Bad Regulations and Worse Responses, Part 5: Executive Branch Responses

Practically beginning my public transportation career as a consultant to the U.S. Department of Transportation, I learned to hate "Wash-Speak." Government agencies do not compound things; they exacerbate them. They use nothing, but utilize everything. They never start anything, yet implement everything. And much-ado-about nothing is usually referred to as a paradigm shift.

As National Bus Trader readers may have learned from the last installment, our judicial system recently made mincemeat of the "Independent Contractor" model in a Federal Circuit Court decision, overruling a Kansas Supreme Court decision.[1] I expect this decision to be replicated around the country -- although it will likely take years, and in some Circuits, could have different results. Otherwise, we may soon no longer have to compete with companies engaging low-paid drivers receiving no benefits. So this victory is a huge blow to the TNC model or any other business model based on the avoidance of these segments of operating costs.

Equally important, this same attorney has effectively tossed Uber out of California, or is close to doing so. A similar lawsuit is also underway against New York City. If it is similarly successful, NYC's nearly 30,000 medallion taxi drivers may regain the roughly 40% of the density or ridership they lost this past year. Further, a few large fleet owners (a few own more than 1000 taxis) had vehicles with a market (or "medallion") value of $1.1M per vehicle. This value plummeted effectively to zero when the first Uber entered the service area without any meaningful entry fee. So as a result of this lawsuit, these owners may have a chance to regain much, if not all, of their investments. Further, from the passengers' perspective, the quality of safety would return to some semblance of accountability. In contrast, a TNC's control would be provided mostly by robots. And its feedback would be provided only from occasional text messages from passengers unfamiliar with public transportation or industry standards. Within this structure, an unregulated, marginally-controlled TNC ride could resemble a cartoon-like or video-game-like joy-ride.

Regardless, our executive branches of government, particularly at the local level, have done little to abate the TNC menace. In a few cases (NYC in particular), local elected officials have welcomed an unlimited number of TNCs into a service area previously balanced, to some degree, with respect to supply with demand. But these officials also opened the gates without charging the TNC's any entry fees. In the process, New York City residents were deprived of billions of dollars of revenue.

Executive Branch Futility

One might have expected an installment on executive branch-of-government responses to be somewhat thick. The problem is, I could not find many responses at all. Some of the initial public sector failures to curb TNCs have already become folklore. And not just in New York City. In 2010, when Uber began operating in San Francisco as ubercab.com, the San Francisco and California Public Utilities Commission (PUC) banned them because they were not taxis. So Uber simply changed its name to Uber.com. State and local officials were simply stumped, and within a few years, 35% of San Francisco's traditional taxis were out-of-business. As in NYC, many of their drivers became Uber drivers.

The impact on the motorcoach industry from such dynamics would not likely be as great. Many of us are already diversifying our fleets, adding smaller integral motorcoaches to them, and even integrating some body-on-chassis vehicles into the mix. And with the judicial victories setting precedents to eliminate independent contractors, and the California law suit eliminating Uber from its landscape, we are in much better shape than the taxi and limousine victims who came before us. The difference is, of course, that they reacted. We are doing absolutely nothing. And most of us are not even aware of the threat.

Federal Responses

Not recognizing the implications of all this, one might think that our Federal departments and administrations are sound asleep. Yet this is not quite true. Perhaps not even with this threat in mind, a recent FMCSA-sponsored rulemaking (49 CFR Part 390, RIN 2126-AB44: Lease and Interchange of Vehicles: Motor Carriers of Passengers) will effectively hold "prime" contractors" more responsible - and more liable - than their subcontractors. (These new regulations will go into effect on January 1, 2017.) In a lawsuit, no plaintiff's attorney goes after a penniless driver with minimal personal automobile insurance. Instead, this attorney goes after the big fish with the deep pockets. This is the fish that the FMCSA's regulations will soon hold primarily responsible for an accident or incident.

Many motorcoach operators were not exactly thrilled by these regulations. They rely on subcontractors to cover their "overflow." So thanks to the FMCSA, they will soon be held responsible for their subcontractors' failures. At the same time, this ruling will gradually reduce the number of unsafe operators. They will likely reduce the number of catastrophic accidents significantly. They will likely improve our public image as an industry. And they will possibly reduce our insurance premiums -- not very long after various greedy voices called for quintupling them. So you see: All regulations are not bad after all.

More importantly, whether intended or not, these regulations will likely block the TNCs entry into the motorcoach market. And this may happen before they even gain a foothold. Because these regulations do not go into effect until January, 2017, we may have to await the lawsuit that determines whether or not an "app" is a prime contractor. Similarly, we may have to await the lawsuit that determines whether or not a robot can be a prime contractor. In the meantime, other issues being decided by our judicial system should keep the TNCs busy for awhile.

