Last March, Uber driver Jerome Gage would sit at a Walmart parking lot waiting an hour to get a single ride request. The pandemic had slashed his usual 60 hours a week to 10 hours a week. To pick up the lost hours, he turned to going door-to-door collecting data for the US Census.
Now Uber is dealing with a labor shortage and is hoping to bring drivers like Gage back. In a blog post published this week, Uber stated that many drivers had stopped driving because they “couldn’t count on getting enough trips to make it worth their time.” The company is offering a $250 million “driver stimulus” to incentivize existing drivers as well as first-time drivers. It is not clear how much will be doled out and when. Lyft is also offering returning drivers an $800 bonus.
“There’s a desire to win that recovery,” says Tom White, a senior research analyst at DA Davidson. “It’s almost like a new shot of a land grab, if you will, to acquire drivers, to instill goodwill with drivers, many of whom have been kind of inactive or partially active on the platform.”
The gig shortage
The challenge is particularly severe in California. This week, the San Francisco Chronicle reported that a third of drivers declined more than 80% of fares, which Uber has said made the service “unreliable.”
Last January, Uber gave California drivers the ability to set their own prices for rides and to see passengers’ destinations before picking them up. That was designed to make the point that drivers are “independent,” in response to AB5, a California labor law meant make it harder for companies to refrain from classifying workers as employees. (Uber and other gig platforms eventually won an exemption from the law when California voters approved Proposition 22 in November. It maintains driver independence but requires the companies to offer a limited benefits package to workers.) The company told the Chronicle, “Uber is re-evaluating past changes we made in California so we can make Uber more reliable.”
With the pent-up demand that will come out of recovery, both Uber and Lyft have indicated that bringing back drivers will be a challenge, at least initially. The pandemic has made online delivery of anything and everything mainstream—whether from Uber Eats, Instacart, DoorDash, Amazon, or Shipt—but along with that comes increased competition for gig workers. Uber senior vice president Andrew Macdonald said on a recent earnings call that the “gig economy has permanently expanded here and that does introduce some competition on the supply side of the market.”
Longer wait times in Las Vegas, Boston
Data from Apptopia shows that in March, daily active users declined about 40% Lyft and 37% Uber from the year before.
In its latest earnings report, Lyft said it plans to invest in driver supply in the first quarter, at a cost of $10 million to $20 million in the first quarter.
Longtime drivers like Gage are wary of the temporary bonuses. Uber has used incentives before that flooded the markets with drivers, pushing down prices for rides. But over the years, the company has reduced bonuses to cut costs.
“You can’t rely on the company to offer you these bonuses if you know you have a big expense coming up—if you work these good bonuses, do not expect those bonuses next week,” Gage says.
Amid pressure from labor advocates, Uber has been spending more on wages and other benefits. In California, drivers are eligible for new limited benefits due to Prop 22, while in the UK, the high court recently ruled that Uber must treat drivers as workers and not as self-employed contractors, allowing them to get benefits such as minimum wage and paid leave.
When it comes to Uber reaching profitability, either costs are going to have come down or revenue is going to have to go up, says White. Labor expenses are “one area where I think investors would like to see, and would expect to see, leverage over time,” he says. “But I think investors are also acknowledging that this is a unique reopening situation.”