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The Shifting Ride-Share Marketplace: Fare Game

New Fees · Personalized Pricing · Subscriptions

Experts believe that Lyft and Uber will have to raise their fees and fares in the next year.


Lyft

Lyft and Uber, which are the two largest ride-sharing services in the United States, say that by 2020, when you use a mobile app to summon a ride from them, a self-driving vehicle might show up to take you to your destination.

That sounds ambitious to us, considering the amount of work that remains to be done on the infrastructure, regulations, safety and technology of self-driving vehicles. However, the two companies are pushing ahead.

Uber rolled out prototype self-driving vehicles in 2016 in Pittsburgh and in 2017 in Tempe, Arizona, and it has hundreds of engineers who are developing self-driving technology and installing self-driving hardware in Ford Fusions and Volvos. Lyft, General Motors and software developer nuTonomy joined forces in 2017 to develop self-driving technology, and Lyft predicts that by 2025, it will deliver at least 1 billion rides every year in self-driving electric vehicles.

Nine transportation experts tell Consumers Digest that 2020 is too soon for the mainstream-consumer adoption of self-driving vehicles but that Lyft and Uber are making progress, and it’s quite possible that the ride-sharing services will have self-driving vehicles on the roads by then. In June 2016, U.S. House Committee on Energy and Commerce began to consider 16 draft bills that would establish the first federal regulations that allow for self-driving automobiles. If any of those were passed, the bills would supersede state laws, some of which limit the development of self-driving automobiles. (Experts say the draft bills have bipartisan support, but they don’t know when finalized bills would be introduced.)

As of press time, 360 U.S. cities had at least one ride-sharing service, compared with 83 cities 3 years ago. Experts say nearly 80 percent of the U.S. population lives in an area that’s covered by a ride-sharing service. Goldman Sachs says ride-sharing services provide 15 million trips per day worldwide and are expected to provide 97 million trips per day by 2030.

Uber accounts for 75 percent of the ride-sharing market in the United States and covers 234 U.S. cities. Lyft, which accounts for nearly 25 percent of the ride-sharing market in the United States, added its service in 160 U.S. cities in 2017 to bring its total number of cities to 360. (Besides Lyft and Uber, we found 14 smaller ride-sharing services that are in the United States, but none of those services covers more than three cities.)

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Expanding ride-sharing service is good news for consumers, who stand to save money and save time. We found that ride-sharing apps are easier and faster to use than is hailing a taxi and, in almost all cases, significantly less expensive—for the time being. Nationwide, if you use Lyft or Uber, traveling 1 mile typically costs 90 cents to $1.10, while a 1-mile ride in a taxi typically costs $2.25–$2.75, according to Harry Campbell of Therideshareguy.com, which provides a blog and a podcast that cover the ride-sharing industry.

We found in June 2017 that a nonpeak-time ride from the Chicago suburbs to O’Hare International Airport costs $38 in a taxi but typically costs just $25 through a ride-sharing service. (During peak times, you might pay twice as much.) A 9-mile trip in Syracuse, New York, that costs $31.60 in a taxi costs just $15.70 during nonpeak times via Lyft or Uber. What’s good news is that both companies now disclose the total cost of your ride before you get into the car.

Joseph Schwieterman of DePaul University’s Chaddick Institute for Metropolitan Development says it’s great that consumers have more transportation options than ever before: public transportation, ride-sharing services and taxis.

“The long-range question is, can everyone coexist?” Schweiterman says.

That’s a good question. If you follow the news, then you know that Uber suffered through a turbulent first half of 2017: a viral boycott that led about 500,000 users to delete their Uber account; allegations that Uber engaged in intellectual-property theft, cheated drivers out of pay, tracked users without their consent and used software to evade government regulations; and a corporate environment that was so toxic that the company lost its president, senior vice president of engineering and CEO within 5 months.

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None of the experts whom we interviewed believes that Uber is in any danger of disappearing in the next 3 years. After all, the company is valued at $70 billion, and it says it has $7.2 billion in cash on hand. However, every expert whom we consulted says Lyft and Uber have to rethink their business model. The companies keep their prices low to attract riders, but the companies are hemorrhaging money and covering their losses with investor capital. None of the experts knows how long that such a practice is sustainable.

“The way that the ride-sharing business exists today, the companies will never turn a profit, just due to how little they’re charging riders,” Campbell says.

