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A cab drives before a protest held by Taxi drivers against Uber in Toronto, Monday June 1, 2015 (Mark Blinch/The Globe and Mail)

cab drives before a protest held by Taxi drivers against Uber in Toronto, Monday June 1, 2015

(Mark Blinch/The Globe and Mail)

Redline

How Uber is ending the dirty dealings behind Toronto's cab business Add to ...

On the streets of Toronto, there’s a story that’s gone on for way too long – the dirty dealings behind the cab business. But things are changing. Let’s have a look.

In September 2012, one of Toronto’s taxi licenses sold for $360,000. As it turned out, this was a peak that presaged a major slide. By 2013, the average selling price of a cab plate had fallen to $153,867. In 2014, it was $118,235.

The reason behind this plunge is Uber, the online service that lets you order a ride through your smartphone. By the looks of it, Uber may drive a stake through the heart of the cab business. It’s about time.

The battle over Toronto’s cab industry has a special resonance for me. I learned about the cab business in the 1990s, when my beat was investigative reporting. My days were spent digging up things that special interests didn’t want others to know about. The subjects included everything from First Nations chiefs who siphoned away millions in federal funding to the murder of a teenage boy by Canadian soldiers in Somalia.

But one of the most compelling investigative projects was right under my nose, in the Toronto taxicabs that I rode in so often on my way to assignments. I discovered that almost none of Toronto’s city-issued taxi licenses – known as “plates” – were in the hands of working cab drivers. Instead, they were held by people who made others pay to use them.

Among the key players was Mitch Grossman, a businessman whose family had collected more than 100 plates. These plates gave Grossman a pharaoh’s power.

If a driver wanted to use one of his family’s plates, Grossman could force him to buy an overpriced car from his sales operation, finance it through a family firm called Symposium Finance (where rates reached 28 per cent) then join Royal Taxi, the Grossman family’s taxi brokerage.

To get around the municipal bylaw against plate leasing, Grossman forced the driver to put the car he had just purchased in the name of one Grossman’s companies, so the names on the plate and the car matched. Not one of the licenses held by Grossman and his family were in their own names. Instead, they were held by companies, most of them numbered. (By doing more than 1,500 corporate searches we determined who was actually behind Toronto’s taxi licenses.)

Other taxi plate holders included an airline pilot, a dentist, investors who lived in Florida and Israel, and estates that had inherited the licenses after the holder died. The problems created by the plate system were mind-boggling. At least 30 per cent of the industry’s revenues went to people who did nothing but milk income from their licenses.

After my stories ran, the city decided it was time to do something about the problem. Politicians looked at abolishing the system, but the plate holders threatened to sue city hall for the value of their licenses, arguing that Toronto bureaucrats had allowed the system to develop, even though it was technically against the rules. The potential settlement could have run to more than half a billion dollars at the time.

In the end, the city decided to dilute the value of the existing plates by issuing new licenses that couldn’t be rented out. These are called Ambassador plates, and can only be used by working drivers. Before long, Ambassador plate holders began pushing to have their plates turned into Standard plates, which would result in an instant windfall for the holder.

Which brings us to the present, and the arrival of Uber, the sword that will finally cut through the Gordian knot of misguided regulation that ensnares the Toronto cab business.

To get some fresh perspective, I took two rides last week – one in an Uber car, and one in a traditional Toronto taxi.

After installing the Uber app on my iPhone, the screen showed that there were at least half a dozen available cars nearby. The app said I could have a car in five minutes. I touched the icon, and the app announced that my car would be an Acura TSX, driven by David.

David and the Acura appeared on schedule. The car was nearly brand new, with a leather interior. I asked David about his job. He was a student, and paid his tuition by working for Uber. The setup was straightforward – David had gone into the Uber office, undergone a background check, had his car inspected, and set up a company account.

My fare was automatically charged to my credit card through the app. David carries no cash. Uber takes a 20 per cent cut, and pays David the rest. He can work whenever he wants simply by declaring himself available through the app. In a good week, he nets $1,000.

For my return trip, I called Diamond Taxi. The driver fit a template I knew only too well. He was a middle-aged immigrant man, stuck in the cab industry because there was nothing else. He’d been at work since 6 a.m. Like almost every other driver in the city, he didn’t own his car. Instead, he rented one for $80 per day. This was for a 12-hour day shift. Another driver rented the car at night for $90.

A large chunk of these rental charges go toward leasing the Toronto cab plate attached to the car. The Diamond driver had two hours left in his 12-hour shift. I asked him how much he had grossed for the day. He pulled it up on his meter: $109.

He had to pay $80 for the day rental, plus fuel. By the end of the day, he estimated, he would net between $20 and $40. He said that he has started supplementing his income by registering as an Uber driver and doing pickups in his cab.

“Why not?” he said. “It works.”

Uber operates in 300 cities worldwide. It has built a better mousetrap, and the world is beating a path to its door.

After my investigation of the industry, my name was mud among the city’s taxi plate holders, who were worried about losing their golden goose. One woman, who inherited a pair of plates from her father, called me a “communist” for recommending that the taxi plate system be abolished. “This is free enterprise,” she declared.

In fact, Toronto’s taxi plate system is anything but free enterprise. Instead, it is based on the artificial restriction of a natural market, and the granting of licences to a fixed number of participants. Even those who paid top dollar for a plate used to enjoy an annual return of more than 12 per cent. And for those who inherited plates, the return was manna from heaven.

On the other side of the coin were drivers and customers. Passengers paid too much for rides in old junkers, and drivers found themselves trapped in a system that skimmed the lion’s share of their revenues. Many have compared the Toronto cab industry to the feudal system, which is probably not far off the mark.

To understand how the taxi plate system and the interests behind it have contorted the Toronto cab industry, imagine how other businesses would work if operated the same way.

Instead of thousands of corner stores, for example, we might have just 500. Or maybe 10, if the industry players who held the licenses convinced city hall that was the appropriate number. And once you had locked down a corner store license, you wouldn’t need to actually run a store. Someone else would pay you to use your license, and you could retire to Florida to sip drinks on the beach while waiting for your cheques to roll in.

But corner stores don’t work that way. Neither does the publishing industry, car industry, the travel business, or almost any other enterprise. Anyone can start an airline, for example. There are rules, but they’re designed to ensure public safety, not limit competition.

The Toronto cab business’s problems can be traced back to 1957, when taxi plates came under the control of a new licensing commission headed by Fred Hall, a former York reeve who was hounded by corruption allegations.

As my investigations in the 1990s showed, the allegations were true. It was illegal to rent out city cab licenses, but under Hall’s administration, it became common practice.

The Toronto cab business is a ruthless and depressing business. It has put untold millions in the pockets of people who turned city permits into a license to print money. Plate holders fought reform. Now they’re fighting Uber. But this time, they’re up against forces they can’t beat – history and a better mousetrap.

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