Is Uber becoming the new Walmart?

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This post was written by guest contributor John Sollars, who is a full time driver and runs the blog RideshareDriver.com. He is a regular contributor to SherpaShareBlog.com.

Remember those news stories that were written every time a new Walmart opened? People were lining up every time a new one opened to apply for the same low paying jobs that everyone complained about. Does the extremely high turnover due to the lowering of rates sound familiar? Uber and Lyft are doing the same thing and raising sign on bonuses in order keep their driver force growing faster at a commensurate rate, but is it sustainable?  

Walmart Line via KPCC

Recently, Uber added $750 to my weekly dashboard when one of my subscribers (Thanks Tony!!!) completed 20 rides in San Francisco. Tony received $200, and he stood to make the same $750, but missed the deadline. So let’s take a look at the math:

Uber paid out $950 in bonuses (which should have been $1500). If you add the $180 or so that Tony earned for those trips, that’s a total of $1,130. Uber received approximately $300 in fares from those passengers, for a net loss of $830. Tony completed 24 rides in total, at the old rates (before Jan 2016) after which he told me that he’ll never log on and drive again.

Losing hundreds of dollars to acquire each new driver

Uber and Lyft have based their business models on an everlasting supply of new drivers. The turnover rate has skyrocketed with each rate cut and meanwhile demand has risen, which has forced them to throw money at the supply side. We’ve seen this manifest in the form of new driver sign up bonuses. This does not seem like a sustainable business model, especially when considering the large numbers of drivers that sign up just to get the bonus, never to drive again.

As we all know, Uber and Lyft want to make their service cheaper than owning a car, and it seems the only way to accomplish that is to take the driver out of the equation. They have to continue to cut the rates to the absolute bottom dollar at which people will use their own personal automobile to carry passengers.

San Diego recently had their rates cut 54% while Detroit is now at 30 cents per mile. This is below minimum wage. In the San Francisco market, the price for traffic wait time is 22 cents per minute, for an hourly total of $13.20 (not even counting expenditures likes fuel, maintenance, wear and tear, etc). If the new minimum wage raises to $15, which may happen in the near future, then at every point when a driver has to stop in traffic or at a light, their earnings fall below minimum wage while waiting.

Fare calculations designed to confuse drivers

It seems that the fare calculations are designed deceptively to confuse drivers, even veteran ones at that. Many or most drivers are kept in the dark. I use Uber myself as a passenger whenever I go out for drinks and my first question to the drivers is always, “How much is this ride costing me per mile?” I’ve only had 2 drivers that actually knew the correct answer, and even they were uncertain until I confirmed the amount was correct.

Ever notice how Uber doesn’t send emails telling drivers how much less they’ll earn when they drop the rates? But they’ll brag all day about the rides being cheaper for the customer. To take the market share they first targeted the taxicab industry, and are now actively working toward the same end from Muni and Bart. Why walk to a bus stop and wait 10 minutes for a $2.25 ride when Uber will come to your house and pick you up for $5.40? This last Saturday when a passenger asked me if we could go through the drive-thru, I just chuckled and immediately declined. I didn’t apologize; I just said “no, we don’t get paid for waiting.”

I’ve always felt that if I was ever in a position where I had to work at Walmart, I would feel some embarrassment when dealing with the public because they would know I am not a well paid worker, but now Uber drivers may soon feel the same way. This latest round of pay cuts is not the last. If you understand this and the science behind Walmart’s growth strategy, then you might want to consider adjusting your plans accordingly. There are always people willing to fill these low paying positions. Rideshare companies count on this.

 


John Sollars runs the blog, RideshareDriver.com. He is a regular contributor on SherpaShareBlog.com and also a full time driver.

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18 thoughts on “Is Uber becoming the new Walmart?”

  1. I use a Chevy Volt to do Uber on the side and I use half gas, half electric. I get barely above $12 per hour here in the Twin Cities area (partially because I don’t drive late on the weekend nights.) I don’t know how people with older gas guzzler vehicles make any money. Surge pricing seems to be a moving target.

    1. I bought a Hyundai Sonata PHEV with the same idea in mind (plus $7K tax incentives is a nice +). Income was around $20/hour until the rates dropped last month. And same thing here with surges – they come and go very quickly – riders who prefer one service know to just wait a couple minutes and try again, or else they’ll just switch to the other.

