers is in Seattle. The companies have to promote rideshares as viable in the less-populated areas, as these are the areas where single-occupancy driving is the de facto standard for commuters and locals and nighttime bus service is nonexistent.
I was told by a Mountlake Terrace resident that there used to be practically a boundary line at Northgate — It’s true Lyft operated north of Northgate, including in MTL, but Lyft drivers were rarely ever around. I guess that changed around summer 2014. (Lyft now operates south past Tacoma and north to Marysville, with an arbitrary eastside boundary. I have no idea about Uber’s stuff…)
In response to Rob Power’s idea, I would never put this kind of wear and tear on my personal car for that little of an amount of money suggested. All rideshare services promote themselves as moneymakers for the drivers, although I think the numbers ( “$1,000 in a week!” “$1,500 in a week!”) are overly inflated. You could pull down $700 in a week by driving 7 days x 10-hour days, in theory. It also would depend on the distance of your drives and how often you have passengers *versus* the time it takes to drive *to* passengers to pick them up. It could be 10 min of driving to a passenger for a 5 minute short trip that earns $3.50, or it could be 10 min of driving to a passenger for a 45 minute long trip that earns about $23-$27 in-pocket (think cross-city run or maybe an airport run).
Taxi drivers that can be hailed down do not have to worry about the time cost of driving to their designated passenger at a pick-up point. Advantage, taxi.
As an aside, with recently introduced city regulations, rideshare drivers now must possess a Seattle business license to drive.
As a second aside, since this article’s publication, Lyft has abandoned the “suggested donation” pricing system within Seattle. I’ve heard the donation system has been abandoned nationally.
I guess I’d better hop off my soapbox now, no?