Have you ever wondered why Uber mostly airs commercials touting the advantages of being an Uber driver but rarely airs one encouraging people to order an Uber? Well, Uber CEO Travis Kalanick’s temper tantrum in driver Fawzi Kamel’s car is the perfect example of why this is so. Kamel accused Kalanick of manipulating the fare structure to benefit Uber’s advantage over competitors like Lyft without much concern for how those fare manipulations affect Uber drivers. And Kamel is absolutely correct, that’s exactly what Uber does — but then again so does Lyft and every other ridesharing company.
Drivers have absolutely no control over what the company charges riders or pays drivers. Drivers cannot tell Uber how much they need to make to cover their expenses and Uber’s per-mile fares vary widely according to the specific market. Worse, those rates fluctuate frequently as Uber makes adjustments to stimulate rider demand.
If dropping the fare sounds like a free-market response to competition it is, but it’s drivers who absorb the loss, not the ridershare companies. Uber makes astonishing amounts of money because they take their cut of the fare right off the top, which they rigidly control in order to drive rider demand by undercutting prevailing taxi fares and also undercutting their competition.
But because Uber doesn’t own or maintain the cars it needs to provide its service, it doesn’t have to give any thought to how fare manipulation affects the driver, who is the one who has to pay for the vehicle. A 20 percent cut in fares can easily bankrupt a driver who is riding on the razor’s edge of solvency because he has to pay for and maintain a pricey new car that he bought based on representations made by Uber about how much money he could make, representations that Uber then changes arbitrarily and without notice. And when Uber changes the fare structure there is no appeal. You either agree to the new fare structure before the app will allow you to log on to work on the day of the change or you’re done driving for Uber. It’s “my way or the highway” in spades and drivers are always completely blindsided by these adjustments.
It must be said that Uber makes it perfectly clear that they provide no transportation services and drivers are responsible for all vehicle expenses. There’s no fraud involved and the terms of using the app are clear and complete, so drivers are making an informed choice, if they are well-educated enough to do the math required to see whether or not making a profit is even possible under Uber’s terms.
Overall, as Uber claims, there may be a greater absolute number of ride requests in a market and an aggregate increase in driver compensation for that market when it lowers fares to stimulate demand, but that means little to an individual driver who isn’t being paid as much on a per-ride basis because what he earns on an individual ride has been reduced. A 20 percent overall increase in market ridership does not, as Uber seems to think, equate to a 20 percent increase in any particular driver’s income, much less every driver’s income, and it is often exactly the opposite.
What Uber depends on for its profits is low fares that induce riders to use the service and the lure of quick cash that induces people to become drivers. More importantly, unlike a standard business model where an employer has to balance the costs of employees and equipment against the revenues they can generate, Uber has no such costs and cares not at all how much it costs the driver to perform the labor or how much the driver has left over to buy groceries. That’s the beauty of the independent contractor model…for Uber.
So long as it can induce enough people to drive to meet demand with rosy promises of riches, Uber doesn’t care how many more people than the transportation market needs sign up to drive. In fact, for Uber, the more people willing to drive around in circles looking for a fare, the more money Uber makes and the better its reputation as a fast, convenient transportation option becomes. Uber cares only about meeting the consumer demand for transportation quickly and its rules for Uber drivers enforce this pretty rigidly. Fail to meet the standards for efficiency and quality and Uber fires the driver by denying him access to the app, again with no appeal.
This is a great thing for riders because quality control of the product is quite immediate. Lousy drivers get lousy client ratings and Uber dumps them from the system. In fact, the immediacy of rider feedback and the consequences of providing anything less than top-notch service is what distinguishes Uber from taxicabs, where it’s completely useless to complain about poor service. Had taxicab companies done that one thing, solicited customer comments and fired bad cabbies, Uber would not exist.
The downside for drivers is that there are almost no barriers to entry in the marketplace for Uber drivers. Anybody with a car who meets the minimum qualifications can work for Uber, which means that every Uber driver is actually competing against every other Uber driver for market share. Uber, on the other hand, only has to compete with taxicabs and other rideshare companies like Lyft.