Regardless of these future goings-on, lawsuits already won or underway have given the TNCs a serious dilemma:

• "Controlling" operations with virtually no management, no dispatchers, no reservation clerks, no training, no monitoring or oversight, no fringe benefits, no matching employer taxes, and no other driver amenities that their employee-based counterparts enjoy, TNCs would appear to exert no control over their drivers -- selected and "engaged" with virtually no process or criteria (other than having an ordinary driver's license, minimal insurance and presumably a registered vehicle).
• At the same time, via the "apps" which deliver their customers to their drivers, and at least log in an occasional driver's "rating" by a passenger, the TNCs and their robots are asserting some degree of control over their operations, as diluted as this control may seem.

So the lawsuits about effective control, and apps and robots as prime contractors, are sure to follow. And most of them will likely have results that favor us. But it would be foolish to rely on our judicial system for everything. In these lawsuits almost certain to come, you can bet the TNC's will be able to afford the solar system's finest army of lawyers.

So if we think of the FMCSA's new regulations in these terms, this agency is our genuine ally. Further, its new regulations should force a prosperous motorcoach company to think twice about which subcontractor to engage to handle its "overflow." Otherwise, these new regulations are extremely complex, and deal mostly with issues like the mechanics of leasing arrangements. But whether it was the FMCSA's intent or not, these regulations should have the effect of thinning the densities of the most unsafe operators - those operators which poison the public perception of motorcoach service and which cause a disproportionate share of our industry's highly-publicized catastrophic accidents. The schoolbus community is famous for openly welcoming regulations. Why is it that we do not? Perhaps it is time to rethink our position, and view each regulation individually. And from a broader perspective.

Even with these new regulations, and the legal victories accompanying them, the debate over whether a TNC is a prime contractor or simply the creator of a "tool" whose robots tacitly control its driver still looms over the horizon. But even if an "app" is not ruled to a prime contractor, the TNC that created or purchased it will likely be considered to be one.

Change and Chance

The pace of change in the TNC environment unfolded, frankly, more quickly than successive articles in this magazine could keep up with it. Thankfully, we received considerable information from Limo, Charter and Tours magazine, representing those transportation sectors which the TNC's invaded, and chronicling this new mode's growth and the crisis it presented for those transportation sectors it threatened and, in some cases, devastated.

But changes in these sectors is certainly something the TNCs accomplished. And while the taxi and limousines seem to be doing well in court, their owners and drivers (and to a degree their passengers) suffered a lot. So do not dare bet against change. Change always manages to win, no matter who benefits and who loses as a result of it. And as history almost always demonstrates, those who triumph from change are those who respond to it.

You may feel that the motorcoach industry is immune to the TNC invasion because of the interstate nature of the our industry and your business. But nothing could be more irrelevant. The answer is to not wait for other forces and dynamics to solve our problems -- even though we have been fortunate lately in the legal arena. Instead, we must evolve to a level where we are more creative, more efficient and, particularly in this battle, more safe than we already are.

While a traditional, often family-owned industry, the motorcoach community has shown some impressive resiliency and innovation in recent years. We have seen the expansion of double-decker bus service. We have witnessed ingenious pricing policies (Megabus) that not only generated handsome profits for its owners, but made motorcoach travel affordable for many of those who could not otherwise afford it. We have seen radical improvements in the reduction of pollution with our adoption of cleaner-burning engines. We have slowly morphed our vehicles to accommodate almost the complete range of disabled passengers -- and in the process, greatly enhancing their capabilities to evacuate passengers in emergencies (by creating a second rear stepwell with the lift platform halfway to the ground). A few operators have demonstrated the ridership increases obtainable by coordinating with other modes through a virtuosity in operations rarely seen -- like using transfer points "fed" by paratransit systems. And we have adopted to and embraced the efficiency benefits from diversifying our fleets to include a number of smaller integral and even body-on-chassis vehicles.

We are not your grandfather's motorcoach industry. When pressed, we are capable of quite an arsenal of innovation. The final installment in this series -- two more to go -- will outline some things we can do to compete even more forcefully with the TNC invasion. And in the process, we can grow our businesses and grow our profits. These are all possible, and all doable. Otherwise, we would be leaving our futures solely to chance. And in the Game of Chance, the "house" almost always wins and the players almost always lose. So it is a foolish game to play.

[1] Correction: In the October, 2015 issue of NBT where this case was discussed, I cited this case as occurring in the Seventh U.S. Circuit Court, where it overturned a Kansas Supreme Court Ruling. However, Kansas lies in the Tenth Circuit Court. So I suspect my source was incorrect, and that this ruling was made in the Tenth Circuit Court -- a Circuit encompassing Kansas, Oklahoma, Utah, Colorado, Wyoming and New Mexico.