Category: Business

NOLA Council Begins Uber Conversation

On June 24, 2014 the Transportation Committee of the New Orleans City Council met to begin discussions on ordinance changes to the luxury vehicle section of the for-hire vehicle code. The primary changes proposed in the current version of the ordinance updates include: 1) removing the requirement that luxury vehicles (limos, sedans, and SUVs) must be reserved for 3 hours, and 2) changing the minimum required fare structure from $105 to 3x the taxi base fare. The new minimum fares would be $25 for sedans, $35 for SUVs, $75 for trips to/from the airport, and $90 for SUV trips to/from the airport.

In addition, the code would be updated to allow for luxury vehicle companies to use technology, like smartphone apps, to better serve their customers. The taxi code was updated in 2012 to allow taxi companies to use technology. Based on my reading of the current ordinances I don’t see why an update is necessary to allow for this, so I asked representatives in the Mayor’s office for clarification, but have not yet received a response.

Anyway, the headline grabbing piece of this topic is that Uber has requested the city to make changes to the code to allow it to legally operate Uber Black. Uber Black is Uber’s luxury sedan service. As I previously outlined my thoughts on Uber more generally, I’ll limit the remainder of this post to responding to the meeting of June 24.

Ryan Berni, advisor to Mayor Landrieu, started off the meeting by stating that the goal of the city is “to have good transportation options for residents, businesses, and travelers.” Berni went on to say that the city has an obligation to ensure regulations are in place to protect the public. On the surface, these comments sound perfectly reasonable to be coming from the Mayor’s office. However, as the remaining comments during the meeting show, protecting the public is not what will be accomplished by the new ordinance. What will be accomplished is protection of the profits of existing luxury vehicle and taxi companies, at the expense of greater and cheaper options for the public.

According to Mr. Berni, “we need price separation.” In other words, “price separation” means that in order to keep luxury vehicle companies from functioning as taxis and cannibalizing all the taxi business, the city needs to force luxury vehicles to charge higher prices than taxis. Councilmember Head awkwardly requested clarification from Mr. Berni that this did not amount to “price fixing.” While Councilmember Head is technically correct that creating “price separation” does not fit within the definition of “price fixing,” the result is essentially the same. The city, not the market, sets the prices that minimally competing businesses may charge customers, and taxis get to charge lower rates than luxury vehicles so they have a larger customer base to appeal to, and luxury vehicles charge higher prices to appeal to a different, wealthier clientele or serve as a transportation option for special events and occasions.

There are two primary reasons why this arrangement does not serve to protect the public: 1) in general, minimum fares artificially force people to pay more for a service than they otherwise might be able to negotiate; and 2) creating “price separation” limits transportation options for the public.

First, in the absence of minimum fares, customers could negotiate lower prices than allowed by law. Forcing people to pay more than drivers may be willing to charge benefits the bottom line of the vehicle owner, not the customer. Also, to be clear, it is only minimum fares that are being discussed, not maximum fares. The proposed ordinance change removes the ceiling that luxury vehicle companies may charge while setting a floor that they may not go below while negotiating fares. Therefore, minimum fares benefit the vehicle companies, not their customers.

Second, price separation that sets a higher minimum fare limits options for people looking for transportation. If someone can’t afford the legally required minimum fare, they must look elsewhere for a ride. In contrast, if there were no required minimum fare, a vehicle company that is willing to accept a lower fare rather than have no business at all would result in the customer having a ride and the company having a paying customer. Further, minimum fares reduce competition which only further reduces the number of available options. If a new vehicle company is attempting to enter the market, one of the easier methods of acquiring business is to charge lower prices than the existing companies. Since the new business does not yet have name recognition or a reputation, the lower prices they offer allow them to compete immediately. However, if there is a legally required minimum fare, the new company cannot charge less to entice customers, thus fewer new companies are likely to emerge. This result is even more likely to occur in the case of individual entrepreneurs who are considering entering the market with a single vehicle or two.