The more drivers there are, the less likely any individual driver is to get a fare and the less money they make, but Uber doesn’t care about that because all it needs to accomplish to make money is to get a car, any car, to a client as quickly as possible, whereupon they get their cut of the fare off the top, before the expenses of providing the vehicle are calculated and without regard to the expenses of all the drivers wandering around burning gas and tires who didn’t get dispatched.
Uber tries hard to convince drivers that they are partners and members of a team, but in reality Uber exploits the free market for drivers and pits drivers against one another. Uber has quite literally nothing to lose and everything to gain if there are more drivers roaming the streets than there are people who need rides because it costs them nothing and gains them a lot to have cars pointlessly driving about in search of a fare. All of the costs of deadheading and waiting for a fare fall on the driver.
The prime economic danger of driving for Uber though is that people who need some cash to pay today’s bills tend to ignore the true long-term costs of driving for Uber. Because Uber gets its cut right off the top, they don’t care what’s happening to the driver’s car or how much it’s actually costing him to drive it, or what happens to the driver’s economic situation when, not if, their car eventually breaks down or is simply worn out by the demands of daily commercial use.
They don’t have to care because they know that when one driver is forced to drop out of the system there is an endless supply of desperate people out there in need of some quick cash they can lure into signing up and driving their cars into the ground in their place, which is why they advertise for drivers, not riders. What Uber carefully doesn’t tell potential drivers is that they are robbing Peter to pay Paul and are wearing out their cars just to create some short-term cash flow for themselves and big profits for Uber.
To make rideshare driving a long-term business a driver has to put enough money away each week to buy a new car when the one he has wears out on top of what it actually costs for fuel and maintenance and still make enough to pay rent and suchlike. Few drivers appear to actually do this calculation. If they did, they wouldn’t drive for Uber because it’s difficult to make enough to cover expenses, much less earn a living on the low-ball fares Uber offers. As a result, most Uber drivers grossly overestimate the profitably of driving for Uber, do so for a while until they have a major mechanical issue or have to buy new tires and realize that they aren’t actually making a profit, and drop out.
While it is true that the higher tiers of service such as Uber XL, and Uber Black pay better, it’s just as true that the expensive vehicles required to qualify for these tiers are much, much more expensive to operate and maintain, so the actual take-home after-expenses pay is not going to make any Uber driver wealthy in the long run. It’s pretty much a minimum-wage occupation at best, if that.
Taxicabs cost more for a reason: Taxi companies have to buy, repair and replace cars frequently because commercial use is incredibly hard on cars so they build those costs into the weekly lease the cab driver has to pay to use the cab, which can easily be more than $2800 per month, which has to be paid before cabbies make a dime for themselves.
If an Uber driver ignores depreciation and short-cuts maintenance it’s possible to generate enough cash flow every month to get by at or near the poverty level, but the chickens eventually come home to roost when your car wears out or breaks down and you can’t afford to buy a new one. The more gross income you generate by driving, the more quickly your car wears out, the higher your expenses become and the less profit you realize.
At the rates Uber pays for its basic UberX service, which can be well below a dollar per mile in most areas before Uber’s cut is taken out, saving enough to replace a car before the car gives up the ghost, much less making a living wage is a dicey proposition at best. The higher tiers of service, UberXL and UberSelect, with their higher fares improve the calculation somewhat, but not by much since the driver doesn’t get to choose to only drive clients in the higher tiers but must accept any ride dispatched to them or risk being deactivated for turning down clients, so they may end up on the losing end because they have to serve low-fare clients in expensive cars.
Many Uber drivers who depend on driving for their survival are but one major mechanical malfunction away from a box under a bridge. Driving for Uber isn’t making anyone but Uber rich, and drivers are now funding Uber’s efforts to make drivers redundant by developing driverless cars. Uber is careful in it’s advertising to cite some driver’s gross Uber income, but they are careful not to reveal their net income after expenses, which usually paints a far less rosy situation, as Fawzi Kamel tried to explain to a petulant and childish Uber CEO without any success.