Does Having A Nicer Car Automatically Lead to Better Passenger Tips? Is It Worth The Investment?
Recent Tweets by Uber CEO and The Rideshare Guy imply driving a luxury Tesla leads to higher tips. Does having a premium car or EV lead to better tips? If so, is it worth the investment?
AutoMarketplace NYC covers the for-hire transportation industry and automotive news. Check out AutoMarketplace on YouTube ▶️
Before I started working on AutoMarketplace, I was a TLC fleet owner. Before I was a TLC fleet owner, I worked in the investment & financial services industry. I had no background in the taxi or for-hire transport industry, but saw that Uber & Lyft were redefining how the NYC for-hire transport industry worked. What specifically caught my attention was how the industry was changing from the vehicle supply side. Taxi garages that owned or managed yellow cab medallions were being disrupted by individuals buying their own cars or renting from new TLC fleet companies, often official partners of Uber, Lyft or Via, to work on the Apps. It was in this part of the for-hire transport market that I thought an opportunity existed which I could uniquely take advantage of.
Who Doesn’t Like Nice Cars?
Since I was a kid, I always had an interest in cars (i.e., collected model cars, read Car & Driver, etc.), and as I approached a driving age I wanted my first car to be nice. Not necessarily to show off, but because I really wanted to drive a good looking and comfortable car that I would enjoy. The problem of course was nice looking and comfortable cars often cost more money than the budget I had to work within. That being said after doing research and using the internet (quite novel at the time to buy cars), I managed to find a great deal on a few year old Acura RL. The car was beautiful (this was the successor to the popular Acura Legend), but had very high mileage (120,000) for its age (was only 2 years old), so the listing went ignored. However, upon further research/diligence, the owner was a travelling salesman in the South and almost all the miles were warm weather highway miles - the car basically ran brand new. Anyway long story short, we (my father and I) bought the car and it barely had an issue for the 10+ years (and many additional miles) we owned it. Of course, when your first car is the luxury flagship sedan of Acura (the luxury badge of Honda) you really can’t go below that standard for your subsequent cars. As the years went on, I (with the help from my father) figured out ways to buy other quality luxury cars (i.e., not lemons) for well below fair market value (KBB, Edmunds) - from Audis to Range Rovers.
So how does any of this relate to the NYC for-hire transport industry?
Well, the opportunity I saw was using this acquired skill of buying nice cars at discounted prices to purchase quality luxury vehicles that I could rent out to NYC TLC drivers, at a competitive price, to use for UberBlack. At the time I started the the TLC fleet business in late 2016 there were, and I’m generalizing, two rental options in the industry for TLC drivers:
$400+ per week Toyota Camry or equivalent (i.e., Honda, Hyundai, Kia, Nissan) used mostly for UberX and UberPool (Lyft equivalent as well)
$650+ per week Chevy Suburban or equivalent (i.e., Yukon, Navigator, Escalade) used mostly for UberXL, UberBlack, UberBlack SUV and private clients
I thought there was opportunity to create a third TLC rental category, an UberBlack-qualified vehicle priced closer to the Camry than the Suburban price. I started with one car (BMW 5 series) and grew piecemeal from there. NYC drivers saw the value in leasing a luxury car where maintenance costs could be prohibitively expensive (i.e., would rather have someone else manage the vehicle maintenance for a fee) and that enabled them to access UberBlack at a competitive price. I grew the business to be one of the largest all-luxury fleets in NYC until the FHV License Pause (aka TLC Plate Cap) in the summer of 2018.
The soon to be launched AutoMarketplace.com is born from this experience of maintaining a luxury TLC fleet (but more on that another time!).
More Expensive Car, More Tips. Is It Worth It?
As the Tweets from Uber CEO Dara Khosrowshahi and The Rideshare Guy (RSG) Founder Harry Campbell at the beginning of this piece note - it appears a rideshare driver who rented a Tesla Model 3 from a newly launched Hertz program (for rideshare drivers) was getting tipped well by passengers. Of course, if most rideshare drivers drove a luxury EV, such as a Tesla, tips would also likely increase so the observation, while interesting, is perhaps obvious to many NYC TLC drivers. Nicer cars, EV or otherwise, will probably result in better tips for drivers. That being said a nicer car with bad customer service is not going to lead to better tips, so perhaps the driver’s service was also discounted in explaining why passengers were tipping the driver well.
In my experience speaking to the drivers I’ve rented luxury TLC cars to over the years there is definitely (surprise, surprise) a correlation between having a nicer car and getting better tips (in addition to the ability to acquire private clients). However, a nice car with bad customer service is actually going to backfire as the clientele (i.e., UberBlack) calling for premium cars is often more discerning. The main question for many drivers though is related to whether investing (buying or renting) in a nicer car worth it, from the initial acquisition cost to cost of ongoing maintenance? Are the prospects for increased tips and/or potential to do UberBlack / get private clients offset the increased costs associated with a luxury car? There is also another fear that Uber may change what qualifies as UberBlack as well (i.e., make, model or year no longer qualifies), but that issue is for another article.
My opinion, having experience as a luxury fleet owner, is for highly rated (4.85+), full-time NYC TLC drivers, who qualify for services like UberBlack, the answer is usually YES, but it also depends. One of the great things about driving for-hire in NYC is that this market has a lot of wealth and people who are willing to spend more for better cars and highly rated drivers. Yes, the pandemic has put a bit of dent in that for now, but I expect a recovery as the pandemic (hopefully) is increasingly in the rear view mirror. That being said, the good thing about a Camry (or equivalent car) is maintenance costs are low/predictable and most passengers will still tip based on good customer service. Some drivers would prefer less risk related to vehicle maintenance (i.e., peace of mind) and not having to deal with chauffeur-level expectations from passengers, understanding they may miss out on premium clientele. It really comes down to personal preference.
Do you think having a nicer (premium) car or EV leads to better tips? Is that, in your opinion, a sufficient incentive to make the investment in getting a more expensive vehicle? Let us know your thoughts in the comments below or by emailing info@automarketplace.io
AutoMarketplace NYC covers the for-hire transportation industry and automotive news. Check out AutoMarketplace on YouTube ▶️