In other words, you should expect  their prices to increase in the next 2 years.

FIGURING THE FARE. In March 2017, Lyft and Uber each increased its booking fee by 20–35 cents, depending on the city. (The booking fee is a standard fee that’s charged on each ride and covers operational costs.) That means that every Lyft and Uber U.S. fare now includes a booking fee of $1.50–$2.50, a starting base fare (typically about $2) and a rate for the time (typically 20 cents per minute) and the distance (typically $0.90–$1.10 per mile) that a ride lasts.

Lyft and Uber typically collect about 35 percent to 40 percent of each fare (the booking fee plus a 25 percent commission). In other words, money that’s collected from the booking-fee increase goes to the companies rather than to the drivers. Lyft and Uber say the increase reflects their cost of doing business in 2017, and they say they have no plans to implement further rate increases. However, every expert with whom we spoke says the two companies will have to increase their rates by at least 20 percent in the next year for them to become profitable.

The increases might come in the form of fees that are charged in addition to fare increases. In 2016, Lyft and Uber started to charge consumers if they make drivers wait for more than 2 minutes at their pickup spot. In Orlando, Florida, the wait fee is 11 cents per minute; in New York City, it’s 35 cents per minute. Lyft and Uber also charge a cancellation fee of $5–$10 if you make the driver wait for more than 5 minutes or if you cancel your ride more than 5 minutes after you confirm the pickup.

In 2017, Uber started to test personalized pricing, which uses an algorithm to charge higher prices to customers whom Uber believes have the means to pay a larger fare. For example, the algorithm might decide that a rider who travels to a nice restaurant from a wealthy neighborhood might be willing to pay more than would a rider who rides the same distance within poor neighborhoods. Critics of Uber’s personalized pricing say it’s price discrimination—charging customers a different amount of money for the same service. Uber says personalized pricing is like dynamic pricing, or setting a price that’s based on a customer’s willingness to pay it. Lyft hasn’t announced plans to test personalized pricing.

Lyft and Uber also are testing subscription services, in which you’d pay a monthly fee for a certain number of rides, but neither company will say whether such a service would go into effect or how much it would cost.

“I would be shocked if Uber and Lyft didn’t introduce a subscription/loyalty program at some point,” Campbell says.

SAFER THAN TAXIS? Considerable debate exists in the media about whether the use of Lyft, Uber or another ride-sharing service is as safe as is the use of a licensed taxi. Unfortunately, we found no clear answer to that question. Statistics don’t track the percentage of incidents or accidents per ride that occur in taxis and ride-sharing services. We didn’t find any independent experts who studied whether incidents or accidents are more likely to happen in ride-sharing services or in taxis. In fact, we found that all of the criticism that’s directed at ride-sharing services is spearheaded by “Who’s Driving You?” which is a public-safety campaign by Taxicab, Limousine & Paratransit Association.

We interviewed 12 Lyft and Uber customers, who tell us that they used the ride-sharing services in multiple cities, and only one rider says he had an uncomfortable experience. He says he got into a car and found that it was filthy and being driven by a strange man who wore pajamas. The rider got to his destination safely, but he gave the driver a low rating on the ride-sharing service’s app. We’ve seen a lot of reports in the media about violent incidents that happened during a Lyft or Uber ride, but no one can show that ride-sharing services are more dangerous than are taxis.

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Here’s what we know: Taxi drivers are subject to more-stringent background checks, such as fingerprinting, than are ride-sharing drivers. Although ride-sharing-service providers tell us that they perform criminal-background checks on all of the people who are a part of their driving network, no ride-sharing service checks a driver’s fingerprints as a part of its background check. Experts whom we interviewed say fingerprint analysis is the best way to get a comprehensive look at a driver, because it allows the companies that vet a driver on behalf of a ride-sharing-service provider to check a potential driver’s background against FBI’s crime database.

Spokespeople from Lyft and Uber tell us that passenger safety is their top priority and that they screen drivers thoroughly, because they conduct background checks on drivers and disqualify drivers who fail to meet their standards. Both services require drivers to have a driver’s license for at least 1 year; have no major moving violations, such as driving while intoxicated, driving under the influence or reckless driving; have no more than three minor moving violations, such as speeding, traffic-light violations or nonfatal accidents in the past 3 years; and have a clean criminal record within a certain time frame. No one could tell us how many of the drivers whom they screen fail to meet these standards. Lyft and Uber say fingerprinting is too costly for drivers and would slow their process to enlist new drivers.

