Taxis: Yellow, Green and Black: Competition & Evolution

On a daily basis I am reminded that seemingly everyone loves to talk about taxis. Last year between the Daily News, the Post and Times, there were over 2,000 articles mentioning taxis, which transport about a million people a day – yet only about 3,000 articles mentioning subways which transport six-million people a day. Travelers and New Yorkers are clearly disproportionally obsessed with taxis.

Assuming that what people ask me is representative of what’s on the public’s mind, I figure a good place to start is Uber. What is Uber? Is it an app? A technology company? A car service? A transportation network? Is it legal? Is it a noun or a verb? And what is it doing in New York City?

What is Uber? It is the name of a company and what that company and many other companies across the world are doing successfully is streamlining connections between cars for hire and passengers, allowing passengers to see their cars beyond their line of sight approaching, providing up front information about the driver, and sometimes also about the fare and allowing passengers to pay for the service without ever reaching for their wallet or purse. That is it.

Uber, Lyft, Gett, Hailo Curb, Way2Ride, Ride Linq, Bandwagon and the many more that are here and the even more yet to come – all represent just a new way of communication, nothing more nothing less. But this new communication system has highlighted unevenness in the adherence to core standards across sectors, which the TLC is now addressing. And simultaneously these apps are forcing the rest of the for hire industry to evolve well beyond TLC’s core standards, a boon for the entire City.

Competition

Change in the for-hire industry means competition. Competition raises the bar for everyone and there are tremendous market benefits from competition – more choice for passengers, a more mobile city and one less dependent on private car ownership. But competition is only truly competition if it is fair.

For decades different segments of the industry operated independently and a unique set of rules developed for each one, and the more popular the sector the more rules we’ve written to regulate it. Not surprisingly, yellow taxis are the most highly regulated sector – fare, color, vehicle type and age, in-taxi payment equipment, shift durations etc. – while historically, modes with less trip volume, black car and livery, operate with much less restrictions.

Now apps that allow passengers to easily connect with drivers have popularized the black car sector attracting new passengers and causing more taxi and livery passengers to patronize it. This change has called into question unevenness in regulation and that’s a good thing.

It’s a good thing because it forces the Taxi and Limousine Commission, the regulator, to focus on core standards that the open market does not adequately set – safety, accountability and accessibility.

TLC regulations show a history of piecemeal rulemaking driven by a desire to correct industry-specific issues as they have arisen. The result is uneven regulation across segments on some of these core standards.

For over the last thirty years if you travelled by yellow taxi your driver was trained in safety, in-vehicle technology and street knowledge. If you took a ride in a livery or black car this would not be the case. There was no threshold training requirement applied. The historic reason for this inequity was a perceived difference in passenger base. Black car (corporate providers) might provide their own training tailored to their clients and, in my view, a misinformed sense that community car livery drivers didn’t need training to work in their own community. As the passenger base for these two sectors looks more and more similar and has grown, neither of these justifications makes sense.

Today there are over 70,000 for-hire vehicle drivers (livery and black car) transporting over 400,000 people a day. These passengers, like taxi passengers, deserve trained drivers so in January 2014 the Commission passed rules to make this happen. All for-hire vehicle and taxi drivers will be trained going forward and training will reflect real priorities. Less focus on geography because everyone uses GPS and, instead, schools will train drivers on the safe ways to use it. There will be more focus on safe driving as well as the tragic consequences of distracted driving and speeding. There will be an emphasis on customer service, serving passenger who use wheelchairs and providing clarity to drivers on their rights and responsibilities as licensees so they can better navigate our adjudication process.

TLC rules require taxis and bases to keep records of all trips. Since 2009, taxis have done this through in-vehicle equipment or TPEP (Taxi Passenger Enhancement Program). Green taxis are equipped with LPEP (Livery Passenger Enhancement Program) which performs the same function.

But gathering information for enforcement purposes on the for-hire vehicle side has not kept up. For example, the ability to identify a driver who may be the subject of a passenger complaint – or trip volumes and density for informing policy decisions has been makeshift.

For enforcement, the TLC currently must reach out to the base and rely on the bases’ review of its own records (the completeness of which is not routinely checked) to provide specific trip information. And for policy making, the agency has extrapolated the information received from survey responses to draw conclusions about which areas are over and underserved as well as drivers’ income. FHV trip records are essential to account for drivers who, as independent contractors, have the freedom to work for multiple bases.

So effective December 31, 2014, all for-hire vehicle bases (livery and black car) are required to provide electronic trip records. The public rewards of this initiative are many. For example, as we do on the taxi side, the TLC will be able to uniformly and regularly enforce against the use of suspended drivers and vehicles. We will for the first time have a real picture of for-hire service density and scarcity throughout the City, especially in the outer boroughs. The industry itself will become more transparent to the public as experts who FOIL this data draw and publish their own independent observations.

