And yet I have not encountered a single person who actually understood the true reason for the medallion's decline. Nor have I read an article that pinpointed exactly what happened. The assumption is always that Uber showed up and took the passengers away or, according to a recent series of articles in the NY Times, that predatory loans agreed to by unsuspecting drivers were the cause. (To read these articles click here. This is outstanding investigative reporting by Times reporter Brian Rosenthal.)
It is true that these are both parts of the story, but they do not identify the primary cause of the medallion's collapse. What I'm doing in this post is setting the record straight.
You may already know about taxi medallions. If not, here is some information about them:
A medallion is a license -- symbolized by a piece of metal (called the "tin" in the industry) -- attached to the hood of a cab. It's a license not to drive, but to own one taxicab.
The owner of a medallion may or may not be the driver of the cab. Most often the driver of a yellow cab in NYC is not the owner. The owner is more likely to be an investor who either leases the medallion to a middleman (known as a "taxi broker", who in turn sets up a driver with the medallion, a taxicab, and insurance) or the owner of the medallion leases it to the operator of a taxi garage. Taxi garages, also known as "fleets", vary in size. Some may have only ten or twenty cabs. Others have hundreds. There are many taxi garages scattered around New York City, mostly in the boroughs outside of Manhattan.
The medallion system was set up in 1937, during the Great Depression. In those days all you had to do to get a permit to be in the taxi business in New York was to have a car and pay a $10 annual fee to the city. The industry was so easy to enter that there were eventually way too many cabs for the amount of business on the streets. No one could make a living with that much competition. So the city decided to stop issuing new annual permits (medallions) altogether. If you didn't renew it you lost it and as a result the only way to become the owner of a taxi medallion was to purchase one from someone who already owned it. Thus a market was created for the medallion. Business remained poor for several more years and the number of taxis dwindled from over 30,000 to exactly 11,787, where it stayed until 1996 when the city auctioned off 133 new ones. After World War II ended in 1945, however, business picked up considerably and the demand for ownership of a medallion steadily increased along with its value, which rose to its peak in 2013 at 1.3 million dollars.
It should be noted, however, that many thousands of car service vehicles -- far more than the number of medallion cabs -- were added to the streets of the city as time went on. But only the medallion cabs could legally pick you up by means of the street hail. All other for-hire vehicles had to be summoned by telephone.
Okay, that should be sufficient history. Now here's the story. Why did the medallion drop from $1.3 million to virtually nothing in less than a year?
Let's go back to the year 2013. Conditions in the NYC taxi industry are pretty much the same as they've been for decades. There are approximately 13,000 yellow cabs (one cab for each medallion) on the streets, a number that is set by law and does not increase, as noted, except on the rare occasion when new medallions are auctioned off by the city.
The majority of taxi drivers are working out of taxi garages. Working conditions, as always, are far below the labor standards of most American workplaces.
Drivers must pay leasing fees for twelve-hour shifts -- either a day shift (5 a.m. to 5 p.m.) or a night shift (5 p.m. to 5 a.m.) They also pay for filling the tank up with gas at the end of the shift.
It takes about five hours of driving time to break even, so you don't start making money for yourself until that point is reached. You don't have to work the full twelve hours of a shift -- that's okay -- but you still have to pay the full price of the shift. It's not charged by the hour, or by a percentage of the money from passengers. It's charged by the shift.
There is no union looking out for the drivers, only a taxi advocacy group called the Taxi Workers Alliance. They try their best but they are not a real union because they have no clout -- that is, they have no ability to call for and enforce a strike. No one who has any real power to improve your working conditions -- like the mayor, the Taxi and Limousine Commissioners, or the owner of your garage -- is looking out for you. There is nothing resembling a human resources department in the taxi industry that you'd find in any big business in the United States.
There is no overtime.
There is no health insurance.
There are no sick days.
No paid vacations.
No pension.
No profit sharing (of course).
No bonuses.
Although they pretty much fit the description of "employees", drivers have been deemed "independent contractors" by city law since the early 1980s. (And there went the concept of "benefits".)
Once you're out on the road you are driving in a kind of perpetual horse race with other taxi drivers to be the first to arrive at people waving their arms in the air. It's very competitive. Some cabbies prefer to work the airports and spend a lot of time waiting in lots at LaGuardia or JFK. Others choose to wait in lines in front of hotels, museums, or clubs. Most, though, are battling traffic and other taxis on the streets of Manhattan in search of their next customer.
After you have won your prize -- a passenger -- you must provide service to a person sitting a few feet behind your head. It's not like you're moving cargo. You've got people -- virtually every type of person imaginable -- to contend with.