A brief note on that last point. The current ordinance requires a luxury vehicle company to have at least 2 vehicles. This requirement also does not serve the interests of the public. Instead, it limits competition while benefiting large vehicle companies. If I’m an individual entrepreneur (assume I have acquired the necessary licenses and insurance) who would like to earn some extra money on the weekend by providing rides in a sedan, but the law requires me to own 2 sedans before I may open for business, this arbitrarily limits the number of people who may operate as luxury vehicle companies to those who can either afford to purchase at least 2 vehicles instead of just 1, or to those who are able to access financing for an additional vehicle. In any event, Joe Entrepreneur who has no use for a second vehicle because he can only drive one at a time is left looking for other options for extra cash, and the public is left relying on the larger companies to offer enough vehicles to meet the demand.

In addition, when the minimum fare structure is combined with the 2 vehicle requirement, not only is competition on prices and the number of available vehicles limited, but a barrier to entry is raised for those seeking employment. So, what we’re left with is this: luxury vehicle companies with enough resources to acquire at least 2 vehicles do not have to worry about competitors with a single vehicle charging less than them, and taxi companies don’t have to worry about luxury vehicles charging the same price as a taxi but offering a ride in a nicer vehicle. What about this “legal” arrangement is actually serving the public instead of the interests of the current 20 luxury vehicle companies and the taxi companies?

This is exactly what I meant when I said other motivations are at play than protecting the public. Fortunately, if my above analysis of the dynamics at play isn’t enough, one need only listen to the comments during the June 24 meeting by those in the for-hire vehicle industry to see that they openly advocate for the city to protect their businesses from competition:

Michael Brinks of the Greater New Orleans Limousine Association said that they need the city to protect their ability to charge higher fares.

Chris Bonomolo of Bonomolo Limousines implored the City Council to consider the impact of ordinance updates on the well being of limo drivers. Nevermind the fact that when directly questioned by the Council, Mr. Bonomolo was unable to provide any specifics on how his employees would be harmed.

A representative from Alert Transportation voiced his opposition from having fares lowered because without the legally required minimum fares, it makes it difficult for his business to stay viable.

Mike Wetzel of Big Easy Limos was more explicit when he directly stated that limo companies can’t compete with taxi prices and if competitors are allowed to charge less than the current minimums his company could be put out of business.

Sheree Kerner of Nawlins Cab was concerned that the “price surging” practice of Uber’s ridesharing product, UberX, was synonymous with price “gouging,” yet somehow failed to realize the illogic of her comment when she went on to say that if UberX is allowed to operate in New Orleans, cab companies will be left to serve only non-Uber users and will require subsidies from the city to stay in business. If “price surging” is so bad for customers, Ms. Kerner, why would all the Uber users continue to exclusively use Uber at the expense of cab companies?

The comments go on, but I believe the point is clear. While paying lip service to concerns for the public based on overblown statements of their being less transportation options if the existing companies are actually forced to compete on things like fares, the true concerns of the companies are clear. They need the city to protect them from competition or they might go out of business, or they might have to lay people off, or they might profit less. I suppose you could make the argument that businesses closing, layoffs, and lower profits result in harm to the public. However, where could the line possibly be drawn if protecting the public is now defined as protecting existing businesses from having to function in the world of business? Unless you are a company that is fortunate enough to operate in an industry that can acquire government protection, you are forced to actually compete with other businesses to attract customers. None of the above comments reflect the motivation to serve and attract the people of New Orleans and her visitors.

I realize that this is yet another example of business as usual in New Orleans politics. However, these vehicle companies should be ashamed of themselves for thinking that it is the responsibility of the elected representatives for the people of New Orleans to protect the businesses from competition at the expense of their customers.

The provisions of the current proposed ordinance that remove the 3 hour reservation requirement and explicitly allow vehicle companies to implement technology are improvements that benefit the public. The provisions that maintain minimum fares and the 2 vehicle requirement only serve the interests of the companies. Hopefully, the members of the council, and the members of the public will begin to see the vehicle companies’ claims for what they truly are: self-serving rent seeking and the refusal to compete and adapt to the changing nature of transportation. Whether they like it or not, companies like Uber are not going to disappear. Instead, if existing vehicle companies continue to view their customers as a commodity that they are entitled to by force of law, then we should expect to see competitors like Uber proliferate.

Uber v. Taxis

I decline to choose a winner. The people of New Orleans should be allowed to choose who wins by either using Uber or not  using Uber. Unfortunately, this is not the typical city approach to new companies disrupting the status quo. This is especially true when the threatened party is the deeply connected New Orleans taxi industry.

