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The Yellow Cab Bubble Pops: Taxi Medallion Prices Tumble 17% From Last Year's Record Highs
A little over a year ago, we presented a "Yellow" asset, which was "the best performer of the past year." It wasn't gold: it was yellow cab medallions.
As we wrote then, "the best returning asset class traded in the NY Metro area is yellow but doesn't change hands on Wall Street.... over the last 12 months New York City taxi medallions have risen 49% in price, besting the relatively humdrum returns of the S&P 500 (up 21%), the NASDAQ (22%) and the Dow (18%). Medallions – essentially the right to operate a for-hail taxi in New York City – now trade for as much as $1.3 million, an all-time record."
In retrospect it was also the perfect time to cash out on the "yellow" euphoria. According to the NYT, "the average price of an individual New York City taxi medallion fell to $872,000 in October, down 17 percent from a peak reached in the spring of 2013, according to an analysis of sales data. Previous figures published by the city’s Taxi and Limousine Commission — showing flat prices — appear to have been incorrect, and the commission removed them from its website after an inquiry from The New York Times."
Like everything else, when it comes to price discovery of a depreciating asset, it was not easy to extract that "non-seasonally adjusted" real data:
The turmoil in the medallion market has been obscured in part because publicly disclosed data about taxi medallion prices can be misleading. And the turmoil suggests that the taxi business, which has undergone little change over many decades, is now in the midst of a revolution.
...
The trouble in New York’s market was also partly obscured by a flaw in the average price reports that were published monthly by the city’s taxi commission until September. Those reports erroneously said average prices for individual medallions had stayed largely the same since setting a record of $1.05 million in June 2013.
In fact, individual medallions have traded below $1 million for most of the last year. But the commission excludes from its statistics any transaction at a price more than $10,000 below the previous month’s reported average.
It's not just New York:
In other big cities, medallion prices are also falling, often in conjunction with a sharp decline in sales volume. In Chicago, prices are down 17 percent. In Boston, they’re down at least 20 percent, though it’s hard to establish an exact market price because there have been only five trades since July. In Philadelphia, the taxi authority recently failed to sell any medallions at its asking price of $475,000; it will try again, at $350,000.
...
In Boston, the story is similar. As recently as April, Boston taxi medallions were selling for $700,000. The last sale, in October, was for $561,000.
The reason for this precipitous plunge: the arrival of such competitor services as Uber and Lyft. "A seven-mile ride from the Loop to the University of Chicago in a medallion taxi costs about $26, including tip. The same trip cost $12.29 this April with UberX, the lowest-cost service option from Uber. The crucial question for medallion owners like Mr. Ionescu is, if Uber is that much cheaper than a taxi, why would anyone take a taxi, and therefore why would any driver pay to lease a medallion? Mr. Ionescu says his revenues are down around 25 percent, and he’s having trouble leasing out his whole fleet."
Meanwhile those who are still long of Medallions in depreciating terms, are becoming just a little hysterical:
“I’m already at peace with the idea that I’m going to go bankrupt,” said Larry Ionescu, who owns 98 Chicago taxi medallions. That might be overly dramatic; after all, Mr. Ionescu also compared Chicago’s pro-Uber mayor, Rahm Emanuel, to Nicolae Ceausescu, the reviled ex-dictator of his native Romania. It’s likely Mr. Ionescu remains a very rich man. In November, Chicago medallion sale prices averaged $298,000, well below the $357,000 price that was typical this spring, but far up from the $50,000 price of a decade ago.
Naturally none of this will come as a surprise to those following Uber's ridiculous valuation ascent in recent months. As we said in July:
Because while one may or may not believe that Uber will ultimately succeed in putting NYC's cab drivers out of business, and it is very much doubtful if legacy Yellow Cabs will follow Uber in its price dumping strategy, one thing is certain: the value of a New York Yellow Cab Medallion, which about a year ago hit a record $1.3 million price, will suffer - at least in the near-term - as the conflict between Uber and Yellow Cab picks up, and as the NYC market is suddenly flooded with countless providers of cab-equivalent services.
