■ By Richard Perry / Contributed
Greetings from The Hemet Car Guy,
In past articles I’ve written about the benefits and actual cost comparisons of owning a car versus using Uber and Lyft. All this time I thought the transportation apps were just bringing oodles of money in, and I wished I thought of the idea first.
However, according to published sources like Business Insider, Bloomberg, Crunchbase, Future Advisor, and Forbes, it’s said the companies have been racking up substantial financial losses. Uber, which has never recorded an annual profit, lost $2.8 billion in 2016, and another $4.5 billion in 2017, according to published reports. Lyft, which is estimated to account for about 20 to 25 percent of ride-hailing revenues in the United States, reportedly lost $600 million in 2016, and another $600 million in 2017. Neither company is required to publish financials, however, I find this very surprising. So, let’s take a closer look.
Both companies have been aggressively buying market share, subsidizing the cost of rides to build a solid customer base, and building up their revenue stream. An Automotive news publication estimated Uber customers are only paying 41 percent of the overall cost of a ride, while the company (and its investors) are paying the rest.
The second major obstacle to profits is the cost of paying ride-hailing drivers. Again, while firm figures are not publicly available, it is estimated that 65 to 75 percent of ride-hailing revenues go to the drivers. The approximate 30 percent that the company keeps also has to pay operating expenses, refunds, insurance etc.
As with all companies and even non-profits who struggle to make black ink on the financial statement, as a business owner or board member you look for solutions to narrow losses and eventually make money. Uber and Lyft are no exception – so what can they do? For starters, they can increase sales, lower pay for drivers who know, perhaps it is the elimination of drivers’ altogether. I’ve read they are trying that with pizza deliveries in test markets. Again in past articles, I’ve talked about automated vehicles. It only goes to show that if the driver cost can be eliminated from the equation, the profitability of ride-hailing companies will increase rapidly!
I know as a business owner that paying your employees is your biggest expense. However, keep in mind that the drivers deliver critical services besides simply acting as chauffeurs to ride-hailing customers.
Purchase, register and insure their vehicles at their own expense;
Refuel, maintain and clean their vehicles (inside and out) at their own expense, on their own time and on a consistent basis;
Park and secure their individual vehicles at their own private residences during non-working hours, without a need to pay for extra parking facilities or security for the vehicles.
Good conversation (well sometimes) frankly, I like People.
Transitioning to automated vehicles would eliminate the need to pay drivers, but it could potentially create a lot of other logistical problems that need to be resolved.
Would Uber and Lyft be willing to buy, register and insure their own fleet of vehicles (numbering in perhaps the tens of thousands, hundreds of thousands or even millions of vehicles)? Who would refuel, maintain and make sure the vehicles remain clean, especially if a passenger left trash in the vehicle? Where would these vehicles be kept when not in use—and wouldn’t that require storage and security costs?
There is a reason that certain industries prefer to work with independent franchisees. For example, rental car companies have individuals who are invested in a company and who take care of their vehicles, customers, and employees.
Hopefully Uber and Lyft use of automated vehicles might eventually go to franchise their operations, so that the they are more responsible for the overall administration and operation of their cars.
Whatever happens, it’s clear that simply eliminating drivers and transitioning to automated vehicles will not suddenly make ride-hailing companies immensely profitable. A lot more thought and planning—about how to manage automated vehicle fleets and how much that will cost—will have to be figured out first.
For me, I’ll drive my own car because it really is cheaper.
The Hemet Car Guy
Richard Perry is the Hemet Car Guy and owner of VIP Autos in Hemet. For more information, visit www.hemetcarguy.info.