  2. I can only say that I feel for a lot of you guys out there… I only started in late December, and I have been rockin’ it. After gas, but before maintenance, I made $21.31 an hour this Sunday, $25.66 an hour this Saturday, and $20.77 an hour this Friday. This has proved to be typical since I started driving for both Uber and Lyft as of a few weeks ago, but even when doing just Uber I was generally right at/over $20 on Friday/Saturday, and high teens to about $20 an hour on Sunday. Keep in mind these are REAL hours put in too, from the moment I clock on at home until I arrive back at home at night. Not cutting off my “worked hours” before I get home, and not starting when I get my first ride. The WHOLE TIME I am either available or actually working. I don’t drive other days so I don’t know what a regular non prime time type shift would do.

    I’m in Seattle, and we still have good rates here for now. I am also doing XL, which I think helps in my area.

    I bought a car specifically with Uber/Lyft in mind. An older minivan so I could do XL/Lyft Plus as I did the math and found I only needed 15-25% of my rides to be XL to offset the extra cost of gas vs a Prius. Since then gas has dropped a ton, and it’s probably even lower than that now. I think buying/using the right car is integral to making this stuff work. YOU DO NOT want to have a car that is depreciating, because it will kill your real profit after you factor in the depreciation!

    I bought a $4,000 minivan to do Uber. I’ve essentially made the entire purchase price back in net profit already. I will probably have some maintenance pop up as the vehicle I bought had just over 100,000 miles, but I will literally have more or less zero depreciation no matter how many miles I put on it as it’s essentially already bottomed out in terms of value. The difference in price between a car with 105K miles and 115K or 125K is essentially non existent for this vehicle. I got a fairly good deal on it at $4,000 given it’s options and condition. $5,000 to a bit over $5,000 would have been a more “regular” price after looking around at dealers and private party in my area. I had to spend $500 fixing a couple minor things to get it ready to rock. Since then I changed the oil, and haven’t had an issue after putting a few thousand driving miles on it. If I sell it after 10K, or even 20K or 30K miles I put on it I will get around what I paid for it. I might MAYBE have $500 or $1000 in depreciation over however many miles I decide to put on it. Or I might be able to get exactly what I paid for it, or maybe even a bit more since I got a good deal. That’s the kind of car you want to buy.

    I probably won’t even have to replace the tires or brakes as they have some good life left in them. If I do it will only be because I made THAT much money working the death out of it. Even if something major goes bad, like say the transmission, it will cost less than the depreciation many people suffer in 6 months on a newer vehicle. If nothing major goes wrong before I sell it off I just won like crazy. My worst case scenario is essentially if multiple major things break and have to be fixed… But when you compare that to buying a new, or even super low mileage used car, that same expense is essentially guaranteed to occur through depreciation. So it’s kind of like gambling, but it’s gambling with the odds heavily in your favor since few cars have major failures in the 100-150K mileage range nowadays.

    My best advice since I am a “numbers guy” is to either purchase an older Prius or an XL qualified vehicle (minivans are far and away the cheapest type of vehicle that seat enough people. Not an SUV. Not a crossover… A boring minivan, because they don’t hold their resale value well) with a couple years worth of Uber driving left in it (in Seattle they have to be 10 years old or less, in some areas you could buy an even older vehicle. $3000 2004 minivan with the same or lower mileage FTW!) and then off it afterwards for essentially the same money. Most modern vehicles will last without MAJOR maintenance up to the 150-200K mark. Buy them right around 100K, roll them for a year or 2 and be done with them before anything breaks. This is what the math says is best, and as I said even if the “worst” happens and you DO have multiple major issues you’re no worse off than if you had bought a newer car.

    Buying a super cheap vehicle that won’t lose value is ALSO a huge plus in areas that still have decent pricing for now… Because if they drop it and it’s no longer worth it you’re not stuck with a depreciating vehicle you no longer need. You can sell it off for what you paid for it and be done with it.

    As far as the areas where the rates are just crazy low, plan your exit and get out now as it will probably not improve. I feel super fortunate to be doing this in Seattle, because obviously in an area with rates that are half as high my profit per hour would be cut by slightly more than half as gas would be a larger percentage. Working this hard for $10-12 an hour might still be worth it for some people in some situations, but it’s a hell of a lot less appealing than $20+ an hour.

