The 1 thing the Govt can do to get out of the Uber Taxi mess
“Uber is here to stay”
These 5 words struck fear into the hearts of taxi drivers and taxi plate investors when WA Premier Colin Barnett spoke them a few months ago because somewhere in their heart they knew he was right at least at some level.
It is no secret that the world over taxi plate owners are furious having bought into a Government backed business investment with taxi plates, sometimes at hundreds of thousands of dollars, only to find that their investment is rapidly depreciating as customers flock to convenient and cheaper ride sharing services such as Uber. The taxi industry wanted (further) protection from market forces because they felt it was the only tool at their disposal as I outlined in my May blog entitled “Taxis bring a violin to a gun fight with Uber“. In that post I suggested that the only option available to the Government was to wait and let market forces take their toll on the value of grey taxi plates and then offer a much smaller reimbursement. However there may be another option for the Government if we look at the broader automotive industry disruption.
Auto industry disruption
Today’s auto industry disruption provides a significant opportunity for Governments grappling with the problem of how to compensate taxi plate owners for a problem which was arguably not of their doing. Let’s take a look at a few of the major current and forecast changes;
- Electric vehicles – currently only represent 1.25% of cars sold, however range between charges is increasing rapidly (175% increase in the next 2 years for Nissan Leaf for example) and now cover more than the majority of consumers need.
- Autonomous vehicles – various experts predict that within 5 years we will have fully autonomous vehicles on the road, and within 15 years most cars will be autonomous as the economic model for owning a car collapses, as well as insurance to be a human driver escalates. The prediction is a loss of 40% of all jobs within 10 to 15 years as autonomous driving takes over from human driving.
- Major carmakers accept responsibility and liability for autonomous cars malfunction on the road. This will have a major impact on insurance companies.
- Self learning centralised artificial intelligence of car systems. Telsa cars share all knowledge from every mile of self driving totalling around 1 million miles every day. Owners report observing improvements on a daily basis.
- Fully autonomous vehicles are already licensed in 6 US states and have done over 750,000 miles without an accident, a feat no human could achieve.
So what does this mean?
We just need to look behind the $17B Uber valuation to understand where the market believes this will head – autonomous taxi’s. Taxi drivers won’t exist BUT taxi’s will in ever increasing numbers. Without the need to pay human drivers autonomous electric taxi’s will become cheaper than the cost to fuel your car and create the ultimate passive investment as owning an electric car won’t suit the Uber software driven model. They won’t want to burden their balance sheet with millions of vehicles, but will offer this to local investors who can buy an autonomous taxi and send it out coming back only to charge.
The Governments taxi problem
As mentioned in this post, the Government uses regulated taxis to fill the gaps within the public transport system and provide revenue. Of the approximate 1,200 private plates with an estimated value of $294k each, and a total value of circa $352m the Government can not afford to buy back all plates. However because it has created a Government protected investment, there is an expectation from investors that they will be protected by legislation from Uber.
It seems with the predicted growth in autonomous vehicles in the next ten years there is nothing that the Government can do to protect taxi driving jobs, however there is something that they can do to protect taxi plate holders.
How the Government can solve the taxi plate problem
If the Government has 1,200 private plate owners who have a depreciating asset (taxi plates) there is an expectation that they will do something, however there is little sympathy from the public after years of poor service (#yourtaxis), therefore the Government must connect the threat of industry disruption with the opportunity of autonomous taxis. The Government could offer to exchange taxi plates for autonomous taxi plates.
One thing is for sure, the Government will want to create a regulatory framework around autonomous vehicles and ‘protect the public’ from any manner of potential harms. In the process they are likely to charge autonomous taxi owners for this. Let’s say the Government charged an annual fee to own an autonomous taxi plate as well as a distance travelled fee which was nominally $1 per hundred kilometres. The Government could simply say that if you own a taxi plate currently you will be able to exchange it for a ‘shiny new’ autonomous taxi plate in the future and you would not pay any distance travelled fees until the current value of your taxi plate was paid back in full. Then you would pay normal fees.
This way the Government doesn’t have to pay compensation to taxi plate holders, the taxi plate owner doesn’t lose an asset and it offers a (smoother) transition toward a regulated sharing economy model.
Sure it’s not ideal, but it is a difficult situation where the Government doesn’t have many other options.