Sometimes, Silicon Valley “disruption” kills incumbent businesses. And sometimes, the Silicon Valley bulldozer gets a little help.
San Francisco’s biggest taxi company, Yellow Cab Co-op, is preparing to file for bankruptcy, according to a San Francisco Examiner report that cites a letter from the cop-op’s president to shareholders dated Dec. 10. Although the rise of taxi alternatives like Uber and Lyft played a small role, the blame is mostly because of mounting debt from lawsuits related to traffic accidents, according to the report.
“We are in a midst of serious financial setbacks,” co-op president Pamela Martinez wrote in the letter. Some of those setbacks “are due to business challenges beyond our control,” she said, alluding to Uber and Lyft. But she added that “others are of our own making.”
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Uber and Lyft, whose push-of-a-button convenience and generally perceived lower prices have been winning over consumers, have undoubtedly had an impact on Yellow Cab’s business. But Uber and Lyft aren’t Yellow Cab’s main problem.
Six months ago, a San Francisco Superior Court jury found that a Yellow Cab driver was effectively an employee of the company, making it liable for an accident he caused, according to the San Francisco Chronicle. The passenger was awarded $8 million, far more than the taxi company’s $1 million insurance policy. And that’s not the only pricy lawsuit weighing on Yellow Cab.
So with mounting debt and decreasing revenue, it appears Yellow Cab plans to file for Chapter 11 bankruptcy to shed some of its debt and to restructure its business.
To survive in the ride sharing and mobile device era, some taxi companies have eagerly adopted Flywheel, an Uber-like app that lets passengers hail old-school cabs from any company and takes a small cut of the fares. Others, like Yellow Cab, have built their own apps in an effort to give their loyal customers a similar experience, although a Flywheel spokesman confirmed that some individual Yellow Cab drivers do use Flywheel’s app as well.
Still, taxi companies are struggling and many drivers are hopping the fence over to the ride-hailing services. Some, like DeSoto Cab in San Francisco went as far as to repaint its cars with Flywheel’s brand in the hopes of having a fighting chance. Yellow Cab, on the other hand, is about to file for Chapter 11 bankruptcy.
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But ride-hailing services like Uber and Lyft aren’t necessarily immune to the sky-high damage judgements for traffic collisions. Just like Yellow Cab, they carry an insurance for up to $1 million per accident, which only kicks in when a driver is on the clock (either on their way to pick up a rider, or transporting one). Like Yellow Cab, and other taxi companies, they currently classify their drivers are independent contractors (though a major lawsuit in California could change that) in an attempt to minimize liability.
But clearly that hasn’t worked in Yellow Cab’s case, or even in Uber’s when it privately settled with the family of six-year-old girl struck and killed by an Uber driver two years ago.
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So in some ways, Yellow Cab’s fate is another risk that Uber and Lyft could face if they’re required to classify their drivers as employees. True, these ride-hailing companies are so far escaping a lot of the other regulations and expenses that taxis have, but they’re also facing a lot of unknowns.