Ride Or Die For The Passenger Transport Industry?

The days of traditional taxicab fleets may be on the wane.

The problem is the rise of ride share services, which use online apps to connect users to ordinary people willing to provide rides for a fee. Because these services do not employ or manage drivers, they are not regulated the same way cab companies are overseen. The lack of regulation gives ride sharing a competitive advantage over cabs, one that many cab drivers say is unfair.

Besides the issue of regulation, differences in the two types of business plans often give ride share drivers an advantage. For example, cab drivers typically lease their vehicles, meaning that they must charge fares high enough to cover their own fees. Ride share drivers use their own vehicles, which means they have to cover all vehicle-related costs themselves—but it also means that if driving is a sideline, the car might be paid for by a regular job. The ride share income might well be a bonus, essentially free money. These drivers can therefore charge much lower fares and when business is bad it costs them nothing to stop driving for a while. Cabbies who cannot find work have to pay for their vehicles anyway.

Cab driver unions have protested, even going on brief strikes in many cities, including Chicago, Los Angeles, San Francisco, and Washington DC, plus cities in other countries. The details of the protestors’ demands vary, but the issue is always a level playing field; either the ride share services should be regulated as cab companies or the cab industry should be deregulated so that cab drivers can compete freely.

Ride share service providers protest that they are not simply a new kind of cab company—they are software companies. It is the drivers, not the app producers, who give rides. Arguably, these services are simply a high-tech version of old-fashioned community bulletin boards where people could post notices asking for or offering rides. And yet, the effect of these services on the taxicab industry is undeniable. And since the ride share services are unregulated, there is no guarantee at all that the drivers or their cars will be safe.

In some ways, each group is right. Realistically, this is not an instance of competition between companies but between separate yet related industries.  Depending on how regulators respond, either ride share services will squeeze the cab industry out of business, as has happened to other industries in the past as technologies changed—or ride share services will be regulated until they essentially become cab companies. Already in some areas, ride share drivers do have to carry minimum insurance and pass background checks.

There is a third option.

If the two industries can find a way to divide the market between them, so that ride share services occupy one niche and cab companies occupy another, then both kinds of drivers can prosper together. What do you think?