Taxis vs. ride shares
As Uber thrives, big-city cabbies see medallions become much less salable
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
Chicago’s Gary Karczewski is among cab drivers facing competition from ridesharing services.
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.