    1. I agree. I have 2 cars I use for Uber and Lyft. My 2008 Chevy Inpala I bought new and at that time there was no Uber, but it has over 120,000 miles when I started with Uber. The other car is a 2006 Ford Escape EV. It was my wife’s car. When I went ot trade it in in November, i was offered onlly $500 for trade. I kept it instead for Uber and Lyft. I paid $4700 for it and it gets 33mpg in the city. Later in the year I’m selling the Chevy and getting a SUV or Mini-van to do XL and Plus.
      Last week I did $355 for Uber and Lyft. Worked 5 hours on Friday, 11 hours on Saturday, and 8 Hours on Sunday (from home to home – actual hours) for an average of $14.79 per hour. Down time was probably 6 hours overall. Fuel costs were about $45.00 netting $310 or $12.91 per hour. Before the price cuts, that would have been only a little bit higher.
      In NW Indiana mileage is $1.50 per mile, but rides are few. In Chicago, mileage is $0.90 but rides are many, so I drive about 35 miles to Chicago first the first ride.
      Remember Uber’s motto – “every day rides with every day cars” or something like that. But that means any car that meets their approval.

  3. Walmart did not start with $30/hour wages and drop them to $10-12 an hour. IMO, it’s more like the “make money on the Internet” trend, where as time went on eBay/PayPal/etc. figured out where to set fees to maximize their income, resulting in many users spending a lot of time working for less income as time progressed. Some who had previously been making good money moved on to do “How to make money on the Internet” workshops/seminars/webinars to try to keep up the income level. Will we soon see “How to make money driving for TNCs” next?

  4. Great post John, you must have been listening in on my conversations. Uber/Walmart/Fill-in-the-blank-with-low-paying-employer all share the same trait. It’s never about the employee and always about the customer, specifically providing the target customer with the cheapest possible product. Like you, I felt the same way about working in an environment where the customer (passenger) feels “sorry for me” at best or, at worst, now feels like they can behave how they want because if I’m working for Uber I must be desperate. I recognize that the glory days are gone, I had been driving since mid 2014 at $1.65/mi (Northern NJ) but it has now dropped to an unsustainable .85/mi. I won’t be driving for Uber in the future. I would encourage highly rated drivers to engage with Lyft as mentors/recruiters/ambassadors. The referral/mentor bonuses can be quite lucrative.

  5. Fantastic Post. Disgusting company. Capitalism at its most finest. It was the perfect part time job for me while transitioning between jobs due to layoffs. Now it’s costing me more to maintain than it’s worth. It’s unfortunate because I’m a 4.9 driver who loves the customer interactions, values the networking and offers an exceptional experience. But for what? To feel good about myself? I can call my proud mother anytime if I want to feel good about myself. Good riddance Uber.

  6. The Uber bonus payment is the cost of acquiring a sucker who is unable or unwilling to do the math on expenses. Lyft may be nicer to drivers, but they don’t seem to be any different in paying. As a former driver, when I take an Uber or Lyft, I try and convince the driver that he is getting a raw deal and always tip heavily.

  7. $950 for a referral completing 20 rides!?!? Seriously!? LMAO The current offer in San Antonio is a big whopping $100 bonus when a referral completes 15 rides.

  8. New drivers are enticed for the immediate earnings, but hardly can figure out the long term cost of using their cars as taxis, and many part time absurdly argue that their costs are much less than the 54 cents standard mile deduction and completely fail to recognized the underutilized value of their car as an asset that belongs to them and naively give up for nothing.

    When new drivers learn to value their underutilized asset, and learn that they need to be compensated for their underutilized assets, whether is their car, phone, computer and time…, and until they learn that profit is what’s left after you cover your costs and after you pay yourself, then they will reconsider becoming another casualty of the 1099 war.

    The regression will continue, well past Walmart and well past uber, until drivers and people start thinking for themselves, rather than the uber lies propaganda.

    Minimum wage law is being defeated, worker compensation law is being defeated, a real dismantling of Social Security is just starting, and corporate greed is reaching new levels of greediness. We all should thank Travis Kalanick and his Rand-eniang philosophical objectivism arguing that unregulated self-interest is the American way. NO REBUBER ON!

  9. It will be curious to watch the story play out. Is a pink mustache enough to earn you a spot in the sandbox with a gorilla?

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