If Uber Is Killing Taxis, What Explains the Million-Dollar Medallions?

A New York City Taxi and Limousine Commission medallion attached to the hood of a cab Richard Levine/Corbis

To hear angry hacks and enthusiastic Silicon Valley types tell it, Uber is killing the taxi industry. Apparently no one told the people who buy New York City taxi medallions.

This week, New York held an auction for individual yellow-cab medallions, the rare and wonderful permits that give drivers the right to operate a taxi and pick up street hails. Winning bidders paid as much as $965,000 for the latest batch of medallions. Last year the city drew even higher, record-setting prices in an auction for corporate medallions, which went for as much as $1.26 million. That record will be broken in the coming weeks when a single medallion changes hands for $1.31 million, according to Andrew Murstein of Medallion Financial, which is helping finance the deal.

Murstein, whose grandfather bought one of the city’s original medallions in 1937 for $10, says the auctions give the lie to the notion that Uber is having an apocalyptic impact on the taxi industry—a fiction that both overzealous cheerleaders of the startup and its opponents have an interest in promoting. “The taxi business is as strong as it’s ever been, despite Uber, because people in major cities will still go and stick their hands in the air,” he says. “Uber is nothing more than a terrific black car company.”

If you were to go back in time and invest in a single asset, taxi medallions would be an excellent way to make a fortune. Increases in New York’s taxi medallion values have far outpaced traditional investments such as gold. Since 1980, medallion values have soared more than 1,000 percent, while gold gained 181 percent, according to Bloomberg News.

The underlying value rests on the fact that there are fewer cabs than people who want rides. But medallion auctions aren’t the only evidence that yellow cabs have less to fear from smartphone-based livery systems like Uber and Lyft than commonly believed. E-hails accounted for 0.17 percent of all yellow-cab pickups (PDF) in New York over a six-month span last year, according to the city’s Taxi and Limousine Commission. Of those, almost half originated in the area of northern Brooklyn, a swath of the borough richly populated by trendsetting types most likely to be among Uber’s early adopters.

Still, New York’s lavishly financed taxi industry might become an increasingly rare market of resilience in the face of Uber-style disruption. In San Francisco, medallions go for a fixed price of $250,000. While that price hasn’t budged, the income that a medallion brings is dropping. This income takes the form of fees paid to medallion owners to lease their permits. Such fees usually range from $2,000 to $3,000 but have dropped several hundred dollars in recent months, according to United Taxicab Workers spokesman Mark Gruberg.

In Chicago, meanwhile, where drivers are suing the city for not regulating Uber, medallion prices have actually been falling lately, reversing sharp rises seen in the years after Uber’s 2011 launch in the city. The average Chicago medallion price dropped to $312,000 this year after reaching highs of $348,000 last year. Murstein attributes Chicago’s decline in part to smartphone dispatch and predicts that taxi industries in smaller cities will have even more trouble dealing with Uber and its ilk.

New York’s black car livery services traditionally arranged by telephone requests—and more commonly used outside Manhattan, in places where yellow cabs are rare—will likely feel the quickest brunt of the burden from app-based car services. That medallion-free side of the industry can suffer even as the cash flows at medallion auctions.

Uber has been deft at exploiting chinks in the regulatory framework of the taxi industry. In New York this led it to prey not on the city’s iconic cabs, but on the lower-rent radio-dispatch car services. Uber’s cost to enter this market was nothing compared with what it would have faced if it entered the feverish world of medallion bidding, even if Manhattanites who can stick their hand out to hail a cab within seconds have less use for a smartphone service promising a ride within minutes. If you’re a hack who knows the corners where the crowds gather—and you have access to a million dollars—you’re probably safe for now.