Alas, there is no way to short the Medallion "price" which with the ongoing private status of Uber makes arbing the future of the cab industry rather difficult except for the most connected institutional investors, those which will have no choice but to keep investing in future Uber rounds at ever higher valuations until one day the Amazon strategy of beggar thy competitor either succeeds or fails.
And invest they have: when we wrote this in July Uber's valuation was $17 billion. Less than 6 months later it was more than doubled once again, and according to Bloomberg "the startup is close to raising a round of financing that would value it between $35 billion and $40 billion. T. Rowe Price Group Inc. is in discussions to be a new investor and existing investor Fidelity Investments is also set to participate in the funding, the people said."
“At this valuation, investors appear to be thinking that when Uber goes public, it might be worth $80 billion to $100 billion,” said Anand Sanwal, chief executive officer of CB Insights, a research firm in New York. “This type of mega-financing affords Uber a great deal of flexibility in terms of when they might go public.”
If Uber completes the funding, the valuation of as much as $40 billion would more than double its $17 billion value from a June financing round. That would also put Uber at about 1.5 times the capitalization of microblogging service Twitter (TWTR) and at the same size as Salesforce.com Inc., Delta Airlines Inc. and Kraft Foods Group Inc. It would dwarf car-rental company Hertz, which has a market capitalization of $11 billion.
It is unclear just what Uber plans to do with the $1 billion it is set to raise at a $40 billion valuation: the proceeds of the last equity raise round were largely used to subsidize below-cost, money-losing trips in order to accelerate the demise of traditional Yellow Cab service providers. It is very likely that the latest use of cash will be more of the same, as Uber uses investor money to essentially put competitors out of business, in hopes of subsequently raising prices once it becomes a monopoly.
That strategy is also nothing new, and has been used by Amazon for many years, with mixed success when it comes to actual monopolization of the cash flow process to go alongside its online marketplace monopoly.
In the meantime, putting things in perspective, there are 13,336 Medallions on the street in NYC, which assuming a roughly $900,000 cost each, implies that Uber is now valued at over 3 times the entire NYC taxicab industry.
In other words, the "Yellow" transportation bubble may have popped - if only with a whimper- but when it is Uber's turn to return to a not-so-Uber valuation, the bang will be heard around the world.
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So, NYC is giving up thirteen billion dollars in medallion revenue?
I don't get it, why would they acquiesce so easily to losing that revenue?
How could they stop this? Seriously, there's just no way logistically they could 'crack down' on ride-sharing. You'd need cops on every single street, and have to intercept every car that picked up a rider and start grilling them. How would you prove they were engaging in commerce? Instead of just two people riding together?
Forget it. Ride-sharing will end the taxi medallion monopoly, and there is nothing anyone can do to stop it. So, giving up isn't giving in, it's just being realistic.
Times change, but some people refuse to accept it.
just curious but why dont they just open it up to free competition? anyone who wants to, let them pass the exam and open his business?
is the FREE MARKETS a strange idea there or what? just dont get it ///
Uber is the largest commercial fleet in the planet. You mean "open it" for uber monopoly.
Fuck taxis. ...costs $20 just to get in a NYC cab
Uber is more expensive. And no need to verbally assault anyone.
Enjoy your corporate-manipulated price surging.
Those medallions will trade under 500k in no time, uber and other services will drive down that price quickly over the next few years
In NYC it is cheaper to use uber than to take a taxi. Uber's meter seems cheaper than the taxi's meter, and has no surcharges. You've also got to tack on a tip for a medallion driver, while Uber doesn't make any provision for tips. I would say uber is at least 20% less money than a comparable taxi ride.
Let me get this straight. What does that million bucks give you - "entitlement" to drive a taxi?
