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Toronto Taxi Economics -- Taxi Protest Today

There will be a taxi driver protest this morning around City Hall. The taxi owners are actually a big part of the protest because they are allowing their drivers to have that time without paying vehicle fees. It is all about proposed new City Hall regulation that would require cabbies to buy brand-new cars.

I don't know a lot about this particular dispute, but the Toronto Star today says:

Councillor Denzil Minnan-Wong (Ward 34, Don Valley East) won't apologize for the strict terms of the new bylaw, saying it would improve the quality of car on the road and put an end to the industry's "chop-shop" practice of rebuilding cars wrecked in accidents. ... "This reform is going to make cars even better for the riding public."

...Peter Zahakos of Co-Op Cabs said it would be easier to ban "chop-shop" vehicles and let the cabbies buy quality used cars. "I don't know why they want the industry to spend another $10 million over five years just on capital costs for depreciation," said Zahakos. "You know darn well if you bought a brand new car, before you take it off the lot it depreciates 40 per cent. It doesn't make sense to pay that just for the smell of a new car. What can I say, that's city council."

Just based on this quick description of the situation, I think the cabbies seem to be making more sense. I ride a fair amount of taxis in Toronto and elsewhere and in my view the quality of vehicle is high compared to some other cities. I don't see a big problem that needs fixing here.

Apparently there was a compromise regulation -- allowing used cars up to two years old -- that had been negotiated between the industry and the City Hall transportation committee. Instead, Minnan-Wong introduced a tougher motion which was passed by council.

Anyway, whatever extra costs that come out of this will eventually find their way into fares. This reminds me of the conversation I had with a driver last week where I learned a bit more about the economics of taxis in Toronto. I'm no expert, but the information is fairly interesting.

A driver told me that an airport taxi plate sells for about $450,000 now. (Someone else told me that for regular cabs it is more like $110,000.) The driver explained that after he pays for his vehicle, he has about $150 per shift per day. There are two drivers per car, so that's about $300, of which they would have to pay $100 to rent the plate.

This adds up, because the $100-per-day rent for the plate works out to a 8% return on investment for the plate owner (plus any appreciation in the value of the plate).

What this means, however, is that there is an ownership class that is extracting money out of every fare without adding the slightest value. There is a heavy capital cost that is being financed but the capital in this case is illusory.

If the airport taxis I describe bring in $500 per day, and pay $200 to operate and rent the vehicle, $200 to the drivers and $100 to the plate owner, that suggests that every fare is 20% higher than in needs to be.



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