The phrase “disruptive” is often used of new businesses nowadays; Uber and Lyft driver services may not just be disruptive to conventional taxis, they might prove ultimately disastrous, as reported by the New York Times.
Larry Ionescu, owner of 98 Chicago taxi medallions, said “I’m already at peace with the fact that I’m going bankrupt.” This might sound overly pessimistic, because while his medallions decreased in November to$298, 000 from $357, 000 this spring, they are still above the $50, 000 price ten years ago. Still, Uber and Lyft are overwhelming the market with supply, as taxi medallions up until now prevented this scenario by keeping a lid on the number of taxis operating on the streets. This has been the system in many cities since the 1930s, but Uber and Lyft are changing all of that in irreversible ways. So even as Ionescu’s medallion is worth more than it was ten years ago, a staggering loss since spring from competition has caused him, according to the NYT, to compare Chicago’s pro-Uber mayor Rahm Emanuel to the dictator Ceausescu of his native Romania.
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Under the medallion system, drivers are required to rent or own a medallion to drive a taxi and major cities issue a limited number of them. Some of these medallions are backed by mortgages, and as prices plummet ( they have fallen by 17% in New York since 2013), the trouble could spread from cab companies to big banks.
With Uber and Lyft offering trips that are often more than half the price of a regular cab, the question is why would people ride in a traditional cab. The drop in the value of medallions is traumatic for those who saw a boom in prices; a medallion that was purchased in New York City for $250, 000 ten years ago rose to $1 million just last year. But what a difference a year can make, especially in the current climate of innovations that can alter an industry forever. There is no doubt that, as the problems with cab companies spread to major banks that give funding for medallions, Uber and Lyft might be facing resistance through regulation and lawsuits.
