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Medallion Prices
Why a value to a license?
Taxicab licenses first gained value after World War II as demand for taxi service grew while the number of cabs was capped. The continuing limit has produced values of over $350,000, paid by a buyer when the license is transferred from one owner to another.
These license transfers are often called “medallion” transfers, referring to the painted aluminum medallion, signifying a taxi license, which is affixed
to the hood of every yellow medallion cab.
Medallion systems in other cities have also generated large medallion values in the range of $50,000 to over $200,000 in Boston, Chicago and Philadelphia. Medallion values are established on the open market between buyers and sellers, although the Taxi and Limousine Commission must approve the new owner’s qualifications. In economic terms, the value of medallion licenses is the “monopoly profit” produced by the limitation on the number of taxicabs, or in other words, the profit that owners can earn in the taxi industry that is greater than profits in comparable industries.
Medallion prices thus reflect net revenues derived from taxi operations.
Changes in prices reflect, fundamentally, changes in the demand for taxicab service relative to supply. But medallion prices are also affected by a variety of other factors. For example, falling interest rates and longer amortization schedules for loans used to finance buyers’ purchases have contributed to the escalation of medallion values because purchasers are more sensitive to their monthly “nut” or loan payments than to the size of the loan. Fares can also affect medallion values, as can the availability of drivers.
Driver shortages were one reason for the decline in medallion prices in 1998-2001.
Other factors affecting medallion prices include the number of potential buyers, expectations of future revenue and lease fee caps.
Medallion values are computed separately for individually owned and fleet-owned (or “corporate”) cabs. Licenses are permanently assigned to one of these categories.
Trends in medallion prices
• Medallion values show a very strong upward trend over the past half-century, fueled by growing demand for taxicab services and other factors such as longer loan terms and the introduction of leasing. Medallion values reached $25,000 in 1963, $50,000 in 1977, $100,000 in 1986 and $200,000 in 1994 and $300,000 in 2004.
• Medallion prices increased to $379,000 for corporate and $336,000 for individual licenses in 2005.
• Values have also experienced significant declines. Taxicab ridership fell sharply in the early 1970s as New York City went through a deep economic contraction. Medallion prices fell again during recessions in the early 1980s and early 1990s.
• Medallion prices also declined between the spring of 1998 and mid-2001. This decline, which preceded the economic slowdown in New York City, appeared to stem from factors internal to the taxi industry such as shortages of drivers. As unemployment rose during the recession that began a few months before the Sept. 2001 terrorist attacks, the number of drivers coming into the taxi industry increased. This was one factor in the increase in medallion values that began in the fall of 2001.
• Another factor was lower interest rates, which much like a home mortgage increases the price that buyers can afford to pay for medallion licenses. Interest rates on typical loans dropped to 5-6% in mid-2003, amortized over 15 years or more (albeit with a balloon payment due after 3-5 years).
• Declining interest rates and longer loan terms have meant that monthly loan payments stayed constant despite large increases in medallion prices. Since the early 1990s, interest rates declined from 10% or more to about 5% and loan amortization schedules stretched from 10 years to 15 years. As a result, monthly payments on medallion loans were the same or slightly less in mid-2003 as in 1993 despite a 50% increase in the price of individual medallions and 43% increase in the corporate price. (Monthly payments were typically about $1,500 for individual medallions and $3,500 for two corporate medallions as of mid-2003,
for buyers who borrow 80% of the combined medallion price and transaction fees, including the 5% City transfer tax.)
• The volume of medallion sales has fallen sharply. In the 1980s transfer volumes exceeded 600 annually for both individual and corporate medallions. Transfers dropped to an average of 250 for both individual and corporate medallions in the 1990s, and declined to 199 individual sales and 64 corporate sales in 2005 (not including stock transfers).
Corporate versus individual prices
• In the 1970s and early 1980s, individual owner-driving was a more attractive method of taxi operation, dominating the industry and reflected in higher medallion prices for individual licenses.
• Since the late 1980s, however, an increasing number of taxicabs have been leased out of large fleets, and the fleet or “corporate” price overtook the individual price.
• The substantial difference in price between corporate and individual narrowed sharply in 2001 as the industry experienced a driver shortage, the effects of the Sept. 2001 terrorist attacks and the city’s overall economic downturn.
The gap has widened somewhat since 2001, however.
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Think of how stupid the average person is, and realize half of them are stupider than that.
George Carlin
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