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Is the traditional taxicab an endangered species?

October 2, 2014 at 6:25 PM EDT
Increasingly popular ride-sharing services have attracted customers at a rate that some say endangers the cab industry. Economics correspondent Paul Solman reports on the new surge of unregulated competition on the road.
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GWEN IFILL: Is the traditional taxicab becoming an endangered species? In the age of the smartphone, it’s more and more likely, as consumers trying to get from here to there opt for technology-driven ride-sharing.

Economics correspondent Paul Solman takes us along on the ride as part of his ongoing reporting Making Sense of financial news.

PAUL SOLMAN: The long-regulated taxi industry and its drivers are under siege.

AMILCAR PEREIRA, DeSoto Cab Driver: These guys just jump in their car, go out there and providing the same service that we are, totally unregulated, totally unsafe. It’s not fair.

MAN: OK. You got it. We’re on the way.

PAUL SOLMAN: It’s a classic fight between regulatory tradition and technological disruption. And drivers like these, who work for San Francisco’s oldest cab company, are caught in the crossfire.

MUAFFAQ MUSTAFA, DeSoto Cab Driver: I feel like I’m — just been betrayed. I have been a driver for 20 years. I give up half my life for this industry.

PAUL SOLMAN: The Uber system allows riders to request drivers at any time. You have probably heard of this tech threat, even if you haven’t used it yet. Uber, a mobile phone app which connects passengers with non-cabbie drivers for hire, a new surge of competition on the road, unregulated.

HANSU KIM, Owner, DeSoto Cab Co.: To drive a taxicab, you have to get a background check. You have to go the taxi school. You have to be licensed.

PAUL SOLMAN: Hansu Kim owns DeSoto taxi.

HANSU KIM: The taxi industry is so upset, not because of the technology or the taxi industry is being beat by technology, but they now have to compete against people who don’t have to play by the same rules.

PAUL SOLMAN: Might this put you out of business?

HANSU KIM: Yes, and not just me, the entire taxi industry.

PAUL SOLMAN: In San Francisco alone, traditional taxi trips have plummeted 65 percent in the last 15 months. Uber, like its smaller competitor, Lift and Sidecar, was spawned in technology-driven San Francisco, developing mobile phone apps that, especially among young people, have become all the rage in over 200 cities. Just open the app, request a ride, and the driver arrives in minutes.

Uber spokesperson Rachel Holt:

RACHEL HOLT, Uber: When you add in a layer of technology, what that means is, you’re also a lot more efficient at finding fares and at finding passengers, which means you can do more trips per hour, which means you can have lower prices.

PAUL SOLMAN: M.A. Sherman was doing some work at my house outside Boston, to which she commuted from hers by Uber.

M.A. SHERMAN: That’s how I’m heading home. So now I have got this gentleman who is driving a Lexus GS, and that’s where he currently is.

PAUL SOLMAN: Drivers are rated by riders on a one to five scale. You pay via an account you have already set up. You can summon a limo or cab, but it’s the low-priced UberX, in which drivers use their own cars, that poses the big threat.

And how much is it going to cost you to take the UberX from here to your house?

M.A. SHERMAN: It would usually probably be about $20.

PAUL SOLMAN: If I took a normal taxi, it would have to be twice that.

M.A. SHERMAN: Oh, easily.

PAUL SOLMAN: And that includes tip?

M.A. SHERMAN: That price is everything. There’s nothing extra on top of that.

PAUL SOLMAN: So, lower cost, higher convenience, and for some customers the ability to get a ride at all.

WILLIAM SKIPWITH, Uber Rider: Just a few months ago, I couldn’t even get a cab ride. I would have to pretty much use a friend. You know, I just couldn’t get a ride.

PAUL SOLMAN: Why not?

WILLIAM SKIPWITH: I think it’s because of the color of my skin, believe it or not.

(LAUGHTER)

PAUL SOLMAN: And there are also advantages for the do-it-yourself drivers. Former mortgage loan officer Catherine Purcell was drawn by driver flexibility.

CATHERINE PURCELL, UberX Driver: I can wear what I want. I can work when I want. I can go online and offline whenever I want. I have no meetings. And six weeks after I started driving Uber, I walked into the office and said, see you, guys. I’m done.

PAUL SOLMAN: But there are hard truths in unregulated markets. Uber, in its bid to undercut both taxis and similar ride-share competitors, has slashed fares repeatedly, good for consumers, but, for drivers, pay cuts.

WOMAN: You should be able to drive for Uber and make a living wage.

PAUL SOLMAN: UberX driver Kim works to supplement her regular job in public policy.

WOMAN: Uber is just not playing fair with its drivers and with these rate cuts and the way they’re implementing them to these, just all on the shoulders of the drivers.

PAUL SOLMAN: But in an open market, says Rachel Holt of Uber, its drivers still fare better than cabbies, because lower prices will swell demand, and thus their total income.

RACHEL HOLT: Many, many, many taxi drivers are leaving the taxi industry, are working on the Uber system, despite the lower prices, because they’re doing more trips, and they’re not paying over two-thirds of what they make every day to, you know, a company.

PAUL SOLMAN: Meanwhile, Uber has reportedly been cutthroat in its quest to expand, ordering rides anonymously, for instance, from archrival Lift, only to cancel them. It employs contractors to lure drivers away from the competition.

And for drivers the world over, who still depend on their regulated cabs to make a living, Uber is a brass-knuckle competitor undermining their livelihoods. It’s provoked global protests. And drivers in Germany and elsewhere have sought to ban the service.

And yet Uber, less than 5 years old, is already worth some $18 billion.

Arun Sundararajan studies the digital economy at New York University.

ARUN SUNDARARAJAN, NYU Stern School of Business: Uber’s creating a platform that’s replicating the traditional model of taxi, just doing it far more efficiently.

PAUL SOLMAN: And while the technology may be disrupted, Rachel Holt says Uber is improving transportation for everyone.

RACHEL HOLT: Taxi companies have traditionally had monopolies. Everyone kind of gives the same mediocre level of service. And so what that means is, there hasn’t been much incentive to improve. Since we have entered D.C., taxis take credit cards for the first time. When we were trying to enter Miami a year, they said, just don’t let Uber in, but we will do all these other things.

PAUL SOLMAN: In San Francisco, DeSoto Cab has integrated an Uber-like app called Flywheel into its fleet.

Sachin Kanso gave us a demo.

PAUL SOLMAN: So I just hit request ride.

MAN: You request ride, and the request will go over to the driver device. And, there, you see the request coming in. And then, as soon as I get to your house, I will say, I’m at the pickup location, which will notify you that the driver has arrived.

PAUL SOLMAN: In fact, traditional DeSoto is hoping to regain riders from Uber by partnering with high-tech Flywheel, a reminder that both technology and competition never really end.

JUDY WOODRUFF: Online, you can find a profile of taxi owner Hansu Kim. That’s on Making Sense.

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