How many taxi drivers start life with a million dollars in their pocket? Just guessing here, simple stab in the dark, I think the answer is NONE. So taxi driver has to BORROW a million. Repayments would be $1600 per week over 25 years. Feel free to re-jigger that number for me. Life of loan is probably life of driver doing his taxi business = 45 years? And I guess it would be an interest only loan.
Otherwise, $1600 per week if worked 80 hours per week = the first $20 in an hour's worth of taxi rides pays purely for the medallion, ASSUMING the taxi driver works 12 hours per day and 8 hours on Sundays, 365 days per year.
Okay, maybe his fares get him in the top tax bracket and he gets approx ten dollars back for his own pocket (I don't know how your tax system works).
Plus, if repayments are stretched over 45 years then the weekly mortgage is cheaper - but not that cheaper. Compound interest has a wonderful way of removing the savings suggested by increasing time. I can't be bothered doing the math here but feel free to work it out.
It still sounds like the medallion system is an oppressive tax slavery regime to me. Never mind, the passengers are rich. They can afford it.
Out of curiosity, what is flagfall and how long does the average fare take - from pick-up one customer to pick-up the next customer?
Keep in mind WHO you would be borrowing from. I think it is safe to say that you would be in the Grey Credit Market and that people with Russian, Jewish, Vietnamese, Chinese and Italian last names would dominate. Lots of tattoos and unregistered guns, too.
Not much of what you're assuming is accurate. The turnover rate for drivers is very high. The average duration is just about 3 years before a driver quits the business. The drivers dont borrow money to buy the medallions (at least, new drivers dont). Drivers lease the medallions from their owners and pay rent per shift or per day.
Aaaaaahhh, information! THANK YOU!!!! But did the medallion owners borrow or pay cash???? Or did they inherit them from their parents / grandparents (in debt or debt free?) ?
Taxis and medalions are a ***king cartel usually run by scumbags. Let them eat cake.
Duh Blahzio
Bloomberg is invested in ride-sharing cartel.
NYC revenue and local small business taxicabs?
When it comes to oligarchy nothing matters.
The medallions are perpetual, which is why they can be bought and sold for serious money. Only a few new ones, mostly for wheel chair/medical use are approved each year.
I think liability/crime/insurance issues will eventually limit the ride sharing thang, but who knows?
So you are saying only drastic .gov regulation can stop the taxi (monopoly) markets from being monkey-hammered.
I would greatly prefer a libertarian free for all, but sooner of later there will be a bad accident and a big law suit.
At that point, this thing will begin to sort out. I would short Uber, if I hadn't seen way too much of Herbalife;)
Litigation risk is part of every business. If Uber wants to live, they'll figure out a way to give .gov their usual cut in exchange for reasonable protection from .gov's fleet of prosecutors.
40 billion dollars uber has more cars than there are taxicabs.
That's your new oligarchy-sponsored monopoly.
Sorry you didn't get the memo.
I didn't realize that, I was trying to figure how you turn a profit on $1,000,000/year license!
So is there no annual fee to run the medallion? If not, then I can see why the city wouldn't care about Uber. OTOH the owners of the medallions might sue the city for lost value.
Just the interest payments on the million dollar loan - I'm guessing that most taxi-drivers DON'T start life with a million dollars in their pocket. See my comment above, I was trying to turn that medallion into a $dollars per hour cost.
I based my numbers on one guy trying to make a living with his taxi but maybe three guys could share one taxi and run it 24/7 to try and get the numbers down.
I'm guessing that the future sale of the medallion counts as the taxi-driver's retirement fund. Just a little note for anyone who needs to eat into those capital gains in order to fund day-to-day running of their taxi business: Read carefully the definition of Ponzi Finance below:
https://cambridgeforecast.wordpress.com/2010/04/13/minsky-concept-of-pon...
https://en.wikipedia.org/wiki/Hyman_Minsky
As I replied above, the medallions are usually rented out on a per shift/per day basis. It's not uncommon for one physical taxi car to be shared by several renters for their use during their respective shifts. It's also common for them to "rest" the vehicle for one shift because if you run it 24/7 it will break down and you will be without income during the repair/replace period.
kaiserhoff
The medallions are perpetual....
