I recently attended a private-equity conference where a speaker, a TV pundit, abruptly shifted from offering tidbits from the Trumposphere to random life advice: “You have to ask yourself whether you want to be Uber or one of those dying yellow-taxi companies?” Even with bad news dripping daily from Uber, everyone in the audience knew the right answer. Who would choose death?
Just a few days earlier, I had a long conversation with the owner of a New York City yellow-taxi fleet about the economics of his business. I called him after learning about the stunningly low price that someone had paid to buy a medallion to operate a yellow cab in the city: two hundred thousand dollars. (Later, in June, an even lower price was reported: a hundred and fifty thousand dollars.) In the spring of 2014, medallions were at their peak, with sales at 1.3 million dollars apiece. The medallion owner, who agreed to talk only if I wouldn’t use his name, bemoaned Uber “not playing by the rules,” but asserted that the taxi business wasn’t dead. Since Uber came to the city, in 2011, his fleet’s revenue was down only about twenty per cent. That’s a lot, but if you can buy medallions for ninety per cent less to operate in a business that’s down twenty per cent, the conditions may be ripe for a value investment—like buying real estate in 2009. Some institutional investors are tantalized. But purchasing a yellow-cab medallion, even at these prices, requires a strong stomach. It’s a bet not just on a piece of New York but on the direction of our tech-spun, higgledy-piggledy world of regulation, employment, and taste.
The number of tin, hood-installed medallions, now at 13,587, is fixed by New York City’s Taxi and Limousine Commission, which also protects yellow cabs’ two most precious rights: picking up people hailing on the street and picking up passengers from the dedicated lines at LaGuardia and J.F.K. Airports. There is a value to these rights, but, as happened with art, wine, horses, and houses over the last decade, the medallions became financial assets, too. And all the familiar inflators of bubbles came along: cheap, easy, and imprudent debt; the presumption that medallion prices could never go down (because, well, they had almost never gone down); and the cartoonish greed of a few participants.
Something was going to prick this bubble, and it was Uber. Popped bubbles are always a mess. One medallion lender, Montauk Credit Union, was taken over by the State of New York, and later merged with a credit union in Bethpage, Long Island. The fleet owner told me that other banks are holding on to foreclosed “tins,” praying for the market to turn. In May, 2017, the average number of medallions working per day was only 12,159—confirming than many of their possessors are not using them to generate fares. And there is not a stable price for tins. The Taxi and Limousine Commission list of medallion transfers in June reported nine transactions ranging from a hundred and fifty thousand to four hundred and seventy-five thousand dollars apiece.
But just because a bubble has popped doesn’t mean that the underlying business is worthless. As recently as last fall, according to a comprehensive study by Schaller Consulting, more people took yellow cabs than took app-hailed competitors: seventeen million passengers per month versus fifteen million. In May of this year, the average medallion generated almost exactly four hundred dollars per day in revenue. This is down from almost five hundred dollars per day in 2013, but it’s not nothing: as a medallion owner, you can still get about fifteen hundred dollars per month by leasing your medallion to someone else who operates the cab. Assuming you can find a medallion for a hundred and fifty thousand dollars, those numbers translate to an annual yield of twelve per cent. That’s not a get-rich-quick scheme, but it’s a reasonable investment presuming one condition: that when you want to sell the medallion, you can at least get your money back.
This is a bet that yellow-cab economics are stable, and, implicitly, a bet on the three key factors determining those economics.
The central factor is whether yellow cabs and ride-hailing services will eventually be equally regulated. “The crazy streets are out of fucking control,” the fleet owner told me. His loudest, most foul-mouthed complaints are about three regulations in particular: taxis’ fixed fares; a fifty-cent-per-ride surcharge paid by taxi riders, which subsidizes New York City’s public-transit system; and an agreement by taxi owners that half of all yellow cabs will eventually be wheelchair accessible. Uber is bound by none of these rules.
The cab owners have pressed for—and achieved—some parity of regulation. As explained to me by Michael Woloz, the spokesperson for the Metropolitan Taxicab Board of Trade, which represents the owners of about a third of the medallions, “all drivers must now get a universal license with more or less the same requirements for driving for ‘yellow’ and for Uber.” Also, an Uber car in New York City cannot be your spare hatchback; it must be an official T.N.C.—transportation-network company—vehicle affiliated with a base station where automobiles are serviced and parked. In New York, Uber has had to buy dozens of base stations.
These victories aside, most New Yorkers are more familiar with the taxi industry’s failure to achieve its loudest demand: capping the growth of app-hailed competitors. Mayor Bill de Blasio, who received significant donations from the taxi industry, tried. Uber responded with one of the brattier moves from a company infamous for its brattiness: it installed “de Blasio” mode on its app, conveying the night-of-the-living-rideless horrors of a city without Uber. (No cars would be available, or the wait time would be twenty-five minutes.) De Blasio caved.
The second important factor in the matter of yellow-cab economics is the question of which form of transport will have an easier time attracting cars’ necessary element: drivers. The taxi-fleet owner told me, categorically, that many drivers are “coming back to yellow” because they can make a better living than “with the app.” There is anecdotal evidence of this in other news stories, and emotional weight from the “I’m bankrupt because of you” video, which shows an Uber driver talking to Travis Kalanick, the company’s former C.E.O.. Both yellow and Uber are competing on softer measures. Uber opened up fancy driver-relations centers. Taxi owners are offering free legal representation to cabbies for driving-related offenses. Uber, just last month, started allowing tips and instituting higher cancellation charges—moves that benefit drivers but may make the service less attractive to passengers. The taxi industry points out that Uber is also on the forefront of trying to get rid of drivers altogether, with autonomous vehicles.
The questions about regulations and labor merge into a final bet: What do consumers want? Consumers, taking roughly equal numbers of T.N.C. cars and taxis today, differ on their view of the tactile experience. Woloz contends that real New Yorkers like to hail taxis, and, like him, I enjoy lifting my arm and stepping into a cab while some schmuck is staring at his phone wondering why his Uber missed a turn on Seventh Avenue.
Consumers also care about price. A bet on taxi medallions shouldn’t be a bet on the sudden extinction of ride-hailing apps. They aren’t going away. In Austin, for instance, when Uber and Lyft left the city after a regulatory dispute, the locals were temporarily worried about how they could transport themselves (and their growlers) between food trucks, until new local ride-hailing apps, including a nonprofit service, appeared almost overnight. One can, however, bet that Uber and its peers will get more expensive. Uber gobbled up market share by offering convenience but also by subsidizing the end user’s experience with investor capital. (The company, which has raised at least fifteen billion dollars, lost 3.8 billion dollars in 2016 alone.) Any difficulty that the besieged company has raising billions more will force it to find a way to make a profit.
In the end, what consumers want intersects with what consumers believe. New Yorkers, famously liberal, decry deregulatory impulses and income inequality and immigrant-bashing, but they flock to new technologies that profit from less regulation and lower the income of—and might one day eliminate—working-class, usually immigrant-held jobs. There are likely safer investments than taxi medallions: nobody has ever won money betting on the consistency of New Yorkers’ (or anyone’s) values and spending habits. But buying a tin for a hundred and fifty thousand dollars, betting that New Yorkers, like the Statue of Liberty, will keep their cab-hailing arms raised forever, may not be the craziest place to start.