🔒📉 NYC Uber & Lyft Utilization Rates Rapidly Declining. Lockouts Soon?
🔒📉 NYC Uber & Lyft Utilization Rates Rapidly Declining. Lockouts Soon?
Uber & Lyft's NYC utilization rates (UR), or how busy a driver is kept while on the apps, are dropping. Although UR floor lowered by TLC in March, "lockouts" could still return
Newly launched TLC Factbook shows rapidly declining Uber & Lyft utilization rates (UR), or how busy a driver is kept while logged into either app
Seasonality might impact UR, but unclear
UR is key metric used in TLC Driver Minimum Pay calculation for high-volume bases (currently only Uber & Lyft)
During March TLC hearing and subsequent vote, regulator revised initially proposed UR floor of 56%, down to 53%.
Lyft’s year-to-date (ytd) UR is below 50%. Uber’s ytd UR is 57.4%, but has downward trend, falling from 59.3% in May to 54.9% in August
Industry-wide ytd UR is 54.8%, as of August, and edging closer to falling below 53% UR Floor, which might trigger “lockouts”
Industry-wide August UR dropped below 53% UR floor
Earlier this year, Uber began sending messages to its NYC drivers, encouraging them to voice their concern(s) ahead of a March 1st TLC proposal to reinstitute (temporarily suspended) pre-pandemic “utilization rates” (UR) related to the TLC Driver Minimum Pay calculation for high-volume bases (currently only Uber & Lyft).
As a reminder, let’s briefly overview the following.
What is the utilization rate?
Why did the TLC create this measurement?
Why would it cause Uber (or Lyft) to introduce “lockouts”?
Utilization Rate, Per Mile, Per Minute
There are three key inputs the TLC uses when calculating the TLC Driver Minimum Pay Standard for high-volume for-hire service bases (Note: this is currently only applicable to Uber & Lyft):
Per Mile Rate: Compensation for distance travelled. Estimates driver expenses, such as fuel, maintenance & insurance
Per Minute Rate: Compensation for time. Solves for “net wage” that’s benchmarked to New York State & City gross minimum wage rules
Utilization Rate: Essentially how busy a driver is kept. Time with a passenger(s) ➗ total hours “online” waiting for / travelling to a trip plus time with passenger(s)
The utilization rate (UR), the TLC would likely argue, is a metric the regulator created to ensure the industry consisted of full-time & highly utilized (or busy) commercially licensed drivers vs. part-time “rideshare” drivers. Given congestion concerns and how lucrative (& regulated) NYC’s for-hire transportation had historically been, the TLC likely wanted to “re-professionalize” the industry.
Remember, the TLC & City government (we hope 🤷) want a for-hire transport market consisting of mostly full-time drivers that earn a protected NYC middle class wage through ensuring trip demand and driver supply are kept in healthy equilibrium. The ‘TLC Plate Cap’, which was counterintuitively (🤔) and significantly weakened recently, limiting the number of NYC for-hire vehicles, was also created in the same vein as the utilization rate.
Both are mechanisms to protect driver wages and also limit congestion. For example, capping how many vehicles (supply) can service NYC for-hire trips (demand), will likely lead to higher driver wages.
So, how does this relate to an Uber driver “lockout”?
Uber NYC Planner (“Lockouts”)
The genesis of the infamous NYC Uber Planner can be traced back to minimum pay rules & formula mentioned above. After the minimum pay laws passed in late 2018, high-volume for-hire services (Uber, Lyft and at that time Via, Juno also) needed to ensure that independently contracted TLC drivers were earning the equivalent of ~$23.00 p/hr gross (2020) and now ~$26.76 p/hr gross while logged into an HV app. Note, another non-UR, inflation-related increase to minimum pay will happen on March 1st.
The reason why we bold/italicized “while logged into an HV app”, underscores why Uber (and Lyft in a similar manner) created the Planner (lockouts) in NYC.
