⚖️ TLC Plates & FHV Lease Caps
⚖️ TLC Plates & FHV Lease Caps
Given FHV License Pause (a/k/a TLC Plate Cap), the Taxi & Limousine Commission must institute "lease caps" in NYC FHV market. Preexisting medallion lease caps rules should guide new regulations
The FHV License Pause (a/k/a TLC Plate Cap) is a popular topic in the NYC for-hire transportation industry. Many who have claim to their own FHV License (TLC Plate) believe they now own a taxi “medallion-like” asset. Those that do not, are upset they are beholden to leasing companies (OR other drivers who control their own FHV License).
Before we continue, let’s clarify the status quo:
An FHV License (TLC Plate) IS NOT transferable. It’s either attached to an individual’s name or a business entity (Employer Identification Number (EIN) is a business tax ID). Anybody who claims they can sell you “their TLC Plate”…is lying 🤥.
An FHV License attached to an individual’s name CANNOT be transferred to a business entity. Anybody who claims they can do this…is lying 🤥.
TLC Plates attached to a business entity CAN ✅ effectively be sold through selling ownership in the entity. Note, in this transaction one is ACQUIRING A BUSINESS and all of its associated assets & liabilities 🏦 (e.g., outstanding debt, sales tax obligations, unpaid corporate taxes, NYC ticket balances, E-ZPass fines, potential liability related to lawsuits…OTHER businesses being run through the entity, etc.).
Out of the close to 96,000 active FHV Licenses, AutoMarketplace analysis concluded ~70% (or ~68,000) of non-medallion TLC Plates are controlled by individual operators (i.e., FHV License is attached to the driver’s name). Therefore, the remaining ~30% (or ~28,000) of non-medallion TLC Plates are held in transferable business entities. Some businesses are “single plate” LLCs, while others have thousands of plates attached to a single corporation.
The TLC officially refers to these entities as FHV Corporations. We’ve recently written about the largest FHV Corporations (a/k/a TLC Leasing companies).
*NEW* TLC Plates
While the occasional release of *NEW* TLC Plates can allow those in leasing arrangements to acquire a claim to their own FHV License, it’s not CURRENTLY a sustainable mechanism for several reasons.
NYC Driver Earnings: For the overall TLC market to be healthy you need to have sustainable vehicle supply and trip demand dynamics. If there are too many vehicles, chasing too few trips, all drivers will suffer. The creation of the NYC taxi medallion in 1937, related to a vehicle supply & trip demand imbalance.
Source: NYC.gov Congestion: In the middle of congestion pricing politics, with public transport utilization still significantly lower than pre-COVID levels, the concept of releasing more FHV supply on NYC streets is controversial (potentially even counter to long standing City policy goals).
Taxi Medallion Values: Medallion values will decline if FHV supply continues to increase. This sets aside the additional consideration that thousands of medallion loans now carry a City guarantee (i.e., taxpayer responsible if medallion loans go bad).
To be clear, the above talking points set aside the valid discussion around releasing more TLC Plates when trip demand justifies it. A simple look at historical data related to NYC trip demand and FHV supply, will show this is currently a non-issue.
That being said, this publication IS NOT against the reissuance of recently retired TLC Plates (e.g., natural attrition) EXCLUSIVELY to individual TLC drivers who want to get out of leasing arrangements. We’ll discuss some detailed thoughts about this idea in our next piece.
Conflict of Interest?
As we’ve mentioned several times in multiple articles, AutoMarketplace’s parent holding company is the owner of an FHV Corporation. Some of our readership might think we are a conflicted fleet owner, protecting our business interests by preventing current lessees from “acquiring” their own TLC Plates. We definitely have our bias, but we’ve always been transparent and explain our thinking with data, detailed logic & seek to encourage honest debate.
We try to be balanced and present multiple sides of an argument, but our readers can judge us on how bad (or good) a job we are doing.
For example, when we started leasing “UberBlack-qualified” BMWs there was NO “TLC Plate Cap”. We were growing rapidly 📈, our fleet business was booming 📈, we couldn’t buy enough vehicles, quickly enough, our lessees valued our offering.
The TLC Plate Cap, which began in August 2018, stopped our rapidly growing fleet business in its track. However, we understood why the City and regulator needed to implement the FHV License Pause. There were simply too many vehicles on the road and the yellow cab industry, along with medallion values, were collapsing. Eventually, unchecked vehicle growth would have destroyed the entire industry.
Instituting policy that every industry stakeholder is going to be 100% happy with it is very tough, perhaps impossible. Conflicting financial & political incentives exist in a large, diverse marketplace. We’re not implying that bribery is rampant, but rather balancing different constituency demands is simply how democracy works. It is the ongoing challenge policymakers face - being “fair”, being democratic and being thoughtful.