The Transportation Committee of the New Orleans City Council is set to debate rules changes to some city ordinances on Tuesday, June 24, 2014. Since I will not be able to attend that meeting, my thoughts (non-exhaustive) on the situation continue below.

Assuming that opposition to Uber stems from a concern for public safety, there are some common misconceptions out there that simply aren’t true. These include lack of insurance coverage, unsafe vehicles, random people as drivers, and the affordability of rides. First, Uber now provides significant insurance coverage for all Uber drivers that should certainly be adequate in the event of an accident. Second, the average age of an Uber vehicle is 6 years, and none are older than 10 years. Third, Uber conducts extensive background checks on its drivers before allowing them to hit the streets.

Further, before getting into an Uber car the customer sees a picture of the driver, the driver’s license plate number, and the driver’s name, and then after the ride is over, the customer can rate the experience they had with the driver. This process allows other customers to know who they are getting and the quality of the driver. Uber also is able to keep tabs on its drivers through this system.

Finally, while Uber does have a minimum fare structure to account for insurance and the background checks it runs on drivers (certainly worthwhile fees for a rider to pay for), the customer at least gets an estimate on the cost of the trip before getting into the vehicle. That way, if the cost is too high, they know to seek other options.

Now, comparing Uber with New Orleans’ recent updates to taxi regulations, at least on these four points there aren’t appreciable differences that weigh against Uber. Going beyond these points, Uber is far superior. First, introducing a new player into the market will provide additional transportation options for New Orleans riders. Anyone who’s continually heard a busy tone while trying to call a cab or seen a constant parade of full cabs heading uptown late at night knows that additional drivers are needed. Second, having the ability to rate your driver, and for your driver to rate you, sets up an incentive for drivers to not only be trustworthy and efficient (i.e. not take the long way), but for both driver and rider to just be nice to each other. This is a welcome addition.

Third, Uber technology requires drivers to use GPS. What does this mean? No more having to tell the lost driver that you are PAYING how to get to where you’re going! Fourth, it is far preferable (to me) to be able to pull up a ride on a phone app instead of standing out on a curb waving like a maniac or constantly calling dispatch and waiting for a car to pull up and honk. Further, the app allows you to see the progress of your driver on his way to pick you up.

Fifth, no more cash! Not only do you just hop out of the vehicle at the end of your trip without having to complete a transaction, but the app takes care of tipping for you. This process is preferable for rider and driver for 4 main reasons: 1) not having to give your card to the driver prevents drivers from engaging in swapping out your card with someone elses and then running up charges before the theft is discovered (I dealt with this multiple times in a previous life as a banker at Chase); 2) riders not having cash is also faster and safer (for obvious reasons); 3) no more having to make sure a driver’s credit card machine is working or that they aren’t flouting the city regulations requiring them to accept them; 4) it’s safer for drivers, too, since they don’t have to carry cash on them.

Of course it is true that not everyone has smart phones. This is why Uber will not destroy the taxi industry. There is still room for taxis. Regardless of whether you simply don’t own a smartphone (or haven’t updated your phone’s software to allow you to use it at the moment), or choose not to pay for the service at times of peak-pricing, or just happen to see a cab and hop in instead of pulling out your phone, there are still many customers and situations that will support taxis. Also, there is no reason that existing cab companies can’t adopt similar technology as Uber uses unless they have no incentive to. Unfortunately, due to the current lack of real competition on this front, taxi companies don’t really have an incentive to adopt better technology (not to mention it may not even be affordable at the moment due to the added expenses resulting from recent ordinance changes).

The point is that competition is good. Keeping a competing company out of a market for arbitrary reasons is not good. After reading the above and considering other possible public safety rationales for limiting Uber, I can’t help but think that keeping Uber out must be based on other motivations. Just because taxi companies have been granted a monopoly by the city doesn’t mean they are entitled to enjoy it forever. Plus, as soon as it is honestly acknowledged that what is really going on is simple economic protectionism, at least New Orleanians will know that it isn’t public safety that is being secured. Instead, it is profits of the well connected taxi industry paid for by the public. If the city of New Orleans truly cares about protecting the public and making sure there are safe, dependable, and plentiful rides for people choosing or needing to not drive themselves, then it will amend current regulations to allow for robust competition in the New Orleans taxi market.

