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Responses to Uber Rate Cuts in North America

 

 

 

protest

So it has been just over a week since Uber announced rate cuts in over 80 cities in North America. I thought this would be an interesting topic to tackle, especially since we are a pro Uber website that still tries to remain factual. With Uber rate cuts, come the usual protests by some drivers, and deluge of articles condemning Uber across the internet.  To form an opinion on these recent rate cuts, we analyzed press statements from Uber and also reached out to Uber passengers and Uber drivers.

 

Uber’s Take

Looking at Uber’s most recent press release as it relates to the rate cut in over 80 North American cities, and comparing it to the 2015 rate cut press release, it seems Uber has a strategy they believe will have a net effect of increasing overall pay (revenue) for Uber drivers, and also increasing the number of Uber converts that are the late adopters. By what I could gather, Uber is well aware that the average revenue per trip will drop as a result of the rate cut, but what they are predicting is that for most of the 80 cities, the trips a driver will be able to take per hour will increase (thus increasing the gross revenue per driver).  In the 2016 press release, Uber statement was:

 

“of course, it doesn’t always work as we had hoped. Last year, for example, earnings fell in some cities and we changed back. In Charlotte, for example, we pulled a 40 percent price cut back to 29 percent, and earnings for drivers grew by nearly 20 percent in 2015. And in two cities, including Seattle, we ended up reversing the price cuts entirely when it became obvious that prices were already low enough. Earnings have remained stable since.”

 

Uber Passengers and Their Take

My assessment is that Uber passengers for the most part are happy with the rate cuts. As long as Uber drivers continue to drive and provide quality service, there are no issues with the rate cuts.  Majorie Stradinger of readmstradinger.com says “we are sold on the courtesy, convenience and cost [of Uber]”. There are some Uber passengers that feel like the rate cuts balance out Uber surges. We can all remember the wave of discontentment during the New Year because of the price surge. To buttress this point, Mitch Goldstone of scanmyphotos.com says “… whatever rate cut was imposed is erased by more than a doubling of the net fee I pay [from surge pricing]”. That being said, there are a minority of Uber passengers that are a little worried about the impact rate cuts might have on the quality of service they are now used to. Joseph De Palma of canna.partners  says “…I want someone who feels comfortable with their position as an Uber driver, not someone so stressed about their finances they aren’t focused on being a quality driver…”

 

Uber Drivers and What They Are Saying

My assessment is that Uber drivers as a whole in the cities affected by the rate cuts are not too happy with the rate cuts because it will mean more driving for them, and less revenue per hour from fares.  Teejai Kimsey, of myideagirl.com and also an Uber driver says “Before the rate cut, I was able to make ends meet…now, the fare that used to pay $4.84 pays $2.48”. Some drivers have also pointed out the fact that the rates per mile for some cities have dropped below the IRS recommended mileage rate for 2016 (The rate for 2016, per IRS is 54 cents per mile). Harry Campbell of therideshareguy.com  says “Some cities like Detroit have even been lowered down to 30 cents per mile [see editors note] which is well below the IRS reimbursement rate, I just don’t see how drivers in cities like that are making any money”.

 

Editor’s Note
The rate per mile assertions that have been made about the recently lowered Uber fare rates do not take into account the total earnings per mile (when you take into account Uber’s charge per minute). See the rates for Detroit here. For Detroit specifically, the effective earnings per mile by my estimates is closer to $0.86 per mile.My calculations are based on some estimates which I make and are listed below:

 

Assumptions:

32 miles per hour (that is the average speed of a vehicle in the US per ridetowork.org)

 

Calculations:

Est. Number of minutes it takes to drive a mile on average  = (60  minutes * 1 mile  )/ 32 miles  = 1.875 minutes

Est. Charge per mile for one minute = 1.875 minutes * 0.30 dollars per minute = $0.5625

The effective rate per mile for Detroit = (Uber Rate per mile) + (Estimated Charge per mile for one minute) =>  $0.30 + $0.5625  = $0.8625/ mile

 

Uberkit.net’s Take

Uber ultimately is making changes that will benefit most drivers, but not all. We think the rate cuts that have been made will impact part time drivers the most (those drivers that require flexibility, but also a substantial income). Since the expectation would be that you would need to drive more, for their gamble to pay off, it might not make sense for some part time Uber drivers to continue driving. For those drivers driving full time, or close to full time, they will probably be a little unhappy that they have to drive more to make the same amount of revenue; however they now have the option/potential to make more money as a result of increased passenger demand. Whatever the case may be for those cities where the experiment fails, Uber has shown a track record of reversing those rate cuts (as previously mentioned). Time will tell, and ultimately, the market will decide. For now, let’s continue to make money on the Uber platform.

 

 

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