New UberX Rate Cuts in 48 Markets Squeeze Drivers

Uber has announced another round of UberX rate cuts in select markets including Dallas/Fort Worth.

Uber X drivers received this surprise news yesterday when logging onto the driver app to accept passengers.  The notification required drivers to acknowledge UberX rate cuts of up to 25% before being allowed to continue accepting new passenger rides.  In related news, several drivers also reported receiving notification that their accounts were under quality review and risked suspension from the ridesharing service.

This latest news further clouds the economic viability of driving for UberX, a service where independent contractor drivers utilize their own private vehicles to participate in a shared economy coined “ridesharing”. UberX skirts traditional transport regulations by acting not as a transport operator but instead as a matchmaker pairing private individuals for a fee – one who wishes to obtain a ride, one who wishes to provide a ride – while taking a cut in exchange for providing the platform that makes the match.

As both an occasional UberX driver as well as a regular Uber passenger, the news gives me pause as to the direction the company may be headed, particularly as they continue to regularly face scrutiny of surge pricing policies, square off with competition from other ridesharing startups, face regulatory pressure, and combat pushback from traditional transport providers.

Rate Cuts and Guarantees

Rates vary city-to-city, but in Dallas the new rates are set at a minimum fare of $4 (which includes a $1 safe rides fee that flows back to Uber directly, leaving the driver minimum at $3) and pricing based on $0.90 per mile and $0.15 per minute fees. (Per mile fees are calculated for the route overall but per minute fees kick in when the car is traveling at 11 mph or less, including parked waiting time.)  There are no flat rate fares loaded into UberX for airport rides or other common zone destinations.

This is a far cry from just over a year ago when UberX first came to Dallas. At that time, riders were charged a minimum fare of $6 which included a base fare of $2 and a $1.90 per mile and $0.30 per minute fees.  Airport rides were flat rate for common zones (for example: Fort Worth to DFW Airport for $50).

Yesterday’s rate cut is one of several that have occurred in that year. The last cut in October 2014  followed a mid summer cut.  All have been positioned to drivers as ways to increase overall earnings by putting more passengers on the road.

How much have the rate changes affected both passengers and drivers?

Let’s look at three of my common rides (both as a driver and as a passenger) – my neighborhood to DFW Airport, my neighborhood to the Stockyards/north Fort Worth, and Texas Christian University to the West 7^th entertainment district.  All fares below are calculated on the base mileage and drive time estimated in Google maps only – they may be higher if per minute fees (assessed when the vehicle is stopped and/or driving at 11 mph or below) are factored for traffic, wait time, loading, and unloading.

My neighborhood to DFW is approximately 30 miles one-way and typically takes 35 minutes with no traffic.

In December 2013, the fare would have been a flat $50.00 for the passenger. Driver take-home would have been a flat $40.00.

Today, the fare could be as low as $30.00. Driver take home could be as low as $23.20.

Rate cut for passengers – 40%. Rate cut for drivers – 42%.

My neighborhood to the Stockyards is approximately 6 miles one-way and typically takes 15 minutes with no traffic.

In December 2013, the fare could have been as low as $14.00. Driver take home could have been as low as $11.20.

Today, the fare could be as low as $7.00. Driver take home could be as low as $4.80.

Rate cut for riders – 50%. Rate cut for drivers – 57%.

From TCU to the West 7^th district is approximately 3 miles one way and typically takes 10 minutes with no traffic.

In December 2013, the fare could have been as low as $8.00. Driver take home could have been as low as $6.40.

Today, the fare could be as low as $5.00. Driver take home could be as low as $2.40.

Rate cut for riders – 38%. Rate cut for drivers – 63%.

When I signed on this summer (right before a pay cut), it was for $1.68 per mile.

In six months, I’ve taken a 46.5% pay cut.

My New Years Eve reflected some of this cut – a much different earning possibity than my first 24 hours of driving.  And since passenger demand is growing, by all Uber reports and projections, what is affecting the numbers could be how many drivers are currently on the road.

Guarantees

To compensate for the latest round of rate enhancements, Uber is now offering DFW drivers guaranteed hourly earnings. As in all their guarantee offers, however, the stated amoung is misleading as it is calculated on gross fares – after Uber’s $1 per ride “safe rides” fee, but before Uber’s 20% cut of the remaining fee.  So to determine what is actually being offered, drivers need to calculate the net guarantee.

