On Wednesday employees who worked for the popular ride-hailing companies, Uber and Lyft went on strike, demanding an increase in their “poverty level” wage that currently sits at $11.77 an hour. Unfortunately, even though the strike didn’t do much to harm Uber or Lyfts business on May 8, it does highlight a significant flaw in their business plans.
Driving us Into Poverty
In the past few years, both Uber and Lyft have worked to establish themselves as the best company to go to to get a cheap ride. Unfortunately, if the customer isn’t paying much, then the company doesn’t have much to pay off expenses and the drivers, leaving the drivers making less than $12 an hour.
The drivers can demand a raise all they want, but it seems unlikely that they’ll get one as Uber and Lyft are throwing so much money out the door they can’t afford to pay their drivers more. There aren’t many solutions to this problem, although many investors are hoping that robo-taxis will save them. They could also end up raising the cost of rides for the passengers but would they put the money towards their driver’s paychecks or other investments.
Last year Uber spent $2.1 billion from their operations on investments in property and equipment and Lyft managed to spend $350 million from their operations on equipment as well. [1] These numbers have driven the companies to inconsistent profits and many losses. This will probably end soon though- as of Friday both companies moved from under the umbrella of private investors and made a public market debut.
Both companies will be feeling the pressure as public shareholders are known to be less tolerant of continuous losses. It’s unknown how exactly the companies can manage to bring in more consistent profits while paying their drivers more while competing with the other company for passengers (and taxis as well as other public transit alternatives).
Drivers Aren’t Cheap
Recently New York required Uber and Lyft to start paying their drivers $17.22 per hour. [2] To keep their customers, the ride-hailing companies offered large coupons and discounts to customers, which forced the companies to pay the drivers out of their own pocket and had them losing money with every ride. Uber stated later, before their IPO, that the wage hike “had a negative impact on our financial performance in New York City in the first quarter of 2019 and may have a similar adverse impact in the future.” [3]
Both companies are hoping that the robo-taxi will help them. With no driver to pay, they will no longer have to worry about pay regulations and their profits should go up. Unfortunately, cars with no driver is still a distant dream, and until then Uber and Lyft have to continue fighting off the competion, making more money, and keeping their customers and drivers happy.
If the strike that happened on Wednesday is any sign of what the future holds, it looks like it’ll be a rough couple of years for everyone at Uber and Lyft.
Notes:
- ^Wolverton, Troy. “The Uber strike highlights a basic flaw in the company’s business.” Business Insider, 11 May. 2019, www.businessinsider.com/uber-strike-highlights-basic-flaw-in-its-business-2019-5?utm_source=feedly%00utm_medium=referral. (go back ↩)
- ^Matousek, Mark. “New York City just became the first US city to set a minimum wage for Uber and Lyft drivers.” Business Insider, 5 Dec. 2018, www.businessinsider.com/nyc-sets-minimum-wage-for-uber-and-lyft-drivers-2018-12. (go back ↩)
- ^“S-1/A.” 26 Apr. 2019, www.sec.gov/Archives/edgar/data/1543151/000119312519120759/d647752ds1a.htm. (go back ↩)
