Fare and loathing
Uber has brought big changes to the way many get around their city, but its future is uncertain following claims that it’s not only unprofitable but also breaking the law.
Uber has brought big changes to the way many get around their city, but its future is uncertain following claims that it’s not only unprofitable but also breaking the law.
Cheap rides could become a thing of the past as Uber comes under attack both here and overseas. The scandal-plagued ride-hailing company, which has shaken up the taxi industry around the world, is facing claims that its success is a mirage and its model is based on breaking the law. In New Zealand in coming weeks, two damages claims by drivers left out of pocket by what they say is Uber’s lawbreaking will be tested in the district court.
In the US, business analysts say Uber’s model is based on two unsustainable tactics – subsidising fares and slashing driver incomes. They predict the cut-price rates that enabled Uber’s spectacular growth in its quest for global domination of the ridehailing market cannot and will not last.
Last month, Harvard Business School associate professor Benjamin Edelman, who studies and teaches the economics of online markets, called for regulators to shut down the company, saying its cultural dysfunction stemmed from the very nature of its competitive advantage: “Uber’s business model is predicated on lawbreaking. And having grown through intentional illegality, Uber can’t easily pivot toward following the rules.”
Yes, its app had brought cheap fares and improvements to the taxi business, but its biggest advantage was in using ordinary cars with no special licensing, Edelman said. This way, it avoided commercial insurance and registration, special licences, background checks and commercial inspections.
“This use of non-commercial cars was unlawful from the start. Uber succeeded in making lawbreaking normal and routine by celebrating its subversion of the laws. Having built a corporate culture that celebrates breaking the law, it is surely no accident that Uber then faced scandal after scandal. How is an Uber manager to know which laws should be followed and which ignored?”
New Zealand Transport Agency (NZTA) operations manager Kate Styles has been emphatic: “We have been really clear with Uber that the new way they have been operating is illegal.”
After the recent resignation of Uber’s messianic chief executive, Travis Kalanick, the investors pumping billions into the loss-making company are pinning their hopes on an Amazon-like turnaround. But business analysts are sceptical about that happening.
THE KIWI CONNECTION
In New Zealand, Uber has recruited about 4000 drivers and now operates in Auckland, Wellington and Christchurch, with plans to launch in Hamilton and Tauranga before the end of the year.
One of the two Kiwi damages claims is being brought by Arden MacDonald, who, when Uber was already 18 months old here, decided to try his luck as a driver. The Auckland-based Virgin Australia flight attendant, tired of the physical stresses of full-time flying, signed on in September 2015. “In essence, they were legal then,” he says.
At the time, the company required drivers to get a passenger or “P” endorsement on their licence, at a cost of about $1600 for extensive background checks, and to pass an area-knowledge test and two NZ Qualifications Authority standards. Drivers also had to have commercial insurance.
But even at the start, MacDonald says, the appearance of legality was superficial. Uber enabled drivers like him who hadn’t been taxi drivers previously and therefore didn’t have a Transport Services Licence to “rent” them from licence holders – something that, unknown to MacDonald, they couldn’t legally do.
After driving in his spare time for about four months, MacDonald decided to go part-time with the airline and increase his Uber hours. “The whole point was flexibility and lifestyle – that’s what sold me on the concept.”
He drove for a maximum of six hours a day but managed to take home an extra $500 a fortnight by juggling the roles. “I was making pretty good money. I was happy.”
He upgraded his Audi to a limo-style Škoda Superb and turned out in a sharp
“Having built a corporate culture that celebrates breaking the law, it is surely no accident that [in the US] Uber then faced scandal after scandal.”
black suit and tie. He quickly topped Uber’s user ratings. “People ordered a cheap Uber and suddenly they got black leather, a long wheelbase and a guy in a suit.”
In April 2017, “the shit hit the fan” when Uber unilaterally cut per-kilometre fare rates. Apparently without telling all its drivers, the company announced it was reducing the rate by 27%, from $1.85 to $1.35, and dropping the requirement for drivers to have a P endorsement. Driving vehicles for hire without a P endorsement is illegal, and advocates for Uber drivers say the rate cut is a breach of contract.
