Lyft drivers strike as the money-losing company goes public

By Andrew J. Hawkins

Lyft debuted on the public market at $87.24 a share, up 21 percent from its offering price of $72 amid significant demand from prospective shareholders. It’s the first ride-hailing company to go public, with a market value of $30 billion. Meanwhile, its drivers — the people who power this app-based service — were on strike.

The ride-hailing company celebrated the milestone in Los Angeles, and not at the New York Stock Exchange, a more typical venue for high-profile coming out parties. LA is one of Lyft’s largest markets, and the city has embraced the company’s message of fewer personally owned cars and more shared trips.

But while Lyft celebrated, hundreds of Uber and Lyft drivers were on strike in protest of low wages and unsatisfactory working conditions on the other side of town. Drivers went on strike in San Francisco and San Diego as well, hoping to use the moment to shift the spotlight away from Lyft’s IPO (and Uber’s forthcoming public offering as well) to the more pressing concern about the future of ride-hailing.

“Looking at it, I can’t say for certain that this is economically viable, and I’m pretty sure that I’m losing money at the end of the day,” Los Angeles-based Lyft driver Tyler Sandness told Slate. “And I’m not supporting a family.”

“I equate it to a traditional employee being called into the office every 60 days and being told, ‘Hey your wages are getting cut, click here or you’re fired,’” Jeff Perry, a Lyft driver for almost three years, told Bloomberg.

Uber and Lyft have built platforms that employ millions of drivers and delivery workers, but neither company consider these workers full-time or even part-time employees. Instead, they are classified as independent contractors, free to set their own schedules and drive for any app they wish. As contractors, they lack basic benefits like workers compensation, health insurance, and paid time off. They also can’t collectively bargain for higher wages or improved working conditions.

Lyft, in its recent filing for an initial public offering, told prospective investors that being forced to classify drivers as employees “may require us to significantly alter our existing business model” and warned of potential “monetary exposure.” While Uber’s prospectus hasn’t yet been released, it will likely contain similar language.

Fortunately for both companies, the courts have largely agreed that their drivers don’t count as employees. Drivers have seen few victories in their legal fights against their classification as contractors. And the US Supreme Court recently issued a ruling bolstering the power of employers to force workers to use individual arbitration instead of class-action lawsuits, further diminishing drivers’ ability to challenge their status.

Ahead of its IPO, Lyft introduced a number of programs aimed at appeasing drivers: no-fee bank accounts, an expanded rental car program, and discounts on vehicle maintenance and repairs. Uber also has been trying to recast itself as friendly to drivers, highlighting product updates like in-app tipping, a redesigned driver app, and a rewards program for high performers. There seems to be a nervousness that the driver problem, as it were, could cast a shadow over their public debuts.

Uber and Lyft are both planning to give some of its drivers cash bonuses, which are intended to allow drivers to purchase stock. It’s a complicated workaround to a problem facing the ride-sharing companies, which can’t grant stock to their drivers due to SEC rules that prevent giving private company stock shares to freelancers.

“Hopefully, this move by Lyft will put some more income in the pockets of the participants in the gig economy labor market, but I don’t expect that it will be a large dollar amount in many cases,” said Micah Rowland, COO of the gig economy recruiting and hiring platform Fountain. Rowland worries this move may even backfire if the share price takes a plunge, or if drivers end up incurring tax bills they can’t afford to pay.

It would be a mistake to assume every driver wants to be classified as a full-time employee, Lyft’s chief operating officer Jon McNeill told me in an interview last week. “The super majority of our drivers are part time,” he said. “You know that statistic just underscores the fact that they are earning money in different ways. A lot of them have full time jobs. And this is supplemental. Some combine a lot of part time jobs because they want the flexibility of setting their own schedule. An employment classification obviously would run counter to that because it wouldn’t allow them that flexibility.”

The question of whether drivers would trade that flexibility for employer-provided health insurance or workers comp depends on which drivers you talk to. Professional drivers, the ones who log 10 or more hours a day driving for app-based companies, would probably take reclassification over flexibility. The grad student driving on the weekends to make ends meet? Probably not.

In New York City, drivers are on edge after a Lyft driver died by suicide over the weekend, the ninth for-hire driver in the city to take his own life since late 2017. The driver’s death came after Lyft sued the city over the implementation of rules that set a higher floor for hourly ride-hail driver wages. Lyft claimed the law would give Uber an unfair advantage because it’s bigger and has more fares. A judge rejected the company’s bid for a temporary injunction.

Investors don’t seem too worried about the upheaval among drivers, perhaps because they assume such workers will soon be obsolete. Both Uber and Lyft are working on self-driving technology, with the end goal of replacing their human-powered vehicles with automated ones. Per-mile costs plummet, passenger demand spikes, and ride-hail companies reap the rewards.

But there are glaring problems with self-driving technology, not least that it’s still years, if not decades, away. Lawmakers are increasingly taking a skeptical view on autonomous vehicles, after several high-profile crashes. If the technology and regulatory issues can all be resolved, fleets of robot taxis still have to be funded, with associated operational costs – and it’s unclear what those costs would be.

Lyft reports losing $911 million last year, and warns it may never become profitable. “We have a history of net losses and we may not be able to achieve or maintain profitability in the future,” the company said in its filing with the Securities and Exchange Commission. Uber will likely say something similar in its filing; the company loses around $800 million a quarter.

Ride-hailing companies are headed for a big crash because of those losses, according to Hubert Horan, a consultant with 40 years of experience in the management and regulation of transportation companies, who wrote a 17-part examination of Uber’s financial situation for Naked Capitalism. Horan argues that Uber uses “manufactured narratives, and propaganda techniques that hid (or diverted attention from) evidence about its lack of competitive economics and its terrible financial results.” If both companies end up raising the money they are hoping for, this problem “simply shifts from the current investors to the new public shareholders.”

Drivers will also be on the hook for these rising losses. The only advantage Uber and Lyft might have is drivers’ lack of financial acumen — that they don’t understand the full cost of using their cars and thus are giving the ride-hailing companies a bargain. There’s some evidence to support that notion. Ridester recently published the results of the first study, which found that UberX drivers earn less than $10 an hour. They would do better at McDonald’s.

Horan argues Uber and Lyft will need to slash costs even more than they have ($3 billion and $1 billion, respectively) in order to appease shareholders. “Although once they become public, they will undoubtedly do everything possible to cut driver wages further,” Horan said in an email. “And also raise prices and reduce service.”

Analysts note that ride-hailing has a low barrier for entry, meaning it’s very easy for new companies to enter the market with their own products and prices that are cheaper than the incumbents. Lyft says it has 39 percent market share, but that’s not a guarantee.

“Uber and Lyft cannot produce taxi service as cheaply as a typical Yellow Cab company,” Horan continued. “The idea that they will someday have costs low enough to compete with transit and private car ownership is a delusional fantasy.”