Uber and the Demise of the Taxi industry and the Dawn of the Tyranny

New York state took over a small credit union in September of this year because of the “unsafe and unsound conditions” at the institution. The real reason for this is Uber. One third of Montauk Credit Union’s portfolio of $170 million in outstanding loans were to taxicab operators, all of which have been struggling to pay their loans to their lenders.

Since the dawn of the Hass Act, a taxi medallion was likely the best investment in the world. Enter Uber and the technological revolution they brought to the for-hire vehicle industry in New York City. Taxicab operators typically take out loans for medallions, the city-issued licenses that they need to operate. Yellow taxi medallions were always a hot commodity in New York City because the city always severely limited how many licenses it issues, thus driving up the demand for them and their value. Just two years ago or so, a single license could sell for as much as $1.3 million.

When Uber entered the marketplace, they exploited loopholes in the system by skirting existing rules and regulations or by simply ignoring them. By the time the TLC got around to bringing them under their regulatory umbrella, Uber was already entrenched in the market. The loopholes exploited by Uber let the company’s fleet of drivers grow over the past five years to about 60,000 drivers in New York City. Keep in mind that there are only 13,237 licensed yellow cabs in the city. 

As Uber’s estimated value has skyrocketed to an estimated $65 billion in the past few years, the value of the city's taxi medallions has shrunk from $1.3 million to less than $700,000. The plummeting value of taxi medallions doesn't just hurt taxi owners. Much like how the housing bust in 2008 shook the home loan industry, banks across the country that specialize in medallion loans are now taking a massive hit. With the crash in prices, many loans are now underwater, many borrowers are in default and lenders are reluctant to continue to refinance as the borrowers struggle to make payments.

A group of Credit Unions have sued New York City and the Taxi and Limousine Commission for allowing Uber to operate, saying the company is destroying their businesses and threatening their livelihoods. The situation will get worse before it gets better for taxi owners and their lenders. Financial institutions with large exposures to the taxi medallion industry have had to take appropriate steps to measure and mitigate this increasing credit risk. As Uber and the other so called “ride-sharing companies” have overtaken the on demand transportation market in New York City, medallion prices will to continue to decline. The end result is still unknown. No one, except a few people, would have predicted the housing market crash in 2008 and look what long term ripple effects that caused. While the Taxi industry is not quite as large as the housing industry, the fact remains that the “Uber effect” has not only decimated the taxi industry in New York City, but is harming, and sometimes destroying, the credit unions that loaned taxi owners money to purchase the medallions in the first place.

I don’t blame Uber for this. I blame the City of New York. The allowed Uber to operate outside of the law, allowed them to proliferate over time and caused the value of the hottest commodity in town (the taxi medallion) to plummet…and that decline will only continue and the ripple effects will be harmful not to just the taxi owners and their lenders, but to the public. If things continue as they are, there will likely come a time when Uber is the only game in town….and when they are, they will do as all monopolies do, they will exert their power and influence in a manner that is detrimental to the interest of the riding public. The only difference between Uber and Standard Oil is that once the medallion industry is decimated and the car services are no longer in business, there is no going back to the “old days”. A theoretical break up of Uber, if it were to become an illegal monopoly, would not make the price of the yellow medallions rise, will not prompt people to go out and purchase medallion and will not prompt lender to loan money to those who may seek to purchase a medallion. Hence, any theoretical break of the Uber Monopoly that is set to occur in the future will not increase competition because there will be no competition.

And remember, Uber is not the Salvation Army. They are not here to save the world. They are here to gather your information and data for their own purposes. Uber is not just a ride sharing company. Look further into the future, remember George Orwell’s 1984 and consider what happens when an almighty entity controls all the data on the comings and goings of the citizens of New York City. The consolidation of power has been a danger since the dawn of time. Our country was founded upon the principle that the consolidation of power is bad and leads to tyranny. Where do you believe Uber is headed? Think about It and Draw your own conclusions.