Ridesharing (Uber & Lyft) and dockless e-bikes and scooters are a tremendous resource for those seeking to free themselves of car ownership. Both tools make it much easier for my household to forgo a second car. I mostly rely on my bike and public transit, but because this city’s system bike/transit system has serious gaps, it helps that I can rely on a Lyft or a scooter when I’m in a pinch. If not for those options, it would be much more tempting to spend thousands a year to own a second vehicle. (AAA estimates it costs the average American $9,000 to own a car)
The problem is, none of the companies that provide me these options are profitable.
Uber & Lyft
Uber lost $5.2 billion just last quarter, while Lyft lost a comparatively modest $644 million.
It’s not as if Uber & Lyft are paying their drivers too much. In the Wall Street Journal last moth, Ken Wiles, a UT finance professor, recently joined Kep Sweeney, some private equity guy, argue convincingly that Uber/Lyft are fueled by financial illiteracy. When taking into account the full cost of ferrying strangers around –– gas, repairs, maintenance and, last but not least, the decline in the value of their vehicle –– drivers are barely making any money at all.
For drivers who depend on Uber to make a living, their cars’ loss in value is serious. If a driver carries passengers for 40,000 miles a year and incurs depreciation of 29 cents a mile—the average reported by the American Automobile Association in 2018—the annual expense is $11,600, or $967 a month, $223 a week, $5.58 an hour based on 40 hours a week.
This dynamic is exacerbated by the fact that Uber/Lyft won’t let you drive a 20-year-old beater that doesn’t have much value left to lose. You have to have a relatively new car.
Wiles and Sweeney suggest drivers may catch up to the ruse:
Once drivers understand that they are liquidating the value of their vehicles, in effect receiving payday loans with their cars as collateral, the effects may be significant. Companies like Uber, Lyft, Grubhub and DoorDash may find it more difficult to recruit and retain drivers unless they raise prices and pay drivers more.
If Uber & Lyft can’t come close to a profit even when they’re ripping drivers off, what will happen to them if they have to actually pay them decently? And how much of a price increase are customers willing to tolerate?
One theory is that Uber & Lyft have no plans to be profitable until they can take the driver out of the equation. Which is why both are investing heavily in autonomous vehicles. If that’s true, you gotta wonder how many years of losses they can sustain waiting for a driverless revolution. A driverless car is one thing, but the ability to deploy a whole fleet of driverless cars to pick up and drop off people … that’s a long way off.
It’s tougher to find out numbers associated with the scooter operators, which are largely private companies, but leaked numbers show that Bird, one of the two top companies, lost $100 million in the first quarter of the year. Speculation abounds online about whether scooter economics can work.
In recent months the scooter companies have recently raised their prices –– significantly. Originally they all charged $1 to unlock the device plus 15¢ per minute. The $1 flat fee has remained the same, but Bird and Lime have raised their per-minute rate to 27¢ and Lyft has gone up to 30¢.
So far the price increases don’t appear to have dampened enthusiasm. User racked up over half-a-million miles on dockless devices in August, around the same level as previous months. Now that school is back in full swing use appears even higher, and September is on pace to set a record for non-SXSW months.
Let’s prepare for the worst
If all of these companies fail, then we’re just back to where we were six years ago. That’s not disastrous, but it is certainly suboptimal. However, the city can take steps to mitigate the negative effects:
Keep leaving taxis alone: There is a profitable way to give people rides, even if those rides aren’t as cheap as those offered by Uber & Lyft in recent years. The key is for the city NOT to do what it did in the pre-Uber days, when taxis were strictly limited through a franchise system and left people on 6th Street waiting for hours to get a cab at night. Council voted last year to deregulate the taxi industry –– they should stay the course.
Make regular biking attractive: Keep building out our All Ages & Abilities Bicycle Network via protected bike lanes and urban trails. For only a couple hundred million dollars, we could put in place a system ala Portland that dramatically increases bike ridership.
Invest in transit: In addition to the high-capacity routes created via Project Connect, the city must aggressively reallocate right-of-way on key corridors to transit. This will make transit much more attractive, whether or not you have a convenient last-mile scooter option.
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