Have We Reached Peak Lyft?

Peak Car offers a compelling story of vast riches and better living. Yet the evidence is thin.

After the IPO

Last Friday, Lyft became America’s latest decacorn with an initial public offering that valued it at $24.3 billion; analysts expect Uber’s IPO, scheduled for later this year, to fetch $120 billion. These eye-popping valuations are bolstered not by profits—Lyft lost nearly a billion dollars in 2018—but by narrative. The story goes like this: Uber and Lyft are upending how we live by reversing a century-long trend of ever-increasing automobile dependence, with its attendant deadening sprawl, omnipresent danger, and environmental harm. Their revolution will transform the $1.5 trillion business of selling cars into a $10 trillion “mobility as service” business, according to a report by Morgan Stanley (now the lead underwriter for the Uber IPO).

As if to pump up the stock in the run-up to Lyft’s market debut (not that I’m making accusations), Bloomberg Businessweek devoted its March 4 issue to Peak Car. “We still drive 1.3 billion automobiles,” the headline said. “But not for long. The mobility revolution is almost here.” This was followed by a Peak Car Bloomberg Opinion Piece and a half-hour Peak Car interview on Bloomberg television. One week to the day before Lyft went public, tech reporter Kara Swisher published an op-ed in the Times that declared: “Owning a car will soon be as quaint as a horse.” She had given up her car. Soon, she said, you would, too.

The claims for Peak Car have passed from inference to incantation. Millennials are getting their drivers’ licenses at diminishing rates because they prefer walkable cities to suburban sprawl. Traffic congestion is bad and getting worse. Driving is a mind-numbing chore. Buying a two-ton hunk of metal that sits idle most of the time has become an anachronism in an optimized world of Airbnb, TaskRabbit, and Seamless. Automobile travel by smartphone app is just how digital natives do things! As Swisher puts it, “everything that can be digitized must be digitized.” Big data, AI, autonomous vehicles—all add up to smarter, greener, hipper urban living. What killjoy would claim otherwise?

Peak Car is a new name for an old idea. In 1925, auto executive Charles Nash, who not only had a major car company of his own but was in on the ground floor of General Motors, declared to a national gathering of automobile dealers that car sales had already peaked. Everyone who could afford a car already had one. But carmakers found a solution: the car loan. Dealers demanded ever smaller down payments and extended ever longer loans. The bursting of that credit bubble was one of the causes of the Great Depression. But in the years that followed the great crash, gasoline sales fell only marginally and, after a steep drop of 29 percent between 1929 and 1932, sales began to recover even as the Depression ground on.

In 1958, when car sales again fell off a cliff, commentators declared that Americans had “fallen out of love” with Detroit’s chromed boats. Traffic congestion was bad and getting worse. The Big Three responded with the compact car and the imports arrived, perfectly sized for one-car families who wanted to become two-car families. These new models also appealed to Baby Boomers, the first of whom, not coincidentally, reached driving age in 1962. By the late 1960s, we had arrived at Peak Car once again. This time traffic fatalities were skyrocketing, smog was blanketing cities, and traffic congestion was bad and getting worse. The future belonged to mass transit. Instead, we got safer and cleaner cars. Automobility metastasized and mass transit withered.

Peak Car offers a compelling story of vast riches and better living. Yet the evidence is thin. The rate at which young people get their licenses has indeed been falling, but the trend began in 1983, when the internet was still a science experiment. Today, the three best-selling vehicles in the US by far are pickup trucks. Most of those trucks are used as personal vehicles, as their pristine empty beds make clear. Whatever madness causes Americans to drive empty-bedded trucks around is not something Uber or Lyft can cure. And for those of us in the suburbs, minivans and three-row SUVs are more than transportation. They are waiting rooms, warm cabins on a cold day, and a place to leave the squash racket so we don’t forget it every week. It may be possible to find a Lyft big enough to carry the soccer team, but piling in with muddy cleats and leaving behind lost balls will earn you the dreaded one-star rating. Do it regularly and you’ll get you banned from the app.

Despite the construction of carbon copy condos, it seems Americans still want to enjoy the suburban idyll with its quarter-acre lots, empty-bedded pickups, and lived-in minivans. Cities did indeed grow faster than suburbs from 2010 to 2016; as of 2017 we’ve reverted to the traditional pattern, with suburban development again outpacing urban growth. In any case, no matter how innovative ridesharing apps are in locating and hailing rides, those apps command fleets of cars in the physical world. And cars and cities don’t mix. When the automobile first arrived in the early 20th century, it disrupted the urban environment far more radically than ridesharing has in the 21st. Modernist planners such as Le Corbusier envisioned new urban forms with superblocks and vertiginous skyscrapers to accommodate the automobile in the 1920s and 1930s. Eventually we gave up, and buried our cities under interstate highways and moved to the suburbs.

Still, Lyft investors are betting on the Peak Car theory, as an analysis by NYU finance professor Aswath Damodaran shows. “Reviewing Lyft’s (very long) prospectus, I was struck by the repetition of the mantra that it saw its future as a ‘US transportation’ company,” Damodaran wrote on his blog. “Lyft’s use of the word ‘transportation’ is intended to draw attention to the size of that market, which is $1.2 trillion.” But that $1.2 trillion “includes what people spend on acquiring cars.” In fact, Lyft is in the transportation services business, which right now amounts to $120 billion—one tenth the size of the transportation business as a whole. By inflating the addressable market, Lyft inflates its valuation.

Damodaran also considers the possibility that Lyft will never achieve long-term profitability, but still pegs its chances of survival at 90 percent, pretty good odds. Drivers and regulators are the biggest threat to profitability. Both companies get around minimum-wage laws and do not have to pay unemployment insurance (among other costs) by pretending their drivers are not employees but independent contractors. Contrary to Silicon Valley’s insistent claims of the joy and freedom of the gig economy, driving for these companies amounts to piecework, among the lowest paying and least secure ways to earn a living. Slowly but surely, however, state lawmakers and the drivers themselves are chipping away at that fiction.

If gig workers become employees, let alone unionized employees, wages and other expenses will have to rise. There have been a number of studies on driver income, but the latest and best comes from the Economic Policy Institute. The EPI calculated that Uber drivers earn an hourly wage of $9.21, below the minimum wage in seventeen sates. These kinds of studies reveal that many drivers themselves do not understand how much they actually make after factoring in long-term costs. As Damodaran puts it, “ride sharing companies have exploited that irrationality.”

If worker exploitation gets too expensive or difficult, Uber and Lyft promise a deus ex machina will ride to the rescue: the robot car. Uber (on its own) and Lyft (with big-league partners) are both investing heavily in driverless car technology. They are joined by Apple, Amazon, Google, and all of the major car companies. Despite continued enthusiasm and massive investment, sober analysts put the prospects of driverless cars far out into the future. The bottom line, however, is that automobiles remain incompatible with the smarter, greener, congestion-free cities ride-hailing evangelists promise. Ridesharing increases travel by automobile and increases the number of vehicle miles traveled. It has already made bad traffic congestion worse. Replacing human drivers with robots changes none of those facts. That means even if the staggering losses turn into staggering profits, the fairy tales in which these companies carry us over the peak and down into an urban landscape so efficient that no one needs to own a car will never come true—and the decacorn will be revealed for the mythical beast it is.

Dan Albert’s forthcoming book, Are We There Yet? The American Automobile Past, Present, and Driverless, is available for preorder in our online store.

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