You're carrying cash. Even though about 70% of the payments are made with credit cards, the fact that you are known to have cash could make you the target of a criminal. You cannot legally refuse service to anyone unless they are "disorderly" or intoxicated and you can be fined heavily or even have your license revoked if you're found guilty of doing these and other offenses by one of the TLC's kangaroo courts.
So it's a dangerous and usually a thankless job.
And yet, even with all these liabilities, there are always plenty of drivers. The great majority of them are immigrants from third world countries. Why? Because as substandard as these working conditions are, they're still a lot better than whatever they had in Bangladesh. Or Nigeria. Or Haiti.
Indeed, one problem owners of taxi garages never had was a shortage of drivers. Drivers would tend to come and go, but new ones showing up and old ones returning were always in sufficient supply. Quite often there were more drivers than there were cabs, which gave the owners of taxi fleets a great advantage. If they didn't like a driver for whatever reason, they could simply refuse to lease him a cab. This put drivers in a position of needing to put up with varying degrees of unfairness if they hoped to continue working there.
Dispatchers demanding "tips".
No compensation for lost time if their cab breaks down.
Payment to the garage for accidents which is not returned after insurance compensates the owner.
And so on.
Perhaps the greatest unfairness of all was forcing drivers to accept a "weekly deal". It's better for the owner of a garage to assign one driver to one car and be assured of payment for an entire week than to let drivers work whichever days they preferred. This meant that even if they took a day off to be with their families they were still paying for the shift for that day.
The point I'm making here is that drivers for decades have been utterly taken for granted. I mean "utterly", as in completely, totally, absolutely, entirely, thoroughly, in all respects, and to the hilt.
Look at this:
I took this picture in 2009 at my taxi garage. It pretty much tells the story. Labor Day is the one day of the year in the USA that is set aside as a national holiday to honor working people. One driver took it upon himself to write "WE ARE NOT SLAVES" on this insulting notice.
In 2014 Uber pulled off what I would call a military-precision invasion of New York City. You've got to have several things in place simultaneously for this to be successful.
1. You've got to have a public that has heard of you and has access to you. There was considerable word of mouth about Uber in the United States from people who traveled to places where Uber had already set up shop. And by 2014 everyone had a smart phone, so access, of course, was automatic.
2. You've got to be able to provide your service to the public immediately. If you promote a car service and an app to the general public and then you can't provide a car and a driver, you're finished. That's what happened to Hailo.
3. You've got to have a business model and all sorts of administrators to put it into action. This means people, policies, locations, and equipment. You've got to have the app set up and ready to go without crashing, tech personnel to maintain the app, people to answer phones, people to explain the deal to drivers and get them on the road, managers, lawyers, and staff to run offices.
4. You've got to have a ton of money. By demonstrating its success in other locations before it arrived in New York, Uber was able to obtain venture capital from major investors. By June of 2014 they had secured over a billion dollars in funding.
5. And finally, you've got to have a green light from the city you're about to invade. City officials turned a blind eye as Uber was able to add unlimited numbers of for-hire vehicles to the already congested streets of Manhattan. (By 2018 there were over 100,000.) I think it's safe to assume that the savvy leaders of Uber would not have attempted to enter the world's largest taxi market in the way they did (not with small steps, but with a bang) unless they felt confident that they would not be met with serious opposition from the mayor, the TLC Commissioner, or the City Council.
If every shift is sold out that means you've got two hundred drivers paying you approximately $125 every day for the use of a cab for twelve hours. That's a lot of money coming in, but you also have an enormous overhead. Your expenses include:
--- the cabs themselves which by TLC rules must be replaced every three years.
-- the parts for the cabs which are in constant need of repair.
-- the cost of the garage. This includes whatever you pay for renting the space if you don't own it, for property tax and insurance if you do own it, the parking lot for the cabs, the equipment you need to maintain the cabs, office machinery and office supplies.
-- insurance for the cabs, over $500 per month per cab.
-- a body shop and its equipment.
-- perhaps a tow truck.
-- personnel, including mechanics and dispatchers.
-- lawyers.
-- accountants.
-- fees paid to the city.
-- and let's not forget the cost of leasing medallions if you don't own them or paying for loans that may be outstanding on the medallions that you do own.
Clearly, it's an expensive proposition to run a taxi garage in New York City.
Supposing you owned a bank or ran a credit union. Would you still accept the medallion as collateral for a loan?
No. So the existing medallion owners could not borrow on their own medallions in the hope of riding out the crisis.
So that is the story. That is why the medallion tanked. The engine that was producing the wealth -- the drivers -- galloped out of the stable in the hope of finding a better life.



