Uber and Lyft: Heading Toward the End of the Road?

It’s not looking good for America’s premier gypsy cab companies.

In the December 5^th FoxNews.com, we saw “Uber, Lyft drivers get $17.22 hourly wage guarantee in New York after commission’s vote.”  This move was made by “taxi regulators” who claimed the move would “raise drivers’ annual earnings by $10,000 a year, making it the first U.S. city to set such minimum pay standards.”  That is believable, but since the move makes no mention of that amount being over their expenses, be they average or specific, it cannot be confused with the net $34,000-plus annual pay it would get an ordinary wage earner over a year of 40-hour weeks.  Uber, as expected, cried about that, saying it would cause “higher than necessary fare increases for riders,” which can indeed be the result of workers paid appropriate amounts, “while missing an opportunity to deal with congestion in Manhattan’s central business district” (even if cars trying for Uber fares, some paid by people who would otherwise take buses or subways, actually had that effect, it strains credulity to think that is this company, proven to be as mercenary as any Soldier of Fortune contributor, highly values that).

Six months later, on June 2^nd, we got the New York Times’s “Path to Ride-Share Profits Begins With Higher Prices.”  Author Austan Goolsbee started by contrasting Uber and Lyft market capitalization, then $80 billion, with their loss of “a great deal of money,” since then worsened by Uber dropping $5.2 billion in the second quarter and both companies’ capitalization falling to $68 billion.  Per Goolsbee, passengers are less sensitive to the fare increases these companies seem to need than drivers are to the pay raises they would provide.  However, with riders having many alternative ways of getting places, the effect would be significant, and we don’t know how much further the results of a study, that “for every 10 percent increase in price, demand fell by only about 5 percent,” could be extrapolated.  The author also said that drivers might otherwise be working for restaurants, meaning that their “average pay… is likely to end up around minimum wage, too.”  Taxi-commission edict or not, there is no reason for such workers to be getting anything approaching middle-class income – and the more they are paid, the fewer of them the market will need.

A third heavy shoe is about to drop.  As documented in “A fierce battle over defining employees in California nears decisive vote,” by John Myers, Liam Dillon, and Johana Bhuiyan in the September 7^th Los Angeles Times, this week the California legislature will vote on a measure, known as Assembly Bill 5 or AB5, which, per “Why Uber and Lyft Are Pushing To Keep Their Drivers as Independent Contractors” by David Jagielski in the same date’s Motley Fool, would require three criteria for workers to be denied classification as employees:  they would need to be “free from the company’s control”; their work “can’t (be) part of the company’s core operations”; and such laborers “would need to have an independent business in the industry.”  Either of the second two would conclusively deny Uber and Lyft ability to keep treating their drivers, who would “receive sick days, have minimum-wage protections, and be eligible for other benefits,” as independent contractors.  As a result, those two and restaurant delivery service DoorDash have spent $90 billion fighting AB5, which would not only raise their expenses but would end much of “their flexibility and being able to have almost anyone being able to drive for them.”  Here also, these companies are looking at some combination of higher customer charges and losing even more money. 

Will Uber and Lyft ever become profitable?  Maybe if and when autonomous vehicles, now delayed and uncertain, arrive.  But it seems more likely that they cannot last that long.  So keep patronizing them if they help you, but choose other investment opportunities.