Taxis vs. ride shares

As Uber thrives, big-city cab­bies see medal­lions be­come much less sal­able

USA TODAY Weekend Extra - - FRONT PAGE - Aamer Mad­hani USA TO­DAY

Un­til re­cently in Amer­ica’s big cities, pur­chas­ing a taxi medal­lion — the city-is­sued li­cense to op­er­ate cabs — was about as sound an in­vest­ment as they come.

But with the rise of Uber and other ride-shar­ing ser­vices, the value of taxi medal­lions is plum­met­ing, lead­ing cab­bies and fleet own­ers through­out the USA wor­ry­ing that their in­dus­try will be dec­i­mated if lo­cal and state gov­ern­ments don’t in­ter­vene.

“I have had a pretty suc­cess­ful thing,” said Gary Kar­czewski, 65, a Chicago cabbie who in­her­ited his medal­lion from his fa­ther 28 years ago and earned enough to pur­chase two homes and help send his two daugh­ters to col­lege by driv­ing the equiv­a­lent of 80 times around the world. “My hope was to wind down soon and give what­ever I could sell the medal­lion for to my mother. But I am not con­fi­dent there’s a mar­ket now.”

In Chicago, which has the coun­try’s sec­ond-big­gest fleet with roughly 7,000 taxis, the me­dian sale price for a medal­lion hov­ered around $70,000 in 2007 be­fore reach­ing a peak of $357,000 in late 2013.

Since reach­ing that high point more than a year ago, the value of medal­lions in the Windy City has sharply de­clined and sales have ground to a near halt — with the city record­ing only seven medal­lion trans­fers in the first quar­ter of 2015 — as the me­dian sale price fell to about $270,000.

“There’s zero mar­ket (for taxi medal­lions). ... There isn’t any fi­nanc­ing avail­able.”

Charles Good­bar, a Chicago at­tor­ney who helps se­cure loans for medal­lion own­ers

The steady slide, which also is on dis­play in New York, Philadel­phia, Bos­ton and else­where, has left many owner-op­er­a­tors and big-fleet man­agers pes­simistic about their once-prized as­sets.

Cab­bies around the coun­try com­plain that driv­ers for ser­vices like Uber, which use a smart­phone app to connect rid­ers with free­lancers us­ing their own ve­hi­cles, are dis­rupt­ing the mar­ket and have an un­fair ad­van­tage.

Medal­lion own­ers also grum­ble that ride-share ser­vices in many mar­kets aren’t sub­ject to the same rules. Uber’s con­tract driv­ers don’t face ve­hi­cle in­spec­tions that are as strin­gent, their driv­ers aren’t re­quired to ob­tain a chauf­feur’s li­cense, and they can ad­just their fares based on de­mand.

The chang­ing land­scape has been put into stark re­lief by the di­min­ish­ing value of the taxi medal­lion in once plum mar­kets like New York, where in re­cent years they proved to of­fer a bet­ter re­turn on in­vest­ment than gold, oil and real es­tate.

As a re­sult of the boom­ing value, the vast ma­jor­ity of medal­lions in big metro ar­eas like New York and Chicago were gob­bled up over the past sev­eral decades by in­vestors and com­pa­nies that rent the medal­lions to driv­ers.

But times are chang­ing. The up­start Uber, which has a re­ported val­u­a­tion of $50 bil­lion, col­lected more than $750 mil­lion in just New York City dur­ing its first four years of busi­ness there. In­vestor Carl Ic­ahn an­nounced on Fri­day that he was mak­ing a $100 mil­lion in­vest­ment in Uber ri­val Lyft, call­ing the com­pany a “tremen­dous bar­gain.”

“What I think has hap­pened is that com­pe­ti­tion for con­sumers has not caused a drop in medal­lion prices, be­cause medal­lion val­ues in no way are tied to the rid­ing public,” said Uber global pol­icy direc­tor Corey Owens. “What’s hap­pened is that driv­ers have found they have bet­ter op­por­tu­ni­ties.”

Ear­lier this month, the Philadel­phia Park­ing Author­ity, which reg­u­lates the city’s taxi in­dus­try, sold newly cre­ated medal­lions for wheel­chair-ac­ces­si­ble taxis for $80,000 each. The bar­gain price came af­ter the author­ity put the medal­lions on the mar­ket last fall, with an ini­tial ask­ing price of $475,000, but re­ceived no bids.

In New York, taxi mogul Evgeny Fried­man is locked in a court battle with Citibank, to whom he owes some $31 mil­lion af­ter some medal­lion loans ma­tured.

Citibank is look­ing to seize 87 of Frei­d­man’s 900 medal­lions in New York, which has seen medal­lion prices drop to about $870,000 last fall from a peak of about $1.2 mil­lion last spring. Frei­d­man, the sin­gle-big­gest medal­lion owner in the USA, also owns fleets in Chicago, New Or­leans and Philadel­phia.

In an April let­ter to cred­i­tors, New York taxi com­mis­sion of­fi­cials and other stake­hold­ers, Frei­d­man’s at­tor­ney, Brett Ber­man, called on in­dus­try reg­u­la­tors and medal­lion lenders to re­struc­ture and ex­tend loans for his client and re­form the in­dus­try.