Starting today, drivers are guaranteed $20.00 per hour gross (or $16.00 net) between 5 pm and 3 am on Fridays and Saturdays and $12.00 per hour gross ($9.60 net) at all other times.

To receive the guarantee, drivers must meet the following three criteria: accept 90% of the rides offered to them, must take at least 1 trip per hour, and must be logged onto the app for at least 50 minutes of each hour.

That guaranteed net income also comes before the actual cost of being an Uber driver – maintaining a private vehicle (payments for lease or purchase, maintenance, and depreciation), gasoline and tolls (not all of which are reimbursed by Uber), mileage between fares on the way to pickups (Uber only covers the mileage of the actual ride), and all the extras that Uber strongly encourages drivers to provide (bottled water, mints, gum, and car chargers) for passengers.

Drivers also shoulder the cost of their telephone – they can either lease a locked down Uber iPhone for $10 per week or use their own private phone (which requires installing Uber’s tracking software which can record conversations and track other activities such as text messaging while drivers are logged in).  Uber drivers cover the cost of increased data utilization (the Uber app can run my battery down in 90 minutes so think of the data involved in tracking real-time position and fares) which can spike even further if they opt in (as Uber encourages) to their passenger enhancement with Spotify to allow users to stream their own music into the driver’s vehicle.

When actual costs of business are factored (or even ONLY the mileage at the IRS reimbursable rate), being an UberX driver can be a below minimum wage undertaking.

Rate cuts are a short-term win.

The rate cuts are great for passengers – at least right now.  In the long term, they may ultimately may push drivers seeking higher wages from the system.

Still, the opportunity can seem tempting on paper. Uber once advertised in the Dallas metro area offering up to $60,000 a year in driver earnings.  As recently as Thanksgiving, they recruited new drivers offering a guaranteed $5,000 in gross pay.  Advertising gross pay is a misrepresentation since Uber calculates gross pay as billings AFTER the $1 per ride safe rides fee is deducted but before their 20% cut – so that equates to $4,000 in net pay – or $48,000 a year.

Drivers who took advantage of that promotion were required to drive a certain number of hours during the 30 day period and those hours were further restricted to specific time windows (including peak 12 to 3 am weekend times). Total required hours averaged well over 40 hours a week making $1,000 a week look much less attractive when factored across the required hours (which would necessitate split shifts) and other requirements.

But then in some of those same markets, Uber has now slowed the flow of new drivers. Last month, drivers in Dallas/Fort Worth could still receive referral bonuses of $250 on new drivers who signed up and completed 20 rides.  (And referred drivers received $200 as well for that completion.)  Today the referral link remains, but the opportunity is now $0.  Uber’s plans seem to be shifting – perhaps to the UberMilitary recruitment campaign announced earlier this year.

In the long run, rate cuts may ultimately push some drivers away from the Uber opportunity, leading to a different type of individual attracted to ridesharing for income.

In turn, that may change the passenger experience and blur the line between ride sharing operators, taxis, and traditional black car services even further.

Reviewing Drivers for Quality

One frustration that UberX drivers regularly express in driver forums is the lack of feedback from Uber regarding expectation of driver partners.

Uber local offices are often viewed as operating in a black box environment. Office hours for local staff can be inconsistent and communications are sometimes not forthcoming.  Fare adjustments, for example, can happen arbitrarily (for legitimate or fraudulent reasons) and a driver can lose income as a result.

Some markets publish weekly driver statements letting drivers see their weekly ratings and passenger feedback (passengers are asked to rate their driver on a scale of 1 to 5 and provide comments at the end of each ride). In other markets, however, mine included, that data is not shared even upon request.  Drivers can view their 5 star aggregate rating when logging into the Uber driver app (mine is a 4.91) but may not know why their rating has changed or how passengers have responded to their ridesharing experience.

Yesterday, several drivers in the Dallas/Fort Worth area reported receiving notification that they were under Quality Review for the next four weeks. Those drivers will be monitored weekly for overall passenger ratings, rate reviews, and acceptance rate for rides.