That's what they said about phone landlines in Brazil to the day it collapsed.
40 years ago, the New York City taxicab industry was regulated by the Police Department's Hack Bureau. It was illegal for big cab fleets and mini-fleets (persons owning two or three medallions) to lease out their cabs. Then the corrupt Taxi and Limousine Commission took over, set up by the Mafia's main man, Mayor Ed Koch. Out went cabbies earning a commission of from 48% to 52% of the meter. Instead, the fleets leased their cabs at a weekly rate, with the driver responsible for fuel costs. Cab medallion prices skyrocketed. Cabs were money machines, all the medallion owner had to do was pay for fleet liability insurance, a cheap cost until the city required the cabs to have more than the minimum $25,000 liability policy. Now, with massive competition from Uber, those medallions are worth $250,000 tops. I expect the prices of cab medallions and Uber to crash, both are now overvalued.
Because tax-evading multi-billion dollars uber oligarchs need an IPO.
Asap.
The city only collects $100's of dollars per year from the medaln owner, like all cartles the taxi industry crwates barrier of entry fir competion that is why there is this inflated after market valuations... the taxpayers and the passengers get hosed
but they're hosing the taxpayers and passengers because they really care about them
it's not the city's $13b to give up. the city hasn't issued a yellow cab medallion in decades. medallians are traded privately.
Uber uber alles.
What is prevent ten new competitors to Uber rising up? There are several already:
Why is Uber so scared of a much smaller competitor?Uber, the online car service, is reportedly running a secret operation to recruit drivers from competitor Lyft that involves canceling thousands of ordered rides, and wasting drivers’ time. While some are outraged at the dirty-tricks aspect of the hiring campaign, there isn’t enough attention to being paid to why Uber is going to such lengths to add drivers to its network—and what it means for the company’s future.
After all, Uber has raised $1.5 billion dollars and operates in 92 North American cities, not to mention its numerous outposts around the world, while Lyft has raised $350 million and only works in 64 US cities. Uber is more well known, and it seems miles ahead of Lyft, with its dreams of expanding beyond car services into logistics and hopes of replacing everything from car rental to car ownership.
The company’s cut-throat tactics indicate that if there is an Achilles’ heel somewhere, it lies in the drivers the car service platforms rely on to provide service. These companies make noise about “ride sharing,” but it’s not the heart of their business, as Uber’s stated goal of ending private car ownership suggests. They require professional drivers to meet the demand for car service at a reasonable price.
Drivers, however, don’t need Uber: They just need a way to find passengers and collect their pay, and building the software necessary to do that, while not trivial, isn’t a huge technical challenge—besides Uber and Lyft, there’s SideCar, Curb (formerly Taxi Magic) and numerous others offering similar services, not to mention street hails for cab drives. Uber’s battle for Lyft’s drivers reflects that, for all its global reach, it is at the mercy of local labor markets—at least until there is widespread adoption of self-driving cars.
http://qz.com/256622/why-is-uber-so-scared-of-a-much-smaller-competitor/
What the fuck - Uber is valued at $40B? Why is everything such a fucking joke.
I predict Uber will get Napstered. . . but henceforth there will always be ride-sharing options.
Yup. It will have to be a moving target, but why not?
Skateboarder
Why is everything such a fucking joke?
How's that different from Jesus Christ come to save all of us that are doing God's work?
You must have been fond of Enron too just few short years ago...
Fond of Enron? What's that all about? Because I don't get the connection.
or that the earth is warming up too much and we have to pay Wall Street in order to stop global warming
Let them ride Citibikes!