“If you want to en­sure that the medal­lion in­dus­try na­tion­wide con­tin­ues to op­er­ate, if you want to have ser­vices avail­able to rid­ers that don’t have iPhones, if you want to have driv­ers that are vet­ted, then there’s go­ing to have to be a ma­jor change na­tion­wide and city-by-city in terms of how they’re go­ing about en­forc­ing the rules,” said Ronn Torossian, a spokesman for Frei­d­man.

Even in Ne­vada, where the taxi in­dus­try has fought off at­tempts by Uber to es­tab­lish a beach­head in re­cent years, there are signs that gov­ern­ment re­sis­tance to ride-share ser­vices is soft­en­ing. Last week, the Ne­vada Se­nate ap­proved leg­is­la­tion that would cre­ate reg­u­la­tions to al­low peo­ple to hail a ride us­ing a smart­phone.

There are other signs that the medal­lion in­dus­try’s vi­tal­ity is on an un­steady foot­ing.

Ear­lier this month, Medal­lion Fi­nan­cial Group — one of the coun­try’s largest cred­i­tors to medal­lion own­ers — re­ported in its fi­nan­cial dis­clo­sures that nearly 4.1% of its loans were late 31 days or more in the first three months of 2015, up from 2.2% in the pre­vi­ous quar­ter.

Charles Good­bar, a Chicago at­tor­ney who helps se­cure loans for medal­lion own­ers, said that fi­nanc­ing has all but dried up. At the same time, new reg­u­la­tions, as well as com­pe­ti­tion from rideshar­ing ser­vices, has re­duced how much fleet own­ers in Chicago and else­where can lease their ve­hi­cles for to cab­bies.

“There’s zero mar­ket,” said Good­bar, who also owns 59 medal­lions. “In my case, a buyer would have to come to the ta­ble with about $220,000 in cash per medal­lion, be­cause there isn’t any fi­nanc­ing avail­able.”

An­cil­lary in­dus­tries are also feel­ing the pain.

Car­riage News, a New Eng­land in­dus­try newsletter, closed in March, as medal­lion fi­nanc­ing agen­cies slowed is­su­ing loans, mak­ing ad­ver­tis­ing un­nec­es­sary.

The taxi in­dus­try isn’t go­ing out with­out a fight.

In New York and Chicago, the in­dus­try has backed ef­forts for a uni­ver­sal hail­ing app in a bid to com­pete with ride-shar­ing out­fits for rid­ers who pre­fer the con­ve­nience of find­ing a ride with a cou­ple of taps on their smart­phone.

And the trade as­so­ci­a­tion Taxi­cab, Limou­sine and Para­tran­sit As­so­ci­a­tion has launched a vig­or­ous me­dia na­tion­wide cam­paign called “Who’s Driv­ing You?” in an at­tempt to raise ques­tions about Uber and other ride-shar­ing com­pa­nies’ safety records. The as­so­ci­a­tion main­tains a long list of al­leged crimes and other em­bar­rass­ing in­ci­dents by Uber driv­ers and driv­ers for other ride-shar­ing out­fits.

Af­ter the lat­est high-pro­file in­ci­dent last month in Hous­ton, an al­leged sex­ual as­sault by an Uber driver, the com­pany faced an ul­ti­ma­tum from Mayor An­nise Parker to tighten its over­sight of driv­ers or face ex­pul­sion from the city.

The com­pany quickly re­sponded with a memo de­tail­ing how it planned to bol­ster vet­ting and dis­miss driv­ers who aren’t reg­is­tered

In New York, the Taxi and Limou­sine Com­mis­sion is weigh­ing a pro­posal that would cre­ate an agency to over­see the im­ple­men­ta­tion of smart­phone apps used in the taxi in­dus­try.

Un­der the pro­posal, the smart­phone app op­er­a­tors would be re­quired to get ap­proval be­fore mod­i­fy­ing their apps or face fines — a reg­u­la­tion that a pow­er­ful coali­tion of Sil­i­con Val­ley com­pa­nies told New York City Mayor Bill de Bla­sio would sti­fle in­no­va­tion.

“While we do not de­velop soft­ware for trans­porta­tion providers, we are gravely con­cerned by the un­prece­dented de­ci­sion to sub­ject soft­ware avail­able around the world to pre-re­lease re­view by a city agency,” wrote the In­ter­net As­so­ci­a­tion, the tech coali­tion that in­cludes Face­book, Google and Twit­ter.

While more reg­u­la­tion for ride-shar­ing com­pa­nies may be in­evitable, many medal­lion own­ers say that their best days are now in the rearview mir­ror.

“It’s now be­come a race to the bot­tom,” said Kar­czewski, the Chicago medal­lion owner.

“What’s hap­pened is that driv­ers have found they have bet­ter op­por­tu­ni­ties.”

Corey Owens, Uber global pol­icy direc­tor

JOHN ZICH, USA TO­DAY

Chicago’s Gary Kar­czewski is among cab driv­ers fac­ing com­pe­ti­tion from rideshar­ing ser­vices.

PHO­TOS BY JOHN ZICH, USA TO­DAY

Vet­eran Chicago cabbie Gary Kar­czewski said, “My hope was to wind down soon and give what­ever I could sell the medal­lion for to my mother. But I am not con­fi­dent there’s a mar­ket now.”

The value of taxi medal­lions in Chicago has sharply de­clined since 2013 and sales have ground to a near halt.

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