⭐ What Uber (& Lyft) need to solve for is ensuring logged-in NYC TLC drivers are kept as busy as possible (high UR), so Uber (or Lyft) didn’t have to come out-of-pocket or raise fares to ensure the minimum pay thresholds were being satisfied. ⭐
To be simple, let’s say a driver was actively logged into the Uber NYC app for an hour and only got 1 trip that earned them gross $15, Uber would need to come out of pocket ~$11.76 (using 2023 figures), to ensure the minimum driver pay standard was met, or face a fine. In addition, as noted above, if the industry utilization rate falls below the 53% industry-wide floor, Uber and Lyft will have to use the actual UR, not 58%.
⭐ The higher the UR (denominator), the better for Uber & Lyft. If the industry-wide UR falls below the 53% floor, it has a significant financial impact, so Uber/Lyft would institute lockouts.⭐
Example with 58% UR denominator = [($16) / (.58)] = $27.59
Example with 53% (ACTUAL) UR denominator = [($16) / (.53)] = $30.19
Therefore, the system Uber (and Lyft in a similar way) came up with to ensure they wouldn’t be coming out of pocket on wages or need to increase fares was lockouts. The Uber Planner, as can be seen in image below, prioritized drivers based on:
Number of trips completed
Rating
Cancellation rate
(Note: Uber Black thresholds were lower because the average earnings per Black trip is much higher , so the wage standard is more easily met)
Uber likely wanted to ensure their core NYC TLC driver base was highly-rated, full-time drivers who often accepted trip requests vs. a mix of part-timers and full-timers. Uber could better utilize this driver base and in turn these drivers would likely benefit from increased and more stable/predictable earnings »» in turn making it easier for the company to retain them.
However, the original Uber/Lyft promise of flexibility & working whenever you wanted was redefined in NYC, which to begin with, had always been a unique “rideshare” market, defined by existing taxi regulations and full-time commercially licensed drivers. The COVID pandemic saw the TLC abandon utilization rate requirements for several reasons, notably a well publicized driver shortage and a collapse in trip demand. However, as TLC drivers came back and trip demand rebounded, the UR rules were reinstituted.
March 1st TLC Hearing
As we covered, TLC-licensed drivers and advocates didn’t disappoint and showed up in numbers to the March 1st TLC hearing. Many argued against any policy that could risk the return of lockouts.
Uber senior policy director Josh Gold notably showed up to the meeting to voice his concerns to the TLC Board. At the end, and to the TLC’s credit, the regulator adjusted the rules based on the overwhelming feedback and lowered the UR floor to 53% from the initial 56% proposal. If the TLC’s original 56% proposal passed, we’d already likely have lockouts!
We highlight Gold’s testimony because we think it’s important to understand what he said then. It’s technical, but very important.
As the clip above shows, the Commission was…not pleased…with his testimony but Gold does, in our view, make some interesting points. Of course Gold, as an Uber spokesperson, will argue for a lower utilization rate (UR) requirement, but that doesn’t mean the points he’s making aren’t worthy of consideration.
Gold’s key points were:
Uber would NOT have to enforce lockouts if the utilization rate “floor” was set to 53% (Note: this has held thus far, but Gold has no way of predicting whether this will always be the case. For example, what if a recession happens and trip demand drops? What if Lyft drags down UR more than expected?)
Previous proposed utilization rate “bands” (i.e., 52% to 64%) was better approach
If the TLC doesn’t provide more ongoing utilization data transparency, it’s hard for Uber to understand its compliance with driver pay rules (Note: TLC is now doing this, it appears)
TLC has other mechanisms to solve for utilization rates, such as limiting supply of for-hire vehicles (a/k/a TLC Plate Cap) (Note: this argument kindof went out the door 🚪 due to the shock reinstatement of the EV exemption to TLC Plate Cap)
Uber, to be fair and clear, has always argued that being subject to onerous utilization rate (UR) requirements would likely force it to reinstitute the much hated pre-pandemic lockouts. However, the TLC also needs to make sure there are not thousands of idling for-hire vehicles (Ubers), which can not only increase congestion, but would also likely dilute earnings per TLC-licensed driver.