There was actually an attempt to shut those things down. "Can't have free in New York. People might be able to eat then too." I mean seriously....no free market capitalism in New York City? This is bailout nation folks! C'mon! Join the Party!
American-Born Cabbies Are a Vanishing Breed in New York
http://www.nytimes.com/2014/02/10/nyregion/american-born-cabbies-a-vanis...
So, cabbies in New York are reflection of US reality
http://research.stlouisfed.org/fred2/series/LNU01373414
vanishing? i haven't seen one in 15 years
Read this the other day, good stuff. Uber cars are always clean, on time, and the drivers friendly. Oh and the fares are cheaper too. This is what free market competition produces. End the taxi monopoly!
Anyone that bought a medallion for 7 figures is going to get cooked... just another example of idiots buying the top of a bubble
I am sure there was 100% financing for them. What can go wrong?
But Houston, we have a problem now:
https://finance.yahoo.com/q?s=TAXI&ql=1
All this about cabs, medallions and Uber simply confirm my belief in the "free market system".
The NYC cabbies had it good for a long time. Fuck those assholes. "Disruption" has come to the livery industry. You assholes who had a monopoly for so long will just have to deal with it. Fight it out in the marketplace.
NYC cab fares are insane. $20 bucks to get anywhere, and unless you time it right, it's not quicker than mass transit.
Yes but...there's a good chance the driver will have a PHD in some arcane subject, and so, with a little probing, you can audit a course for free while waiting in traffic.
Excuse me. Taxicab fares are regulated and taxed.
Uber prices are corporate controlled and Uber have
already admitted to have been manipulating them.
Combined with artificially inflated price-surging,
Uber' drives on average are more expensive.
'Regulated and taxed' is code for 'needlessly inefficient'. Uber should adopt the business model of a passenger freight-forwarder, like CHRW for truckloads. If you have spare time and a car, why not be able to consider using the car to earn incremental income while also legally depreciating the vehicle for tax purposes? Think of the unused car capacity that rolls every day on predictable routes? 1 big software program is all you would need to book your seat going just about anywhere less than 1 week in advance. It's win all round, except for the taxi/livery businesses, and .gov tax and toll scalpers. Fewer road miles driven, less fuel used, lower transportation costs, extra income for those who are motivated.
The concept of a shared taxi is very common in many parts of the world. Not very common in the US except in a few places like the inner cities or Miami. I used to live in one of the countries of the Former Soviet Union, it was very easy to get a ride from anyone driving, just put your hand out and give the driver some money at the end of the ride
Hairball48 I agree. This is why there was never a direct train to JFK or LGA.
The TLC always had their racket.
Pretty much everything is in a bubble...
http://www.globaldeflationnews.com/anatomy-of-a-bubble-how-the-federal-r...
"In fact, individual medallions have traded below $1 million for most of the last year. But the commission excludes from its statistics any transaction at a price more than $10,000 below the previous month’s reported average."
So if the price drops more than $10k from the previous month it isn't included in the stats so the price could drop to 0 and the commission would report it at above $1million. Nothing published can be trusted.
Oh wow. When I'm in NYC next month maybe I can take a cab instead of having to jog everywhere.
In all the cab rides I've taken in NYC -quite a lot, including car service - I've gotten someone born in an America just a few times. I got a white guy from NYC exactly once.
Clearly, foreigners dominate the cab game. I wonder why, given the medallion prices, which are absurd.
I also note that the Koreans and Chinese have laundry wrapped up.... Is it that the 5,000 year old cultures, an actual 5,000 years of history, makes them especially good at laundry? Or was there more going on that led to that situation. Indians in certain areas dominate convenience stores.
With all these groups, one may safely point out the obvious. There's only one group, with disproportionate ownership and influence over the much more significant banking/finance, news and entertainment medias where a discussion of that power is absolutely forbidden.
JOOSE!
