Capital One Financial Corp. (COF) was formerly in the business of handing out taxi medallion loans to individuals interested in purchasing a "medallion" in order to be a licensed taxi driver. The bank has since abandoned its venture, which lent an estimated $1 billion to taxi drivers operating individually as well as to larger businesses, having given up on the loan program about two years ago in the face of climbing default rates. Could the ever-climbing price of a taxi medallion and the issues suggested by the loan figures imply that a taxi collapse is in the works?
Surge in Nonperforming Loan Rate
One of the major factors cited by analysts predicting a looming collapse in the taxi industry is a recent report by Capital One to document the lifetime history of the loan program and its aftermath. The latest quarterly report for the fourth quarter of 2016 shows that the size of its "held for investment" loans for taxi medallions fell from $773 million down to $690 million, the nonperforming loan rate skyrocketed from 38.8% in Q3 all the way up to 51.5% in Q4. This figure, representing loans that have not been returned, suggests that many cab drivers are facing severe financial times in which they are not ony barely able to make any money but are also in deep danger of defaulting on loans for expensive medallions.
External Threats to the Industry
In recent years, new and trendy external threats to the traditional taxi industry have begun to become more and more of a problem for legacy cab drivers. Uber, Lyft, and other taxi alternatives have grown exceedingly popular, particularly in larger urban areas where taxi ridership is at its highest levels. These companies have shifted the business model for taxi drivers, although they are not without their fair share of controversy as well. In many cases, for instance, drivers will work for multiple taxi and ride-sharing companies at the same time. Uber and its competitors have also drained billions of venture capital funding in order to find ways to put traditional taxi services out of business.
The question then remains: are taxi medallions too expensive? The price of medallions in major metropolitan areas has been known to climb into the tens or even hundreds of thousands of dollars per year. These fees are substantial in comparison with the amount of cash that any individual driver is able to bring in through regular shiftwork. For those prior taxi drivers looking to continue to make a living wage, the reality is that the model must change in some way. Those considering entering the taxi industry for the first time are more and more inclined to look to other services besides the traditional model.