Food Stamp Chaos

There are reports today of a 2 hour or so glitch in the Louisiana EBT (food stamp) program on Saturday night that allowed many shoppers to go on a spending spree. Apparently, the cards weren’t registering a balance but were authorizing transactions at Wal-Mart, which means it was an all-you-can-grab free-for-all for those shoppers who managed to figure out what was happening with the cards.

Clearly, this is a situation that cannot go unfixed. We’re talking about outright theft of taxpayer funds by the individuals who took advantage of a technical glitch and a retailer being complicit in allowing the theft to continue. I can imagine 4 possible results of this situation: 1) the shoppers are stuck with the bill as an advance on future funds, 2) Wal-Mart and the card processor (Xerox, I believe) foot the bill, 3) Louisiana taxpayers foot the bill, or 4) some combination of all of the above.

The first response, while I’m sure will have support from some, doesn’t seem all that practical to me. I used to work for Chase bank, and if your account was mistakenly credited with someone else’s deposit but you decided to spend the funds thinking Christmas came early (yes, this happened), then once the bank corrected the mistake and removed the funds from your account, you could be left actually owing the bank money if you went ahead and spent it. In my opinion, this is the reasonable way to deal with adults, but even if you consider that it is probably the most direct and equitable way to recoup these funds by considering it as an advance of future payment, there are potential unintended innocent victims that could be harmed (i.e. children). As a result, I don’t see the state sticking them with the full bill.

The second response; sticking retailers who knew what was happening and accepted the cards anyway and the company responsible for the glitch with the bill seems somewhat fair, but ignores the fact that the customers were just as guilty for spending money they knew they didn’t have. So I can’t see the customers getting off scot-free either.

The third response; Louisiana taxpayers foot the bill and everyone acts like nothing happened, seems like the least likely result to me. Politically and equitably I can’t even come up with a possible rationale for this being a possible result.

Which leaves us with a combination of the customers, retailers, and the processing company paying for this in some combination. Now, I’m assuming that the card processor has a way of determining who spent what during this fiasco and could conceivably pursue solution #1. Also, I don’t exactly think it’s fair for the processor to be stuck with liability on this. So, I would come up with some way to make the customers pay for as much as possible without inflicting too much harm in future months (such as by providing enough notice for the effected people to plan ahead), with Wal-Mart paying the difference.

Interestingly though, I tried to get a full statistical breakdown of EBT recipients in DeSoto Parish, where the Mansfield Wal-Mart is located, and all I could find is this, which says about 10% of DeSoto Parish receives food stamps at an average of $126/person per month. If true, the reports of some shoppers “purchasing” over $700 of food, makes their actions look even worse. (The federal government-run SNAP website is down due to the “government shutdown” at the time I write this.) In any event, the lesson should be this: DON’T SPEND MONEY THAT ISN’T YOURS!

*UPDATE* A spokesman for the Louisiana Department of Children and Family services says that state taxpayers have nothing to worry about. The retailers failed to follow a procedure with Xerox, the EBT card processor, so either the retailers will have to eat the cost or pursue potential legal remedies against the shoppers.

*UPDATE 2/24/14* The state is apparently going after 500 of the most egregious overspenders and disqualifying them from benefits.

 

Food Trucks Coming to Fat City?

Wednesday, February 27, 2013 will see a measure brought up before the Jefferson Parish Council to allow food trucks to operate in Fat City in Metairie on Tuesdays between 7am and 10pm. While the proposition is laughable, it’s at least a step in the right direction.

However, the same, age-old, debunked myths surrounding food trucks continue to be spread like infectious disease. This time from Drago’s proprietor, Tommy Cvitanovich;

“But it has to be a level playing field. They’ve got to be safe. They’ve got to be inspected.”

Mr. Cvitanovich, food trucks are already regulated exhaustively for health and safety purposes by the state. Also, what do you think isn’t level about the playing field? You have a brick and mortar building, an established clientele, and years of experience running an extremely successful restaurant. And you’re worried about people serving food on private property out of trucks? Sounds to me like you’re not as interested in a level playing field as you are about using the government to protect yourself from competition.

Also, conveniently not mentioned is the fact that Drago’s has their own truck for special events and festivals. Care to explain Mr. Cvitanovich?