Over the past 12 months, bus and train riders on the peripheries of Philadelphia; Oakland, California; Tampa, Florida; and other cities have been treated to a little luxury at the end of the commute: a publicly subsidized Uber ride home. It’s the hot new solution to the “last mile” problem. In transit, as in the provision of telecom infrastructure, water pipes, and mail delivery, the last leg of the supply chain is the least efficient—the place where economies of scale dissolve.
Transit agencies, perennially strapped for cash, have embraced these pilot programs as a way to save money and, potentially, provide better service. Outside Tampa, for example, the East Lake Connector bus cost the Pinellas Suncoast Transit Authority about $16 per person per ride. Riders paid $2.25 each. That route has since been discontinued. In its place, starting this month, riders will pay $1 for an Uber, Lyft, or cab ride from anywhere in the county to the nearest bus stop. The transit agency will achieve the low fare by providing a $5-a-head discount.
There are serious concerns with such programs: For starters, the savings are in part derived from trading public-sector employees like bus operators for low-wage stringers like Uber drivers. For the most part, though, the partnerships have made bad service a little better. In Pinellas, for example, the program emerged in response to a 2014 referendum in which local voters declined to adopt a 1 cent sales tax in support of transit.
But now that chain of cause and effect is being reversed. The rise of ride-hailing companies is increasingly viewed not as a fix for bad service but as its justification. It is invoked, as you might expect, in bad faith by conservatives who have advocated against public investment for decades. But even pro-transit politicians and officials have begun to see ride-hailing services as an acceptable substitute for public transit. As a result, cities across the country are making important decisions about transportation that treat 10-year-old companies as fixed variables for the decades to come.
It’s a bad idea now. And it’s going to look like a worse one in hindsight, because at the moment Uber and Lyft are subsidizing U.S. ridership, and one day they’re going to start profiting from it.
2016 was a pretty good year for public transit at the local level. Giant, transformative rail projects were approved on Election Day in Los Angeles and Seattle, and smaller projects got the go-ahead in a number of other cities. But if you look at places where investments are not being made and service is being cut, the charm of ride-share is always part of the conversation.
Take Detroit. Earlier this year, I wrote about how the region’s fragmented system had immobilized tens of thousands of carless residents. Decades of city-suburb animosity had rendered a system with surreal flaws. Detroit buses stopped abruptly at the city limits like horses at a river. Suburban buses wouldn’t pick up city residents on their way downtown or drop them off in their neighborhoods on the way back. Regional planners drafted a $4.6 billion plan to fix it by doubling regional investment in transit, and put it to a referendum.
Nearly 2 million people in the region voted on Election Day. The measure failed by 18,000 votes. And one recurring strain of logic, beyond the usual anti-tax fervor, was that buses and trains represented an obsolete form of transportation.
Leon Drolet, for example, was one of the leading opponents of the measure. He’s a former state representative who was elected last month as a commissioner in Macomb County, to the north of Detroit. “This is a 1980s proposal that will trap us,” he told Bridge magazine in October. “It anchors us to decades of dinosaur mass transit.”
“Some cities are contracting out transit services to Uber, Lyft, & others that provide more efficient service,” an anti-transit group proclaimed, “while this proposal spends billions on old tech like buses & rail.”
“Grabbing an Uber or Lyft ride is relatively cheap and very efficient—and will only continue to get better,” read an October opinion column in the Detroit News. “So why is Metro Detroit now considering a massive tax hike for the next 20 years to fund what will be a dated, comparatively inefficient regional public transit system by the time it’s built?”
It’s not just Detroit. A Nashville transit board member said she found similar comments by a self-described Silicon Valley thought-leader “mindboggling” and said transit planners had heeded his advice. In Washington, a transit spokesman told a local blogger that the need for late-night service had fallen because of Uber and Lyft, as the agency contemplated dramatic service cuts.
Obviously, taxis will never be able to substitute for the people-moving power of high-capacity subways and bus corridors. Anyone who argues otherwise is being disingenuous.
But even for high-subsidy (read: expensive for taxpayers) transit routes, the budget-soothing promise of Uber isn’t cut and dry. What if grabbing an Uber isn’t about to get cheaper—but more expensive?
Hubert Horan, a transportation consultant writing at the blog Naked Capitalism, looks at some of the revenue tables Uber has provided to investors and concludes that the company’s current intake makes even American streetcars look like a good investment.
“Uber passengers were paying only 41% of the actual cost of their trips,” Horan writes. “Uber was using these massive subsidies to undercut the fares and provide more capacity than the competitors who had to cover 100% of their costs out of passenger fares.” The company’s profit margin in the year ending September 2015, Horan concludes, was negative 143 percent. It lost $2 billion despite revenues of $1.4 billion.
A large part of that was due to the subsidy battle Uber waged against Didi Chuxing in China, which ended with a merger this summer. But in the U.S., too, the company has lost money— “roughly” $100 million in the second quarter of 2016, according to investors who spoke to Bloomberg. On a per-ride basis, Lyft likely loses even more.
We’ve known for a while that Uber is unprecedentedly unprofitable, its $60 billion-plus valuation notwithstanding. But as we begin to make policy decisions based on it and its competitors’ impact, we have to recognize that this state of affairs can’t last. It is not just the taxi cartel that makes conventional cab rides cost more than Uber rides. It’s the patience and optimism of Silicon Valley investors. Maybe Uber will continue its shift into shared rides, which (as a prior generation of transportation operators learned 150 years ago) are more profitable. Or robot cars will eliminate driver jobs, dropping the marginal cost of providing rides (though adding billions in capital expenditures). But in any case, whether it achieves its desired market share or not, the company will have to start raising prices.
Right now, as the transportation writer Jacob Anbinder pointed out, Uber has a worse farebox recovery ratio—the ratio of price to subsidy—than most of the subway systems it is competing with. Not for long. Investors will expect profits—which means Uber rides will have to cost more. We’ll look back on these couple years as a magical era during which a heavily capitalized startup let us hop around town for pennies on the dollar. When prices come back up, Americans will find that cuts to transit service and reluctance to invest in expansion have left us in bad shape.
The irony is that Uber and Lyft are cognizant that being everyone’s private driver, at current prices, is not a sustainable business model. Both companies have pushed hard into services that resemble public buses, sometimes with appointed pick-up or drop-off points and fixed fares that are competitive with transit fares. (For now, anyway.)
But for some reason, transit officials see the imitation not as flattery—not as a validation of what they have been doing for years and a hint of how they might do better—but as an excuse to hang it up.
And that has costs. When Washington’s Metro decides it will only start running trains at 8 a.m. on Sundays or stretches out wait times, that doesn’t just inconvenience people. It tells them to buy cars. And once they have cars, what are they paying for to live near transit anyway? If you need to go out to a party, you can always spring for an Uber.
There are of course pilots for privatized public transit—like Boston’s paratransit program—where the price of an Uber ride could triple and still be a bargain. There are some great partnerships out there. But for general-purpose commuting in Nashville, Detroit, and Washington, the app-hailed ride is not about to cost as much as the bus. Politicians and planners shouldn’t act like it could.