MacDonald, 39, says most drivers were angry about the impact of the fare reduction on their income, but he was equally concerned about how driver numbers would potentially skyrocket if they could start driving without having to invest the time and money to get a P endorsement. Uber’s New Zealand general manager, Richard Menzies, has argued the endorsement was unnecessarily costly and time-consuming, and insists its police and driver record check was “in a number of ways a higher standard. With the passenger endorsement, you can actually come onto the road with certain criminal records in your past.” Uber doesn’t accept drivers with any criminal convictions.
MacDonald continued to drive for only a few weeks. “I started to feel like a dick. I would pull up and people would get in and go, ‘Ha, this is cheaper than wearing out my shoes.’ I thought, ‘I’m not doing this – this is ridiculous.’ I did the numbers and realised I was paying to drive. I think I was earning $11 an hour in the hand. The section they took out was the profit section.” He’s since returned to full-time flying.
He says the experience left him about $30,000 out of pocket. With the help of ProDrive advocate Peter Gallagher, MacDonald took a claim against Uber to the Disputes Tribunal for losses in income and on the
resale price of his car. After four adjournments, he successfully applied in June to have the case heard in the Auckland District Court as a claim for a summary judgment for damages.
In April, the Advertising Standards Complaints Board upheld a complaint laid by MacDonald against Uber billboards. The billboards showed a woman in a room full of shelved documents, with text saying: “Background checks on every driver. We get Becky’s life story before you do.”
MacDonald said the ad misrepresented Uber’s knowledge about the background of its drivers and the legality of its background checks. The complaints board agreed the ad implied that Uber had in-depth knowledge about its drivers’ backgrounds and this could create a misleading impression for consumers. Uber is appealing.
SECOND DAMAGES CLAIM
Lawyers acting for ProDrive are preparing a second damages claim, for nearly $60,000, on behalf of another driver, Osanda Lunuwilage, who was left without valid insurance after he wrote off his own and two other cars in an early-morning crash on Auckland’s North Shore last December. He told an NZTA investigator in January that Uber told him only third-party insurance was required and a P endorsement for his licence was never mentioned.
Lunuwilage, 41, who came to New Zealand from Sri Lanka about five years ago, with his wife, Dilshima, and their three children, started driving for Uber last August to supplement his income as a cutter in a kitchen design firm. He bought a $20,000 2014 Honda hybrid and was driving about 20 hours a week, mainly at weekends. He says he was earning up to $750 a week in the hand.
“They never mentioned insurance at all other than third party,” he told the Listener. “If they had said we need to get commercial insurance, I would have done.”
When a friend who was also an Uber driver received a letter from the NZTA explaining they were breaking the law if they didn’t have a P endorsement, Lunuwilage took the letter to Uber. According to Lunuwilage, “They said, ‘Don’t worry, everyone got the same letter, but we’re talking to the transport minister and Uber drivers don’t need [the P endorsement].’” This appears to be confirmed by Uber’s own website, which does not mention the need for a P endorsement in its recruitment requirements.
When asked why he believed the word of the company over a letter from the Government, Lunuwilage says he thought, “If it was a new concept and it was illegal, they couldn’t operate. So many people we knew were driving for them, so we thought it must be okay. In my country, if it’s illegal, they can’t operate.”
But in Lunuwilage’s case, it was he, not the company, who was facing prosecution after the crash. He admitted driving a commercial vehicle without an appropriate licence and is to be sentenced this month. Lunuwilage has subsequently gained a P endorsement. The NZTA initially declined his application but reversed its decision last month after his lawyer explained how his infringement came “as a result of his reliance on the information and advice provided by Uber rather than a deliberate attempt to flout New Zealand law”.
Lunuwilage says the Uber experience has set him and his family back years. “I thought my whole plan for my future life was gone. I planned to buy a house this year, but I had to buy another car and I’m still paying for it on finance.”
The Listener asked Uber NZ’s Menzies for an interview for this story, but he referred us to the company’s corporate communications team in Australia. When asked repeatedly during a Morning Report interview on RNZ National in July last year whether Uber would pay the fines of drivers operating illegally, he said, “We will support all of our driver partners.”
In a statement from an Australian-based Uber spokesman, the company claimed “every Uber trip in New Zealand is insured.
“I started to feel like a dick. I would pull up and people would get in and go, ‘Ha, this is cheaper than wearing out my shoes.’”