"Is it that the 5,000 year old cultures, an actual 5,000 years of history, makes them especially good at laundry?"
Ancient Chinese secret
https://www.youtube.com/watch?v=BJP5f-fsHrs
And the anti-Semite sallies forth for another salvo.
Saying you can't talk about disproportionate Jewish power/media in media and banking/finance is anti-Semitic, too, huh?
Are you contending there is no such disproportionate influence, or are you actually obtuse enough to be upset that I am talking about not being able to talk about it?
Go fuck yourself.
You should understand that the driver is almost never the owner of the Medallion itself, often not even the car. Both can be and often are leased. A driver may own a car, lease a Medallion and lease his car to the "night shift" driver.
Medallion market is heavily manipulated and controlled by the owners who rarely let in ugly marks or bad trades to protect their investment. The fact that this number is really moving down and visibly means something has gone so awry it can't even be controlled. Basically Sauron has declared war on the Medallion market.
uh jonathan, did it ever occur to you that the non-white taxi cab drivers you've had weren't the owner's of the taxi? the owner/operator doesn't exist in the yellow cab business. cars service is a different story.
the other businesses you mentioned are owned by certain imigrant groups because those groups have developed a confidence in those businesses and they are the kind of businesses that can't get a decent deal on financing from a bank. the ethnic groups have developed a system of cash under the table financing and immigrant labor. for example one guy gets his family to buy him a deli, he brings his relatives over to manage it 24x7 because you have to have a trusted family member at the till in a cash business. after the owner pays back the relatives in the old country, the manager cousin gets his shot and they lend him the money to open a deli and send over some more relatives, and so on...
Right. Doesn't explain, at all, actually, why so few native born [black, white, or other] people seem to be driving the cabs.
Why do you think it does?
It's because driving a taxi is hard work, and native born people dont want/need to work hard. They have other opportunities (e.g. student loans to fund their educational pursuits).
Uber slaves
imagine if there was inflation how much it would be!
And with some luck they will return all the long way down to zero.
and central planners see nothing obscene about this government created pricing structure?
-Medallions were $30,000 back in the early 1980's. I should have leveraged myself up and bought one and sat on it for a few decades. Everyone in the NE USA knows the price of these things.
What cars do NYC cabbies use? Crown Vics? I assume all the Checkers are long gone...
Crown Victoria, Mercury Grand Marquis and Town Car platform dominates cab and limo nationwide. Bastards can run forever and are cheap to fix (same with LEO markets). Some additional variation the past few years but pretty spot on.
I have seen Ford Fusion Hybrids too.
competition is good for customers, in a capitalistic society, but this is 2014 america.
so don't ask the obvious, what can they do to stop it, your tax-dollars pay for well over half of americas govt. thats devoted to stopping enterprises such as uber.
If Kalinek has brains (and I think he does), he should engineer a tax-free stock-for-stock acquisition by Google NOW, and become one of its biggest shareholders. And move on to his next brilliant idea. (My best bud knows him since he was a kid and his pop is one of my bud's closest friends and fellow hunters.)
Forget where, probably here on ZH, I read this concept, but it holds:
1) If you get your $10mn first round of SFO Angel or Venture Cap financing, then the MI Complex has noticed you and thinks you have a good idea.
2) If you get your subsequent rounds, AND you get valuation above $100mn, then you are a ''Made Man'" and the MI Complex as well as ABC's think you have a great idea that they can leverage.
3) If you get your IPO and it's above $50bn, then the NSA is using you as a front to collect data and monitor everyone.
Note that Uber had privacy/data issues, that they are collecting travel patterns and usages, and that Lyft - far far lower valuation (no NSA stamp of approval) - has enacted pro-privacy policies.
The bigger the IT IPO and market cap, the 1:1 ratio more likely that they are an NSA front, collecting data on everyone.
All of this tech is just a way to be monitored and surveilled.
The bigger the company, the more likely it has huge value to the MIC & ABC's.