Apps that dispatch for-hire vehicle cars have functioned outside of TLC’s licensing process and made the enforcement of core service standards illusive. We have proposed rules which setup a licensing structure that will establish enforceable standards while simultaneously fostering further innovation and attracting new market entrants. By establishing base line licensing requirements, passengers, drivers and bases will be able to choose from an array of vetted apps and likewise have an avenue for redress if core standards are not met.

Among other items, the licensing structure will address rules to prevent distracted driving, to ensure accessible vehicle availability, and privacy and data security requirements. But these standards are clearly not the ceiling, so competition that drives better product development will continue to thrive.

Going forward we will have to continue to address inconsistencies in public financial contributions by sectors. New York City provides the industry with an amazing infrastructure. Each sector’s contribution to support this infrastructure should be relative to its trip volume. Today it is not. Notably, passengers in yellow and green cabs pay 50 cents per trip towards the costs of running the public transportation system, but passengers in for-hire vehicles do not. Passengers in yellow and green cabs pay 30 cents per trip towards defraying the costs of putting yellow and green hail-able publicly available wheelchair accessible taxis in public service, while fares generated from for-hire vehicles contribute nothing. Future policy will have to address these and many more inequities of support.

Evolution

For years taxis met our regulatory standards and on the whole did not aspire to go beyond them. As ridership grew the standards became more demanding, because with relatively little competition, regulations were the main way to bring about improvements in the increasingly popular service. Without the TLC pushing innovation forward, riders may not have had the ability to get help finding a lost wallet or to pay by credit card.

This paradigm worked for the most part for both passengers and drivers. Amenities were added and driver protections were enacted and enforced. The overall end result is that there are many, many standards to meet in New York City for taxi operators.

New entrants do not, however, look to our rules to create a business model. In fact, in most cases they try to enter the market completely ignoring our rules. Notably we are the only jurisdiction in the country that has required, without exception, adherence to our licensing structure if you want to operate for hire in NYC.

Over the summer of 2014, Lyft unsuccessfully attempted to operate for hire without a TLC license – they now operate through a licensed black car base. And Uber, after losing their fight to withhold trip data, has now complied and is subject to ongoing data collection requirements

Nonetheless once licensed they certainly don’t view our rules as the ceiling for service levels. They focus on two main assets in order of priority: attracting and retaining drivers, and customer service.

Not since the 1990s has the ability to attract and retain drivers so clearly been the key to success for taxis. But unlike the 1990s, when drivers left for better jobs, some with benefits in other industries such as construction, today’s drivers are moving within the ever expanding for hire world.

Today a successful for hire business model is one that places high priority on driver compensation and provides support services necessary to become and remain licensed. Yes money is important, but the more an operator can decrease drivers daily stress the more successful the partnership will be.

This means that proactive owners are exploring ways to increase driver flexibility in scheduling shifts. It means rethinking dispatch practices especially in light of the ease with which technology could allow drivers to seamlessly switch cars away from the garage and without physically exchanging keys. Additionally, assistance with completing TLC and DMV forms, such as prepopulating as many fields as possible and providing computer kiosks for online transaction. These are small but meaningful way garages can show appreciation for their drivers. In addition, helping drivers gather the appropriate paperwork for renewals and initial applications and tracking down missing documents, prepping drivers for exams and providing older driver mentors go a long way.

It can also mean referral bonuses to current drivers for bringing in new drivers, longevity bonuses, and paying drivers as quickly as possible. It could mean providing free representation for drivers who often face DMV and TLC summonses and need assistance in navigating the complicated adjudications processes or ensuring that cars are in superior condition and are pleasant for passengers.

None of these are required by our rules, but all are adaptations forward thinking taxi and FHV owners are already making.

And as to customer service the connection between the driver and the passenger is the secret to repeat patronage, and as additional options for travel open up, lack of the connection can be devastating. For those models in which the driver’s charisma and professionalism dictate the tip, not a preset formula, customer service is income. In the taxi world, especially as we move into a more accessible taxi fleet, reinforcing wheelchair passenger training is vital to keeping drivers in wheelchair accessible vehicles which are the only way they will actually be available for use by the public. Only those owners and drivers who truly appreciate the incredible value of good customer service will thrive.

For established black car and livery bases in particular, competition means being a pioneer and introducing service to underserved areas. It means working together and leveraging the power of a consortium to achieve economies of scale. And it means tailoring service to your customer bases to retain and expand it – multilingual drivers, customer loyalty programs, flat rates and, rewarding and recognizing safe and professional drivers.

