Uber and Lyft might be getting ready for a couple of prime-time IPOs, but that doesn’t mean its all smooth sailing for the ride-sharing unicorns. Recent scrutiny on the amount that they pay their drivers is threatening to overshadow the public-listing amid a backlash from drivers who are looking to unionize.
Uber Slashes Bonus Pay, Drivers Feel the Pain
A minimum wage is now in place in New York, ($17 after expenses for Uber and Lyft drivers), and it appears this momentum is now catching on around the US. The main fears are that both companies will slash driver pay to try and pad their bottom line for the media blitz ahead of their IPOs.
We hear contrasting things about driving Uber in particular. There are stories like this, showing a driver using the platform to make bank executive money but more and more about how pay is being slashed. It appears the recent changes made to the driver bonus structure is making life tough.
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Lyft and Uber Cars are Unionizing in Los Angeles
In Los Angles, unionization seems inevitable, and The Guardian quote Nicole Moore who has driven for both Uber and Lyft, confirming ride-share driver fears about the IPO,
“Uber is getting ready for their IPO, they want to look really good for their investors, and are creating situations where people may be put on the street homeless because they can’t pay their rent… That’s why we’re organizing.”
Pay is a delicate tightrope for the two ride-share giants. LA is the shining jewel of the business given the lack of public transport and a large amount of people who liver there. They cannot afford to risk losing support there, but at the same time corporations have increasingly found themselves pressured by social justice initiatives, and they cannot slip up at a time when PR is crucial.
IPO Valuations Mask Huge Debt
Some drivers are concerned Uber should be able to afford to pay them more as they are a billion-dollar company. Well, their valuation is markets are high, and people like the concept, not because they make money. They are a massive loser of money, piling up a lot of debt. Lyft is no different. Higher driver costs seem inevitable. They are already struggling in the red, and an increase in pay would only intensify this issue.
Uber and Lyft can’t afford to pay drivers more despite billion-dollar valuations. | Source: REUTERS / Lucy Nicholson
Rising Costs Could Erode Ride-Share’s Edge
Taxi drivers have established strong unions and are an established business sector. If you choose to drive for a disruptive business, there are going to be growing pains. When your car exists mainly for taxi-ing other people around, you are just a taxi that uses an app. Like taxi-drivers, there are high costs and a thin profit margin which during quiet periods means you make no money. If you started driving Uber a while ago, it makes sense you would see pay fall as more drivers are now on the roads. Lyft entering the fray is only exaggerating this issue. Obviously rider demand for cars is also a key metric, and this could fall as costs rise.
Ride-share drivers can unionize all they like, but if that results in costs for riders hitting traditional taxi prices, they could create an opportunity for old fashioned services to make a comeback with a minimal amount of investment in better technology. This would further increase competition on the road and hurt Uber and Lyft’s profitability even more.