In my last blog, I wrote about how technology contributes to bankruptcy. That blog is an overview of two basic themes. First, that technological advancements can destroy certain industries, thus potentially taking away one’s livelihood virtually overnight. Second, certain technology tools and Apps can lead to financial trouble. So, in keeping with this theme, today I am writing about how technology has impacted the industry by causing bankruptcy for taxi drivers, owners and operators.
With clients in the cab industry, I know firsthand the financial damage caused by ridesharing services like Uber and Lyft. Sure, many of us like the convenience and cost of Uber. However, and unfortunately, ridesharing technology can lead to bankruptcy for taxi companies and their drivers.
It is bad enough that ridesharing has significantly decreased the demand for taxis in New Jersey. This decrease in demand would be a huge challenge by itself. Still, it gets worse for tax drivers. To operate a taxi, cab owners need to purchase a medallion. Without getting into the weeds about medallions, the most important things to know are:
- A medallion is a license to operate a taxi within a specific area. In New Jersey, usually, a city or municipality issues medallions. The number of medallions is often capped, much like liquor licenses.
- The medallion dictates local rules and regulations such as fare rates and safety issues.
- Medallions can be very, very expensive.
Taxi medallions are fast declining assets. Simply do a Google search and you can see that not long-ago New York City taxi medallions were valued at $1 million or more. Recent data shows NYC medallions are being sold in the $100,000 – $140,000 range – with the lowest sale price of $60,000. Using these numbers, what are you supposed to do if your medallion has lost 90% of its value?
Here is another fun fact – most medallion holders had to finance their medallion. These loans are akin to a home mortgage. They are usually long-term loans using the medallion as collateral. Like a house that lost its value, the asset can quickly be underwater. In fact, most taxi medallion holders were required to put up their homes and other assets as collateral to back the loan for the medallion! This, combined with substantial losses in fare revenue, leaves the taxi driver, company, or owner in a precarious position. You have a substantial debt obligation with no way to repay it.
It is a fact that ridesharing has caused bankruptcy for taxi drivers, companies and cab owners. Perhaps this is a solution to discharge insurmountable debt which is not your fault. So, if you find yourself in this situation, please call me. Together, we will find a solution.