A Blog by Jonathan Low


Oct 23, 2021

Why For Uber and Lyft, the Rideshare Bubble Has Burst

Traffic jams have increased 5%. Pollution has increased as much as 20%. 

And prices have skyrocketed due to drivers demanding a living wage - forcing the companies to charge closer to the real cost - all of which suggests that the rideshare business model was built on underpaid labor and false promises, the bill for which, has now come due. JL

Greg Bensinger reports in the New York Times:

Uber and Lyft promised self-driving cars. They promised an end to private car ownership. They promised to reduce congestion. They promised affordable rides. They promised to boost public transit use. They promised profitable business models. They promised well-paying jobs. They even promised flying cars. None of that has gone as promised. Researchers found switching from a private car to  Uber or Lyft, increased the external costs of a typical trip by 30 to 35%  because of the added congestion, collisions and noise from ridesharing services. Deadheading is equal to 40% of rideshare miles.

Piece by piece, the mythology around ridesharing is falling apart. Uber and Lyft promised ubiquitous self-driving cars as soon as this year. They promised an end to private car ownership. They promised to reduce congestion in the largest cities. They promised consistently affordable rides. They promised to boost public transit use. They promised profitable business models. They promised a surfeit of well-paying jobs. Heck, they even promised flying cars.

Well, none of that has gone as promised (but more about that later). Now a new study is punching a hole in another of Uber and Lyft’s promised benefits: curtailing pollution. The companies have long insisted their services are a boon to the environment in part because they reduce the need for short trips, can pool riders heading in roughly the same direction and cut unnecessary miles by, for instance, eliminating the need to look for street parking.

It turns out that Uber rides do spare the air from the high amount of pollutants emitted from starting up a cold vehicle, when it is operating less efficiently, researchers from Carnegie Mellon University found. But that gain is wiped out by the need for drivers to circle around waiting for or fetching their next passenger, known as deadheading. Deadheading, Lyft and Uber estimated in 2019, is equal to about 40 percent of rideshare miles driven in six American cities. The researchers at Carnegie Mellon estimated that driving without a passenger leads to a roughly 20 percent overall increase in fuel consumption and greenhouse gas emissions compared to trips made by personal vehicles.

The researchers also found that switching from a private car to on-demand rides, like an Uber or Lyft, increased the external costs of a typical trip by 30 to 35 percent, or roughly 35 cents on average, because of the added congestion, collisions and noise from ridesharing services. “This burden is not carried by the individual user, but rather impacts the surrounding community,” reads a summary of the research conducted by Jacob Ward, Jeremy Michalek and Constantine Samaras. “Society as a whole currently shoulders these external costs in the form of increased mortality risks, damage to vehicles and infrastructure, climate impacts and increased traffic congestion.

But as Lyft would have it, “By using Lyft to share rides, passengers are helping to reduce the carbon footprint left by our country’s dominant mode of transportation — driving alone.” That’s what the friendly Uber alternative claimed way back in 2016.

So what about all those other pledges? They’ve proved to be just as illusory.

Take urban congestion. Uber and Lyft envisioned a future in which software algorithms would push each car to host three or more passengers, easing traffic and providing a complement to public transit options. Instead, passengers have largely eschewed pooled rides and public transit in favor of private trips, leading to downtown bottlenecks in cities like San Francisco. The duration of traffic jams increased by nearly 5 percent in urban areas since Uber and Lyft moved in.

Lyft’s president, John Zimmer, once claimed the majority of rides would be in autonomous vehicles by 2021, but the company has largely backed away from its self-driving efforts, including selling its developmental unit to a Toyota subsidiary this year. Uber, which once characterized robot cars as “existential” to its future, sold off its autonomous vehicle division last year after mounting safety and cost concerns.

The efficiencies of ride hailing were supposed to all but end car ownership; instead vehicle sales are on the rise again this year, after a down year in 2020. There is also evidence that Uber and Lyft may actually spur an increase in car sales in cities where they begin operating.

Public-transit use in some areas, despite the companies’ claims, has been waning, according to several studies, as more consumers opt to jump in Ubers and Lyfts that drive them door to door. That was before the Covid pandemic spooked users into staying away from crowded subway cars and buses.

Underwritten by venture capital, Uber and Lyft hooked users by offering artificially cheap rides that often undercut traditional yellow cabs. But labor shortages and a desperate need to find some path to a profitable future have caused rideshare prices to skyrocket, perhaps to a more rational level.

After burning through billions of venture capital dollars, Uber said it was on a path to profitability last year, using an accounting metric that ignores many of the costs that actually make it unprofitable. By the same measure, chief executive Dara Khosrowshahi is projecting this quarter could be profitable. That remains to be seen. Sure, the pandemic had an outsize impact on ridesharing, but even though food delivery helped prop up Uber’s results, the company still lost a staggering $6.8 billion last year, following $8.5 billion in 2019 losses, in supposedly better times. Lyft hasn’t fared much better, racking up $4.4 billion in combined losses over the same period.

Despite the hype for the companies’ stock market debuts, some Lyft investors are still underwater more than two years later, while Uber stockholders have eked out meager gains. Hardly winning business models.

It is tempting to chalk much of this up to marketing and typical corporate chest thumping. But the companies skirted laws for years to help drive growth and along the way have made drivers pawns in their race to the bottom. Displeased by a California law that would grant drivers employment status and guaranteed benefits, Uber and Lyft teamed up with DoorDash and other gig companies. They forked over more than $200 million to back a ballot measure that all but ensured thousands of workers would never gain the dignity of a consistent living wage — ostensibly to help safeguard the company’s not-quite-thriving business models. (A state judge has called the law unconstitutional.)

Now, despite the cynicism of the California fight, Lyft and Uber are trying to foist a similar law upon Massachusetts with the promise of “historic new benefits” for “app-based rideshare and delivery drivers.” Voters shouldn’t fall for it.

The companies are correct that they offer a useful service, including food delivery to the homebound, an alternative to drunken driving and access to transportation in underserved areas. But after years of bluster, it’s hard to believe them about much else.


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