History Rhymes
In formulating policy, it’s important to remember history. It doesn’t mean that history was right, but if a historically “rhyming” or analogous discussion was had for decades, let’s start there.
Many yellow cab medallion drivers were, once upon a time, stuck leasing their taxi (or taxi medallion) from garages. This was caused by a limit on the number of taxi medallions in the market (currently 13,587). This dynamic wasn’t a short lived thing, it existed throughout the 1970s, 1980s, 1990s, 2000s and early 2010s. So how did those drivers, mostly immigrants, deal with the situation?
One prominent defense mechanism was saving up money to buy their own taxi medallion. That was kind of the point? The rules of the game, if you will? To attract only professional full-time drivers and business people committed to the industry via a serious investment in the market?🤔 This also benefited the City, which created a valuable (and sensible) regulatory asset that helped it raise hundreds of millions for the budget, funding City government & services 🌆.
Although this balance ⚖️ worked relatively well for decades, predatory financial speculators seeded a taxi medallion asset bubble 🎈 ($1 million+ per medallion 👀). Brian Rosenthal at The New York Times won a Pulitzer Prize documenting the rise & implosion of this debt-fueled ⛽ bubble, which tragically saw several driver suicides.
Yes, discussions about personal responsibility are important or the “no one was complaining when they were getting rich” argument. However, certain clear investor disclosures or protections needed to be present as well. The current student loan crisis and questions around debt forgiveness has parallels to the taxi medallion crisis. It presents legislators and courts with complex questions, that have similarly complex answers.
Historical Solutions
Getting back on topic, there was another prominent defense mechanism against taxi garages besides buying a taxi medallion - “lease caps”.
Medallion Lease Caps
The NYC taxi medallion market was, and still is, subject to “lease caps” or limits on how much a medallion agent or owner can charge drivers to:
Lease a vehicle with an attached taxi medallion
Lease a taxi medallion attached to a driver’s own vehicle, known as a “Driver Owned Vehicle” (DOV)
In the case where a driver is financing the purchase of the vehicle via the same company that is leasing them the taxi medallion, there are also payment caps around vehicle financing terms.
Notably, this limits the type of vehicles that fleet owners and other companies can offer interested TLC drivers, who may not have other options for auto loans (“total payments by the lessee for the vehicle shall not exceed $42,900”). According to Kelley Blue Book (KBB), the average price of an electric vehicle (EV) was $61,488 and $49,507 for all passenger cars and trucks, at the end of 2022. Average auto loan rates have also significantly increased since 2021.
The $275 per week additional payment cap in a DOV medallion-only lease refers to situations where the driver is purchasing the vehicle and ONLY refers to vehicle-related payments. It’s NOT referring to the total weekly lease amount (i.e., insurance, maintenance).
Lease Caps & Medallion Values
This might not be immediately obvious to many, but if the market can SUSTAIN higher lease caps without hurting driver earnings, this BENEFITS taxi medallion values. Investors, fleets and drivers who own their own medallion(s):
Achieve increased prospective cash flow that would likely increase medallion valuations (i.e., discounted cash flow valuation model)
A driver who owns a medallion can achieve greater income from ‘other shift’ drivers and have more financial benefit owning vs. leasing their medallion
The lease caps would additionally protect against price gouging as well. It’s a good balance ⚖️.
FHV Lease Caps
Not too dissimilar to the pre-Uber NYC taxi medallion garage status quo, where a limited amount of taxi medallions existed (e.g., 13,587 taxi medallion cap), a similar situation now arises.
The ~30% of drivers who don’t have claim to their own TLC Plate need to either lease from an FHV Corporation or an individual. However, this time no financial bubble seems to exist, as taxi medallions are available to purchase at an 85% discount from their $1 million+ highs and ***clean*** FHV Corporations can be purchased for only $30,000 per TLC Plate! These prices, in our view, are healthy and do not indicate any sort of financial bubble. In addition, market leasing rates, for the most part, don’t seem predatory.
All that being said, TLC leasing companies AND individuals that are leasing out their own TLC-plated vehicles, DO have disproportionate pricing power. Good actors will self regulate, but there will undoubtedly be bad actors, so the regulator should proactively step in.
Before a single seed of a financial bubble is sowed, the Taxi & Limousine Commission should create regulations to protect drivers from being abused by leasing companies or individuals.
A “lease cap” fundamentally creates a cap on how much profit can be made, so you need to be very careful how you set it. One needs to solve for a “regulated margin” that makes it worthwhile for all parties involved.
In discussing this topic, the TLC must engage fleet owners and drivers - math and specifics must be presented and analyzed.
Financial arguments can & must be quantified.
In the past the TLC has had a fairly robust & balanced approached 👇.
Using taxi medallion lease cap rules & regulations as a starting point, we believe the NYC Taxi & Limousine Commission should create a similar construct for the FHV sector (“FHV Lease Caps”).
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 ▶️