In the mid-20th century, public transportation across the United States faced tremendous challenges, including outdated infrastructure and the lack of dedicated rights-of-way. More and more riders were switching to cars, worsening congestion, and exacerbating frustration for those who remained on board.
Our government poured taxpayer dollars into roads and highways, subsidizing an affluent few at the majority’s expense. But they had a lot of help from the private sector.
General Motors, Standard Oil of California, Firestone Tires, and Phillips Petroleum-funded National City Lines made sure that in many towns and cities, no one addressed these challenges. The consortium bought and dismantled numerous rail systems, including Los Angeles Railways’ Yellow Cars and Baltimore’s streetcar network.
By 1970, when transit routes that survived the carnage were transferred to public control, per-capita transit ridership was less than a third of what it had been just 20 years earlier.
Since then, cities have had to spend billions to restore just some of the service that NCL cut. Most recently, the San Francisco Bay Area is seeking a way to fund a second Transbay Tube that would increase badly needed BART and Amtrak capacity between Oakland and San Francisco – capacity that the NCL-dismantled Key System, whose tracks once stretched across the Bay Bridge, should have long been providing.
Auto and oil companies are once again pouring billions of dollars into urban mobility
Oil-producing Saudi Arabia owns over 10 percent of Uber, having invested $3.5 billion in the company in 2016 (directly), and then another $4.5 billion in 2018 (as part of a deal involving Japan-based Softbank). Toyota also invested $500 million in the company in August of last year.
The auto industry has not restricted its investments to car-based options. Ford bought now-defunct minibus operator Chariot in 2016. It also purchased naming rights to the San Francisco Bay Area’s Ford GoBike system (previously known as Bay Area Bikeshare) and funded its massive expansion in 2017, and bought scooter-share company Spin in 2018.
Last year, Uber bought shared e-bike company Jump and is reportedly looking to expand further into scooters by purchasing either Bird or Lime. Also last year, Lyft bought Motivate, which operates numerous other dock-based municipal bikeshare systems (including Ford GoBike) and has deployed e-scooters of its own.
How do the auto and oil industries make money by investing in innovations that reduce driving?
Auto and oil executives are businesspeople with one simple goal: maximizing profit. If they didn’t think their venture capital investments in app-based transportation would help them achieve that goal, they wouldn’t have made those investments in the first place.
The mystery – which will have far-reaching implications on our transportation networks – is how exactly they expect to make their money. I came up with three distinct possibilities:
The investment pays off.
There are two primary ways this could happen:
- Options like ride-hailing and e-scooters eventually turn an operating profit. Technological development such as driverless vehicles and increased fuel efficiency help make this possible, albeit unlikely.
- Alternatively, investors capitalize on market speculation. In this scenario, the transportation product they’re funding never becomes profitable, but the venture capitalists are able to sell their shares at a profit to overly speculative buyers. Uber and Lyft’s planned IPOs this year, which will deliver hard cash to those companies’ investors, indicate that this is a tangible possibility.
But regardless of how the investment pays off for the companies, the public would be forced to subsidize the safety issues, traffic congestion, pollution, and other adverse effects on quality of life that pure market economics fail to account for.
Cities can help align profit margins with public good through a combination of smart capital infrastructure investments (such as protected bike lanes and dedicated bus lanes) and effective market-based regulation (like congestion pricing, vehicle caps, and carbon taxes) that ensures venture capital-backed companies take steps to mitigate their externalities.
The investment loses money initially, but auto and oil companies’ core business benefits in the long term.
Investors encourage ride-hailing and microtransit companies to prioritize trips that compete with – and occasionally directly obstruct – transit, biking, and walking. This exacerbates the problematic combination of worsening traffic congestion and declining transit ridership that has emerged in recent years, resulting in a series of service cuts as transit agencies desperately try to stabilize their budgets.
Eventually, the investors pull the plug on money-losing ride-hailing, but the discontinued transit service isn’t restored, forcing people to purchase and drive cars. The long-term effects of this scenario are comparable to those of National City Lines’ efforts.
Jurisdictions can avoid this fate by proactively fixing and improving their transit systems, rather than sitting back and hoping private companies magically address those systems’ challenges. Long-term transportation plans, rather than knee-jerk reactions to ridership fluctuations, should guide policy.
The investment loses money initially, but cities eventually contract with venture capital-funded companies to operate a portion of their transportation systems.
Transit agencies often contract with private-sector operators like Transdev and First Transit. Thus, if our leaders decide that ride-hailing or another venture-capital funded option can fill a system gap, they may be willing to approve a similar taxpayer-subsidized contract to sustain and expand that option.
For example, some cities – primarily suburbs and exurbs – have chosen to subsidize certain types of ride-hailing trips, and aforementioned Motivate operates numerous publicly-owned bikeshare systems. Also, the vast majority of attendees at last month’s TransportationCamp felt that partnerships between transit agencies and ride-hailing companies could benefit the public.
Unfortunately, thanks to the realities of lobbying and campaign financing, this process is not immune to influence from private interests, who can use their deep resources to “convince” politicians – and even the public – which transportation modes are “essential” to subsidize.
To mitigate this threat, jurisdictions should treat venture capital-backed companies no differently than any other transportation contractor. Contracting decisions should be based on who can most effectively provide the mobility the public needs, and regulations – such as wages and other labor standards – should be consistent across the board. The contracting process should be transparent, with safeguards built in to ensure the process is accountable.
So what does this all mean for us – the traveling public?
I’ve experienced the upsides and downsides of venture capital-funded transportation.
When I lived in San Diego, I was glad ride-hailing was an option for me. Even though I used transit, my bike, and my own two feet for most of my mobility needs, the availability of Uber, Lyft, and (at the time) Sidecar ensured I never had to drive a car or depend on rides from friends during my two years there. And now in Washington, DC, I regularly utilize the bikeshare systems operated by Motivate and Jump.
But my experiences with ride-hailing since moving to DC have been mostly negative. Given the city’s more diverse transportation options, I utilize app-based rides much less frequently than I did in California. Thus, my primary interactions with ride-hailing occur when Uber, Lyft, and Via cars block bike lanes, make inattentive turns into crosswalks, create bus-delaying gridlock in nightlife areas, or contribute to transit ridership fluctuations that have forced WMATA to cut service.
Thus, it’s clear that venture capital-funded transportation options can benefit our mobility if companies deploy the right modes in the right places. But when operators of these modes simply flood streets in an effort to “disrupt” without considering how they fit into and interact with the existing transportation system, they risk causing great harm.
It remains to be seen which of these futures the auto and oil industries are investing in.
Photo by Abe Landes for Mobility Lab. Photo is from 2017 and Uber has since changed their logo.