The next question I get is what about medallion values? What I find ironic is the rhetoric about medallions depends on their valuation. When medallion values hit an all-time high in April 2013 of $1.3 million, people described owners – all 13,600 plus corporate and individual owners – as a cartel, a monopoly, and litigious. Now that medallion values have come down about 25%, Council Members and members of the public ask me – “What about the City’s budget? Can we depend on auction funds for schools lunches, firehouse and libraries?”

People also suddenly remember that over 5,700 of today’s medallion owners are individuals restricted to owning one and required to personally drive for a decade. Like our safe driver of the year Fred Amoafo – they are small business owners and they depend on the income and the asset to pay their mortgage, kids’ college, etc.

Any discussion about medallion values quickly turns back to topic number one, Uber, and is Uber destroying medallion values? Here, I think, facts would actually be helpful.

During the last 28 or more months, the last approximately 12 of which saw medallion values decrease, a number of other things have been going on – some of which have made it into the headlines and some of which have not and all of them relate to medallion values.

Green cabs are providing over 50,000 trips a day and although the majority of these trips are occurring in areas that were historically never served by yellow taxis, some portion of these trips are in areas that overlap with yellow taxi density, such as upper Manhattan and Brooklyn Heights, for example.

Apps clearly have had an effect on trip volumes, and as we gather more and more trip data from FHV bases we, and the entire City, will have a better picture of where they have been most popular and when.

The MTA has reported historic ridership – almost six million riders a day – levels that haven’t been seen since 1940s when there were more elevated lines and fewer people owned cars.

There is an accessibility mandate on yellow taxis, when many of the current accessible models are not conducive to the 24/7 life cycle of the taxi, which makes it harder to attract drivers (a condition that is already being ameliorated with the introduction of the accessible NV200).

There is broad recognition that an artificial bubble in medallion values existed, caused by a few transactions at record high prices, transactions which were not actually representative of the assets’ value. This was followed by banking regulatory focus on lending practices relative to actual stream of income instead of heavy reliance on historic and inflated increases in aftermarket and auction sale prices.

And last but not least, recognition that drivers truly do drive the industry.

Frankly, a market of lesser strength would have been destroyed. The New York City yellow taxi market has instead taken a mild dip, and for those segments adapting through improved driver retention and customer service – rebounding is extremely doable.

During this time of swift changes in the for hire industry, yellow taxi trips decreased by about 25,000 per day or 5% from 2013 to 2014, and the fare box decreased by about $200,000 per day on average, just under 3%. People still really, really like to hail a taxi in the street, and do so daily in incredible volumes. Yes, lower than before with new competition, but it still happens at an incredible 400,000-plus times each day.

The good news is that competition flushes out the part of the medallion price that was artificial and well above the upset (minimum bid) price set by the City, and settles it at one that makes sense for lenders and borrowers and probably at a price point that opens up opportunities for drivers to be medallion owners and encourages new market entrants. So the focus should be not on what the price of the medallion is, but where it will stabilize – and that may mean that some more recent speculators lose, some early speculators still gain, and some will shrewdly wait to realize that over the long term, even with economic transformation, the NYC yellow medallion has proven year after year to be a valuable asset.

The Future

The last question I get is the crystal ball question, what will the for hire industry look like in the future. In answering this question, I don’t look to other markets to predict what will happen here, primarily because we are always first, but more importantly, because we are unique.

New York City is one of only a handful of places in the world, and no other in the United States, where you can hand hail a car 24/7, 365 days a year, get into a vehicle that has undergone a rigorous inspection, driven by a vetted driver who is obligated to serve you. You can pay in cash or in credit, you can tip or not – although I don’t recommend the latter – and you know exactly what the fare will be because it was arrived-at through a public process – of which technically you could have been a part, but in all likelihood you chose not to.

So New York City is and will remain a hail town and the future yellow and green taxi industry will be augmented by increased popularity of E-Hail as new companies enter the E-Hail market and passengers get the benefit of public taxi service with set prices at the tap of a button. Taxis will become more of a brand that is marketed and advertised to consumers. It will also be the most accessible fleet in the United States, providing long overdue mainstream service for passengers who use wheelchairs. And technology may even revolutionize the dispatch of vehicles putting to rest decades of tensions between dispatchers and drivers.

Tomorrow’s passengers will benefit from an increase in service and an increase in tailored service in the livery and black car sectors as new twists on current dispatch technology cater to their needs. Tomorrow’s passengers will also enjoy increased and more widespread legal commuter van service – real ride share. But most importantly, all of New York will benefit as competition has and continues to elevate the standard of for hire service in our City. Whether you choose to hail by hand, tap your smart phone or, make a phone call, the level of service you will receive tomorrow will be even higher than today because healthy competition will make it so.

Meera Joshi is the Chair of the Taxi & Limousine Commission. This article was adapted from her remarks at a CityLaw Breakfast on February 20, 2015.