Some drivers believe they were selected because of their acceptance rate for rides.  Ride acceptance can be a touchy subject for independent contractor drivers.  Those located on the edges of markets often receive ride requests that push the boundaries on how far one might be willing to drive – uncompensated – to pick up a passenger (my own personal record is a request that was 20 miles and an estimated 28 minutes away from where I was – it took me 41 minutes to arrive in heavy traffic and the requestors were actually walking out the door to get in their own private car when I drove up, believing that they had cancelled the ride!). Others who drive for UberXL (the 6+ passenger option) speculate they may be have been targeted for turning down lower paying UberX rides (they are required to opt in to receive requests for both) while waiting for XL passenger requests.

Passenger ratings did not, from a cursory view, appear to be low.  But Uber has in the past reportly culled a specific percentage of the lowest rated drivers in a market.  One driver reported a 4.63 aggregate rating earned him a review (on a scale of 1 to 5). Another quipped online that any passenger rating less than a 5 is “a vote to fire their driver”.  Some Uber offices have acknowledged that they review ratings during price surges more subjectively, as passengers often take their frustration with the price out on their driver.  But other drivers report that those who drive the nighttime (aka “drunk”) hours, tend to have lower overall ratings than other drivers.

The frustration with the review process can be felt today on driver message boards. Some newer “partners” (as Uber calls their drivers) are disturbed to find out they can be released from the system, but are not given specific benchmarks to meet other than the suggestion that they “provide a five star ride every time”.  The anxiety is even higher for some who have entered into long-term financing agreements for a car via Uber’s partnerships.  For others who left their last job after being lured by guarantees, the fear of losing their income stream is daunting.

One legal question many are mulling is whether the ability for Uber to arbitrarily terminate drivers for performing their job at their own discretion  jeopardizes their claim that drivers are independent contractors.

What Will Jetsetter’s Homestead Do?

Today’s news was not a complete surprise to me. Perhaps my full-time career as a management consultant had me anticipating the alignment of Uber’s labor force to meet the realities of the marketplace.  Or maybe I’ve become jaded after six months behind the wizard’s curtain as a driver.

What has surprised me is how significant – and frequent – the UberX rate cuts have been – both to passenger rates and driver compensation.  Uber is still a young company – and as such, still developing a strong understanding of supply and demand in their various markets and how to meet both factors.  My experience in contractor dependent companies  with high labor costs is that they can often run very low profit margins.  To make earnings, they must rely on volume and very tight micromanagement of all expenditures, including their number one cost – labor.

As a driver, I’m frustrated with the lack of transparency regarding standards and expectations. I have yet to see a single passenger comment although I hope that my 4.91 overall rating is enough to keep me clear of quality reviews.  I also drive a very nice vehicle by UberX standards which doesn’t hurt.  I know that the earning margin as a driver is low, but the ability to monetize a car that is frequently parked while I travel and the ability to use my Uber expenditures as a deduction work for me.

As a passenger, I’m more incentivized to take UberX than ever before – the latest rate cuts make Uber a less expensive option than airport valet parking for me on trips longer than three days. And using UberX for a night out is now less expensive than parking my car – not to mention the removed risk of DUI.  I worry though about the caliber of individuals who may be attracted to UberX in the future.  The UberX rate cuts change the prospective driver from one wanting to make at least $60,000 a year to one with a serviceable car willing to make slightly more than minimum wage working nonstandard hours.

So for now, I plan to continue as both a driver and passenger – although my incentive to drive for “fun” (or for extra cash for house repairs per my original plans) has diminished. I’ll be much more tuned into the opportunity cost of driving and have to weigh net guarantees with the value of my time and operating expenses.  I’m still likely to be logged on and accepting rides when I’m at home and can easily jump in the car in 30 seconds for a pickup, but will still be likely to decline those pickups if they are too far away, even if it puts me at jeopardy of deactivation and out of the running for the guarantee.  And frankly, getting people to just use my Uber referral code for a free ride (so I can earn free rides) seems like the more profitable option.

(This article was edited on January 10th to correctly note the new minimum fare for riders as $4.00 instead of $5.00 with minimum driver pay at $2.40 instead of $3.20.)