One of the key takeaways, in our view, from Gold’s testimony is that the UR standard is industry-wide NOT company specific, so Lyft’s UR can drag down Uber, forcing Uber to institute lockouts.
THIS is exactly what the data appears to be showing, unless some seasonality is involved (Note: Gold implied January was the slowest month in his testimony).
Zero-Sum Game
Both Uber and Lyft have NYC driver waiting lists already. The TLC’s misinformed decision to reinstitute the EV exemption (vs. prioritizing existing fleet conversion) is also not going to help and have some, perhaps, unintended consequences.
As more yellow cabs get back on the road and as Revel is allowed to expand by increasing its vehicle fleet due to the reinstatement of the EV exemption, it’s only going to cause industry-wide HV (Uber/Lyft) UR to decline further. One must understand, winning market share is now an increasingly zero-sum game in NYC.
In other words, 1% market share lost by Lyft might be a 0.5% gain for Uber, but also 0.5% for yellow cabs, Revel and other bases. Sure, some growth might offset the “zero-sum” market share game, but the latest trip data is showing declining to plateauing trips. This will put further downward pressure on HV UR, leading to lockouts.
Another point to ponder re. Green Rides & EV exemption⚡. Currently active Uber & Lyft drivers might be subject to a lockout in the near future as mentioned above. Layer on to that the Green Rides Initiative, and the TLC’s % of trips in EV & WAV requirement. How might that impact who is prioritized, when “lockout” decisions are made? A new TLC-licensed driver who just got an EV might not be subject to a “lockout” because Uber/Lyft need them for the Green Rides thresholds, but a veteran driver in year two of his hybrid vehicle loan could be subject to an Uber Planner.
Here’s yet another way to think about the zero-sum market share commentary above. If the yellow cab industry is to stabilize, it needs another 200,000 to 300,000 daily trips per day. Most of this will not come from growth, but rather market share redistribution (taxi taking share from Uber, Lyft, Revel, other bases). Furthermore, there are 4,500+ inactive taxi medallions, implying if those gains cannot be made, the industry faces deep distress when (if?) all yellow cabs become active. This will put further downward pressure on HV UR, leading to lockouts.
As our recent analysis showed, yellow cab trip volume per ACTIVE taxi is still way down and if more of the taxi medallion fleet is expected to go online, the overall trips per vehicle (better way to measure double-shift earnings recovery) will likely get worse, before getting better.
The City and TLC’s decision to reinstitute the EV exemption to the TLC Plate Cap, at this moment, was very misinformed, not even including valid congestion concerns and anger from communities seeking more accessible FHVs. The industry now faces the prospect of an additional ~10,000 (!!!) more non-WAV FHVs on our streets. If you understand the technical and qualitative points we are making, the TLC, without a hearing, has gone off the rails with reckless policymaking and surprises. It either shows arrogance, incompetence and/or something worse. Time will reveal all truths, as they say.
This has never been personal for us, it’s been about the data, facts and analysis. NYC TLC Chair & Commissioner David Do is a nice enough person, but under his leadership TLC policy has caused and will cause more chaos, especially in the taxi medallion market. TLC policy is also likely to help accelerate Uber/Lyft driver lockouts, as well. Yes, we understand others, including the Mayor (who has plenty of his own problems right now) and Deputy Mayor for Operations and former TLC Chair Meera Joshi, are likely complicit in this policymaking as well (Do’s bosses).
If David Do cannot (or is not allowed to) act on the data and facts, then he must resign as the NYC Taxi & Limousine Commission Chair. A temporary TLC Chairperson must be appointed perhaps from the TLC Board itself, until a more permanent replacement can be found, as not to waste time. Do’s TLC has lost an incredible amount of credibility. We do not think him and his team understand how much damage they’ve done to the TLC as an institution.
There is no time to spare.
As always, let us know your thoughts in the comments section below or by emailing us at info@automarketplace.com.
AutoMarketplace NYC covers the for-hire transportation industry and automotive news. Check out AutoMarketplace on YouTube ▶️
Come January… lockouts 100%