Uber Deal Is Cold Comfort for Singapore's Fading Taxis
(Bloomberg Gadfly) -- Miniatures of ComfortDelgro Corp. taxis are popular children's toys in Singapore. Not for long, though. The ubiquitous blue and yellow Toyota Crown cabs are leaving the realm of kids' imagination and heading for grownup nostalgia. One day soon, they'll belong in a museum.
The end is nigh for the conventional taxi business, though that's not what Comfort said in a press release announcing the purchase of 51 percent of Uber Technologies Inc.’s Singapore car rental unit for S$295 million ($218 million) in cash.
The deal gives Comfort, the city-state's largest taxi operator, access to a fleet of 12,450 private-hire vehicles at a 10 percent discount to their net asset value, according to Nomura Holdings Inc. research. ComfortDelgro shares were up as much as 4.7 percent on Monday morning.
But the acquisition, which is yet to be approved by regulators, isn't really about the fleet. It's about drivers and customers. As part of the agreement, all Comfort taxis will be on the Uber ride-sharing app in addition to Comfort's own booking system. That should help boost drivers' earnings by reducing their downtime. Uber gets hard cash to pump into its competition with Grab, a regional rival that claims to be the customers' No. 1 choice in Singapore, Indonesia, Malaysia, Vietnam, Thailand and the Philippines.
The tie-up also gives Uber a much-needed validation of its strategy. The Orange County, California, model in which part-time drivers use their cars as a productive asset has no hope in Asia, where drivers are cheap but cars are expensive. It makes more sense to enroll the existing large pool of professional drivers, help them with car ownership or rentals, and give them access to the app.
Brooks Entwistle, a former chairman of Goldman Sachs Southeast Asia who joined Uber in August, will do precisely that. Bringing taxis on board won't necessarily involve equity deals: Recently, the app returned to Taipei, where it had been banned in February, in collaboration with Taiwanese taxi companies. Expect more such arrangements in the future.
Working with fleet owners could help win over transport regulators, leaving Uber free to take on real competition. After losing China to Didi Chuxing, the fall of Singapore would mean curtains for Uber in Southeast Asia.
Do expect Grab, which has been busy poaching Comfort drivers, to lay out a thick carpet of discounts for customers in 2018. As for Comfort, with the city's taxi population at an eight-year low, and no hope of a revival in sight, the operator will simply have to go on reinventing itself as a fleet owner and manager for Uber. That's a practical decision, because it's impossible to charge a high daily rental from cabbies now; the rise of ride-hailing means more drivers are willing to forgo the privilege of picking up street fares.
This change is irreversible. Singapore's taxi business, feeling lost and forlorn amid the Uber-Grab rivalry, is destined to end up as a museum piece.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
Andy Mukherjee is a Bloomberg Gadfly columnist covering industrial companies and financial services. He previously was a columnist for Reuters Breakingviews. He has also worked for the Straits Times, ET NOW and Bloomberg News.
To contact the editor responsible for this story: Paul Sillitoe at psillitoe@bloomberg.net.
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