Thursday, July 24, 2014

A Conversation with Desoto President Hansu Kim

I was about to publish an interview that I'd had with Desoto Cab President Hansu Kim awhile back when local journalist's came out with the story that Kim was thinking of turning Desoto into a sedan service – one writer said that it might happen in as little as 90 days.

Mr. Kim denied that he said he intended to convert to a sedan service in  "90 days." Only that he could convert in 90 days if he had to. But has "no intention doing so."

What he was doing was giving an "if" scenario.

"What I'm saying is that the taxi business as we know it will not be in existence in 18 months 'IF' the industry continues to be deregulated as it is."

"I don't believe that the taxi business will ever disappear but it could be that full service, dispatch-centric companies will no longer be in business as they are today."

"My feeling is that in a deregulated environment, it would be a race to the bottom."

Aside from usual sensationalism and inaccuracies that one has come to expect from the local media on the subject of  taxis, the coverage of Kim's statements lack context and understanding of what deregulation of faux taxi services like Uber x really means. What Kim and the other cab companies are spending money on is public safety.

Uber and the rest are endangering the public by cutting corners. To use a metaphor from the construction business I grew up in, what they are doing (not carrying proper insurance, not fingerprinting drivers, not guaranteeing the safety of passengers or pedestrians) is the moral equivalent of pouring sand into the foundation of a building in order to save money on concrete.

President Kim says that the problem is that the cost structure of running a quality cab company is enormously high.
  • Desoto, with 200 cabs, pays $500,000 per month for the use of medallions = $5 million a year.
  • Insurance costs $10,000 per year per cab = $2 million a year.
  • It costs $4,000 per cab  per year for workers comp = $800,000 per year.
  • In addition there are taxes and other fees.
Kim is competing "against services that are acting like taxicabs … on demand ... using apps ..." with none of these costs.
  • Anybody can put out any type of car they want.
  • They can put out as many vehicles as they want.
  • There are no real background checks on the drivers.
  • Thousand of vehicles are working the streets without commercial insurance – without insurance that protects the public. 
"If the city allows a deregulated environment where we have to compete against these forces that don't have the same cost structure we do, we won't be able to compete ..."as a quality taxi business.

"The value of  a medallion comes from the fact that the city has tightly regulated who can pick up the public. If anybody can pick up the public in any number they want, the medallion value is going to go down... If my new competition isn't going to have to play by the same rules then companies like mine are going to have to retool and compete in a deregulated environment."

Kim may consider no longer using medallions and turning Desoto into a car service. Unlike Uber & Lyft, he would carry real commercial insurance and workers comp for drivers.

"But that's not what I want or intend to do."

Regulation is very important for the taxi industry, and anyone else that picks up the public.

"We have to make sure there is accountability."

"Do we really want anyone to pick up your daughter from soccer practice? And who is going to pick up someone who is disabled or had dialysis? Do we want unvetted people with criminal records picking us up?"

 The types of vehicles that pick up the public also need to be regulated.

"I take pride in the fact that San Francisco leads the way with a clean air vehicle fleet. We have almost all hybrids or natural gas vehicles."

"Now I see thousand of vehicles crowding the streets ...  competing against us … making a mockery of the rules we worked hard on to be a clean industry."

"Do we want venture capitalists to determine who gets to be a taxicab driver and what insurance" is required?  Do we want venture capitalists to determine safety standards … and who gets to pick up the public? Is that what we want from a public interest standpoint? Absolutely not!"

Do you remember how these guys got started? They posed as doing a community service, sharing their vehicles to give rides and asking for donations to cover their costs. Now we know clearly that these are venture capital backed, for-profit corporations undermining the cab industry to maximize their gains.

I asked Kim if he isn't afraid of discouraging drivers or starting a run on medallions.

"That's the last thing in the world I want to do," he said. "I'm not planning on going out of business and, as you know, I'm a big believer in drivers buying, selling and owning their medallions. It's just that they (Uber etc) need to be regulated.

Kim thinks that regulators and the public are beginning to understand that if Uber et al are not regulated in a meaningful way, and are allowed to underprice taxicabs out of business, the result would be a disaster for the public.
  1. 24/7 taxi service with full insurance coverage would cease to exist.
  2. The elderly, the disabled and the poor would no longer be picked up at discount prices.
  3. Trained, experienced drivers would be replaced by untrained amateurs.
  4. Accident rates would soar.
  5. Personal insurance rates would rise. 
  6. Price gouging would be the norm.
  7. The costs to the cities in terms of insurance and medical rates would skyrocket,
Judging from my personal experience, the riding public is beginning to understand. I've been getting a lot of customers telling me they wouldn't ride again with an Uber or a Lyft. Other cab drivers have similar stories. Passengers tell me,
  • Uber & Lyft drivers don't know how to drive.
  • They don't know where they are going and spend their time looking at the GPS instead of the road.
  • They take people the long way around and overcharge.
Hansu Kim says that smart drivers are beginning to come back or come over to the taxi business.