Lyft and Uber left Austin, Texas, in May 2016, when the city’s voters rejected a proposition that would have repealed city regulations that required ride-sharing-service drivers to pass fingerprint-background checks. Ten small ride-sharing services started in place of Lyft and Uber and agreed to fingerprint-background checks for potential drivers. Austin Transportation Department says it disqualified 86 would-be drivers in August 2016 after their fingerprint checks turned up criminal offenses. No one could tell us whether Lyft’s and Uber’s background checks would have flagged the offenses, but the point is moot. Lyft and Uber returned to Austin in May 2017 after Republican Texas Gov. Greg Abbott signed legislation that removed Austin’s fingerprinting requirements. Abbott’s signature also eliminated the fingerprinting requirement in Houston, where it was in effect since 2014.

In December 2016, Maryland’s Public Service Commission rejected a provision that would have required ride-sharing drivers to undergo fingerprint-background checks. At press time, New York was the only city that requires fingerprint checks for ride-sharing drivers, and we haven’t heard of any movement to overturn it. San Francisco is debating whether to require fingerprinting but hadn’t reached a decision at press time.

Another issue that cities are considering is whether ride-sharing services should be classified as a taxi service or as something else. Lyft and Uber call themselves transportation network companies (TNC), which means that they aren’t subject to as much licensing and regulation as are taxis. For example, taxi drivers typically are required to get a taxi and limousine commercial license, which costs about $550. Lyft and Uber drivers have to get one in New York City, but everywhere else, they have to have only a driver’s license. Lyft and Uber are required to be licensed with the state; individual drivers aren’t.

New York is the only city where ride-sharing-service drivers have to buy their own commercial insurance, as taxi drivers must. Because Lyft and Uber aren’t classified a taxi service elsewhere, they’re able to provide commercial insurance for their drivers that covers the driver and passengers if a ride-sharing vehicle were involved in a crash. Lyft and Uber each now provides up to $1 million in liability coverage per incident and up to $50,000 for comprehensive/collision coverage when a passenger is in the vehicle.

Attorney Brian Salvi of Salvi, Schostok & Pritchard tells us that this insurance coverage is adequate for passengers. However, if you want to sue the driver, Lyft and Uber have arbitration clauses in their terms of service that require all criminal and personal-injury cases to be arbitrated instead of being heard in front of a jury. What’s more is that you can’t appeal the arbitration ruling, as you can appeal a court ruling.

“You’re better off in the court system than you are in an arbitration system,” Salvi says.

Battling an arbitration system is the last thing that we’d want to think about if we were injured in an accident.

Jamie Bartosch has written for the Daily Herald for 19 years and contributes to USA Today.


Sharing the Same Car

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Experts believe that the days of two-automobile households, or driving alone in a vehicle that you own, are numbered. The future, they say, is all about shared vehicles. As a result, major automakers are investing in car-sharing programs, so they appeal to customers who want to use an automobile but aren’t interested in owning one.

At least 1.9 million consumers are members of car-sharing services in North America, which is more than twice the amount that it was 5 years ago, according to University of California-Berkeley’s Transportation Sustainability Research Center. Unlike rental-car companies, which typically charge by the day, car-sharing services charge by the minute or hour—typically $7–$9 per hour, which includes fuel and insurance.

To join a car-sharing service, you have to provide a valid driver’s license and a credit or debit card and submit to a background check of your driving history. After you’re approved, you use a mobile app to find where one of the service’s vehicles is parked, unlock the vehicle with your membership card and locate the keys inside. Most car-sharing services require at least 30 minutes of advance notice before you pick up a vehicle.

In 2008, Daimler, which owns Mercedes-Benz, introduced Car2Go, which now is the largest car-sharing service in the world. Zipcar, which is the largest car-sharing service in the United States, was bought by Avis Budget Group in 2013.

BMW started ReachNow, which is its North American car-sharing service, in 2016 and now has members in New York City; Portland, Oregon; and Seattle. General Motors formed its car-sharing service, Maven, in 2016. Experts say that as a result of automakers investing in car-sharing services, more availability and a broader range of vehicles exist than ever before.