Uber car service rolling into regulatory trouble in Detroit

Feb. 17--It's been nearly a year since the high-tech transportation service Uber Technologies arrived from San Francisco with its smartphone app that connects riders with drivers to shake up the taxi and chauffeur business in metro Detroit.

But as Uber continues to grow its local ridership, it's on a collision course with city and state regulators who question the company's claim that it's only a technology business and need not comply with local and state taxi and limo laws.

They and some established transportation companies say some Uber drivers skirt rules that require vehicle inspections and registration and also sometimes charge beyond regulated rates. The state of Michigan says Uber failed to register as a limo carrier and that the Detroit Uber office has yet to respond to a noncompliance letter sent in December.

"The key thing is we want people to follow the law," said Alexis Wiley, spokeswoman for the City of Detroit. "Everybody's got to come in and get properly licensed if they want to operate a vehicle for hire."

Uber says it's not running a fleet of taxis, just matching up drivers and riders in the same way that a travel website connects vacationers to flights or hotels. The company says business is thriving because it's filling a need for more transportation options in metro Detroit.

The controversy largely centers on Uber's new lower-cost service, UberX, which matches riders with drivers who use their personal vehicles. UberX is slightly different from the traditional and higher-priced Uber, which rolled into Detroit last March and hooks up riders with professional chauffeurs of black sedans and SUVs.

Uber requires the black car drivers to be state-licensed chauffeurs. But it hasn't required the regular folks who are UberX drivers to get "vehicle for hire" licenses with the state or City of Detroit as traditional limo and taxi drivers must.

Mike White, Uber's general manager for Detroit, said UberX drivers often hold full-time jobs and simply moonlight as chauffeurs for extra cash. Uber's territory map extends out through mid-Oakland County suburbs and south to Detroit Metro Airport.

"They operate under a ride-share model," White said in an interview at Uber's downtown Detroit office. "Similar to, say, when you're providing a ride to work for friends."

The fast-growing, privately held company is among the handful of recent U.S.-based start-ups, including competitors Lyft and Sidecar, that use smartphones and freelance drivers to make it easier and more efficient for people to call for a car ride.

In Detroit, state and local police have the go-ahead to ticket Uber drivers who, intentionally or not, failed to get licensed as a driver for hire, officials told the Free Press. Penalties for unlicensed operations run from a fine up to $500 to jail time. The city said officers have not issued any tickets yet.

Uber has encountered similar regulatory scrutiny in some of the other 70 or so cities in 25 countries where it now operates, including Chicago and Washington, D.C.

Taxi drivers and owners in Chicago have sued to shut down Uber-type services in the Windy City. The company's drivers have been arrested for unauthorized pickups at San Francisco International Airport and have seen their tires slashed and windows broken by Paris vandals, whom the company says were in fact angry French taxi cabbies.

The company is also facing a lawsuit from the family of a 6-year-old girl who was killed in a San Francisco crosswalk by an Uber-affiliated driver on Dec. 31.

Chicago, Seattle and the District of Columbia are mulling new regulations to extend greater governmental oversight over Uber and its ilk. The State of California -- Uber's birthplace -- enacted its own set of rules for the services last year.

Growing in usage

In sprawling metro Detroit, the Uber service has proven especially popular among young people, pub crawlers and the tech-savvy, including Antonio Agee of Detroit, an artist who owns four bicycles but no motor vehicle and often runs errands across the city.

"You call a taxi here and you'll be like, 'How long is it gonna take?' and they'll give you a rounded number and it literally doesn't mean anything," Agee said.

Uber, which doesn't own or store any vehicles, sets its own fare rates and takes on average a 20% cut of each transaction via its phone app. Tipping is forbidden.

Uber's fares in Detroit can double or even triple during periods of high demand, such as New Year's Eve. The company has said its practice of "surge pricing" ensures an adequate supply of on-demand drivers.

In contrast, a city commission sets fares for traditional taxis in Detroit that must stay constant at all times. Since 2001, city rates have been $1.60 per mile with a $2.50 base fare and 20 cents per-minute wait time. UberX advertises nearly identical fares on its website.

Uber says it thoroughly screens its UberX drivers and ensures they all have auto insurance.

But Uber does not require those drivers to obtain the commercial-grade auto insurance that ordinary taxi drivers are required by law to have. According to one local cab firm, this insurance costs about $5,600 a year per vehicle.

Without commercial insurance, drivers for hire risk having their claims rejected by an insurer following an accident because personal auto policies in Michigan typically forbid livery service, according to Pete Kuhnmuench, executive director of the Insurance Institute of Michigan.

"Once you take that step of holding yourself out for hire, you are, in fact, in business," he said.

For its part, Uber says it carries a corporate insurance liability policy that covers passengers for up to $1 million per incident if a driver's policy is found inadequate. The company has also pledged to reimburse drivers for damage costs in case their personal insurance gets denied.

Drivers for hire?

Uber contends that the nature of its business model -- a middleman broker between drivers and passengers -- makes it different from the traditional taxi and limo companies for which regulations were written.

"Uber is a technology company, not a transportation company," White, Uber's general manager in Detroit, wrote in an e-mail. "Like OpenTable for restaurants or Expedia for airline tickets, Uber is a facilitator of a quality experience, but does not provide actual transportation service."

Nevertheless, representatives for the Michigan Department of Transportation and the City of Detroit told the Free Press that they still consider UberX as drivers for hire under the law because they charge customers for rides. Those drivers must therefore obtain a $300 Certificate of Authority from the state and a $110 limo operator's license from the Detroit Police Department, which would inspect their vehicle.

Uber Technologies is also required to register with MDOT as a limo carrier, which it has not done, according to Sharon Edgar, MDOT administrator in the office of passenger transportation. Edgar said she sent a noncompliance notice in December to Uber'sDetroit office but hasn't heard back. White, when asked in an e-mail, did not address the state notice.

Local taxi and limo services say they are feeling a loss of business to Uber.

Matthew Oddy, operations manager at Checker Cab, the area's largest taxi company, said his main concern is that Uber's drivers follow the same regulations as his cabbies.

He also noted that under a literal reading of the city's drivers-for-hire ordinance, vehicles which charge by the mile such as those dispatched by Uber must be regulated like a taxi. That would require the drivers to buy a $2,000 taxi bond plate from the city and install a partition between their front and backseats.

"We don't mind the competition, but it has to be a level playing field," Oddy said. "We want you to pay the same licensing fees that we're paying."

Hundreds of drivers

Uber does not disclose how many riders or drivers use its service, but it says the number of Uber trips in metro Detroit has grown by double digits every month. Uber drivers are now in the hundreds, said White, the company's local general manager.

So far there have been no accidents involving local Uber drivers in metro Detroit, he said. "What we've found is we're really meeting a need in Detroit. There's a shortage of transportation options. The most difficult thing has been trying to keep up with the growing demand."

Brian Brunson, 37, of Detroit, a small-business owner and youth sports coach, has been using his 2011 Jeep Wrangler to ferry Uber passengers since Halloween night. The UberX driver said he still has a limo license from a previous chauffeur job and carries just a personal auto insurance policy. Brunson said his ridership includes weekend revelers as well as a growing number of business executives and families with children. Despite the company's policy against tipping drivers, he considers the pay to be good.

"I would recommend it to anyone who's looking to get a couple extra dollars," he said. "I've had my fair share of the individuals who go out and have a good time and drink. But I've also picked up business executives and dropped them off at their hotels, I've picked up families with kids, I've dropped an elderly lady off at the mall."

Contact JC Reindl: 313-222-6631 or [email protected]. Follow him on Twitter @JCReindl.

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