"I'm proud to say that we have nearly fifty ex-Uber & lyft drivers now driving for Desoto."

Some came over because they were fired for not picking up a high enough percentage of orders. A little known fact is that Uber & Lyft have tremendously high turnovers. It's little known because, unlike cab companies, their businesses aren't transparent and the CPUC refuses to make them open their books to public scrutiny. In any case, their drivers are under tremendous pressure and live constant fear of being fired over rating systems.

Uber & Lyft drivers are also begining to understand how little money they are actually making when they figure in the depreciation of their cars, maintenance, real insurance and so on.

Kim says that new drivers appreciate the training they get and feel more secure with the 24/7 insurance that taxicabs do offer.

"Desoto and other companies are beginning to retool and modernize," he said.

"For instance we've incorporated the flywheel app into our entire fleet."

I asked him if he ever considered a split on the meter which I've always thought would get rid of deadwood taxi companies that only collect rent.

"This is a great point," Kim said.

"Our competition makes money by taking a percentage of the fare ... the taxi companies have to look at this and see if this is a model for us to pursue. Everything is now on the table. However if we did this we would have to make sure that driver income stayed as good or become better."

"What we have to do is make certain that the taxi business has a high level of service:
  • Making sure that the driver has lots of orders.
  • Making sure that the vehicle is high quality.
  • Making sure that it has credit cards, paratransit and other services that the public wants.
  • Making sure that companies keep up with the latest technical innovations.
"The taxi industry ... is like a public private partnership with the City."

"Unlike other private businesses," Kim says. "The taxi business supplements the ridership that is needed for the public like paratransit services for the elderly and the disabled community. What we need is a regulated environment for the good of the public so that people can have services at a predictable rate." 

"The City has put me in a situation where I have to survive in a deregulated environment – which I don't want to do – I'm making it clear that we need to be highly regulated."

"It's in the public interest to make sure that the vehicles are inspected, that the drivers are held accountable ... I want to see an even playing field where everyone plays by the same regulatory rules that are appropriate."

Kim went on to say that if he could compete under the same rules he would be providing a superior service. Taxi services have:
  • Safer vehicles.
  • Better insurance.
  • Vetted and trained drivers.
Kim said that there is still a tremendous demand for service.

"Even with the competition we have now, cab drivers can have the best of all worlds. They can do Desoto corporate orders, Flywheel or other app orders, they can pick up flags or work the airport ... Because cab companies pay taxes, we have the use of the red lanes ... So cab drivers should be privileged compared to the deregulated services."

Taxi companies also pay taxes and pay millions of dollars worth of fees to the city from the sale of medallions. If cab companies were driven to bankruptcy, San Francisco would lose over $300 million in fees over the next five years.


  1. I'm surprised no cab company has closed yet. It is simply not possible to keep going with empty cabs in the lot every day. Sorry to say it but in an unregulated environment the cost of medallions will have to go. The City made sixty million off us and should have fifty Lawyers trying to get jurisdiction over what are cab companies. You contact them and they pick you up. That is a taxi service plainly.
    Looks like the Mayor is going to stand by and let us die. DeSoto has a lot of radio business so I think the idea has merit and what else are they to do?

  2. Just couple of month ago the cab company that's leasing my medallion,has decided to significantly reduce what they pay me monthly..and again,just recently the same company told me that they are considering another price reduction..Of course i wasn't pleased with that nor with the way they announced that news to me.
    When i tried to contemplate other cab companies like desoto,Yellow,Luxor,Veterans..Etc to see if they are interested in leasing my medallion,they all told me the same story,sorry we have more than enough medallions and not enough drivers to cover the shifts..I don't blame them for saying that.

    After driving and being on the waiting list for dozen years the MTA(city) gave me two choices,either buy or kick me out of the list...Now it seems like the (the city) is not doing much to save the medallion (their product) from loosing value..So i wonder what are the scenarios that are likely to happen to fellow medallion owners like me?? and what action i can take to avoid or minimize the damage??

    Please don't be shy with you predictions or suggestions.

    Thank you,

  3. The city will not do anything to help the taxi industry. The VCs investors (read Google, et al) have ALL the local/state politicos on the hook. Those guys only care about re-election & fundraising for their campaign.

    I like the Desoto idea. It certainly carries more dignity for a driver.

  4. This is a serious problem. I'm hearing that some medallion owners who bought aren't able to cover their monthly payments to the SF Federal Credit Union with the declining lease fees. Who is going to absorb the loss when loans start going into default? People who bought will have their credit destroyed and be liable for the payments while the city tries to find a buyer for their medallion. How can the taxi industry attract new drivers when Uber and Lyft are paying signing bonuses? Lyft just announced that they will guarantee $10,000 a month to new drivers in NY.