Q&A on California’s AB 5 and how Uber and Lyft will be impacted, Saudi Arabia drone airstrike escalates oil tensions

A landmark law that would make many gig economy workers employees was approved by the state senate late Tuesday night in California, after months of tension between labor groups, on-demand mobile app companies like Uber and Lyft, and workers’ rights advocates. After endorsing Assembly Bill 5 on Labor Day, Governor Gavin Newsom is expected to be signing the bill into law very soon. If so, the measure will go into effect on Jan. 1, 2020.

Experts say AB5 has the potential to curb labor violations, increase employee bargaining power, and fundamentally alter California’s booming gig economy. US Senator and presidential candidate Bernie Sanders has introduced a similar bill in Washington (Workplace Democracy Act), and other states are expected to launch copycat bills in their legislatures. Labor unions could be brought in, or some other entities representing groups of workers for collective bargaining and enforcing the new law (such as new groups including Gig Workers Rising.) It was first introduced in December by Democratic Assembly member Lorena Gonzalez Fletcher, and since then the bill has gone through several iterations.

The state wants to stop losing tax revenue — which is another part of how it came to be. California’s Department of Industrial Relations estimates that the state loses about $7 billion a year in payroll taxes due to company misclassification.

What companies will be most affected by it?

Under AB 5, close to one million ride-hailing workers, on-demand delivery drivers, manicurists, and janitors in California will be eligible for the same benefits, minimum wage, and vacation days that full employees are. The final version of the bill includes exclusions for certain industries: lawyers, architects, realtors, hairstylists, fishermen, and freelance writers and editors. That’s based on their jobs not being subject to the law because their industries allow them to negotiate.

The companies most affected will be app-based on-demand mobility companies — in California its made up of about 400,000 people driving for Uber and Lyft, delivering meals for Postmates and DoorDash and groceries for Instacart, other competitors in mobile app services, and for those fulfilling specialized services such as Task Rabbit. A few of these companies, led by Uber and Lyft, say that the law will provide an existential threat to their continued existence. Barclays estimates that Uber’s annual operating costs in California will grow by more than $500 million, and Lyft’s will grow by $290 million.

Trucking firms are quite concerned about AB 5 impacting their profits, as working with independent contractor truck drivers has been common in the industry for years. The bill was opposed by the California Trucking Association through the argument that one of the laws’s standards would make it difficult, if not impossible, to continue using independent contractors. In more recent years, startup firms have been using Uber’s model with a software platform that can bring together drivers with trucking companies for freight-hauling trips.

Who will be representing drivers?

That’s one of the leading questions for those impacted by AB 5. Labor unions are mentioned frequently, but there will be other entities representing drivers and other workers affected by AB 5. New groups are being organized to represent independent contractors under the new law, but there are a few experienced law firms that have been representing gig economy workers in recent years.

One likely scenario is that the first version of collective bargaining will start with lawyers filing for labor arbitration hearings and class-action lawsuits in California courts. Attorney Shannon Liss-Riordan is well known for filing for arbitration, and class-action suits, against Uber and other mobility companies, seeking fair pay for drivers and classifying them as employees. There are several other large law firms in California that have negotiated settlements for independent contractors working for Uber, Lyft, DoorDash, Postmates, and other gig economy firms.

The first suit has already been filed — on Wednesday afternoon when an Antioch, Calif.-based Uber driver filed a proposed class-action case against Uber Technologies, Inc., for misclassifying her and other California drivers as independent contractors rather than employees. Filed in the US District Court for the Northern District of California, the case cites AB 5.

Where did all of it start?

A 2005 lawsuit in California paved the way for AB 5. In 2018, the California Supreme Court ruled in favor of workers in the case Dynamex Operations West v. Superior Court. Dynamex is a nationwide same-day courier and delivery service that offers on-demand pickup and delivery services. Prior to 2004, Dynamex classified its California drivers as employees. Starting in 2004, the company converted all of its drivers to independent contractors as a cost savings measure.

The 2018 ruling essentially created the “ABC test” as precedent, but it only relates to workers seeking minimum wages and overtime pay. Under the test, a worker is only an independent contractor if they meet all three parts:

> The worker is free from the control and direction of the company in relation to the performance of the work, both under the contract and in fact;

> The worker performs work that is outside the usual course of the hirer’s business;

> The worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed for the hirer.

Another way of saying it is that if the worker is performing a task that’s central to the company’s functioning, and if their wages are set by the company, they’re more likely to be considered employees.

What do Uber and Lyft think?

Uber and Lyft are dismissing AB 5, and say it will remain business as usual on how drivers are paid. They know that many pleas will be made to reclassify drivers, but they say they’ll be able to pass the new test and their drivers will remain independent contractors. But they and several other mobile app companies fought hard against the bill passing.

Fares will have to go up to cover these additional costs for these two publicly traded companies that have struggled to become profitable. One analyst estimates that 25 percent fare increases in California will be a necessity. That will take some of the edge away from competing with taxis, livery companies, limousine operators, shuttle services, and other transportation providers. But it will still be much lower, with Uber and Lyft typically described as being half the cost of other transportation modes.

Uber, Lyft, and DoorDash have all contributed $30 million each into a fund for a 2020 California ballot proposal that would counteract AB 5. The proposal hasn’t been written yet, and it’s expected to include some concessions to labor such as a guaranteed wage floor if drivers aren’t classified as employees.

What do drivers think?

Uber and Lyft drivers have had their share of work stoppages and public protests calling for fair pay, and sometimes for reclassification as employees. A lot of drivers, however, would like things to stay the same. They may not be making the kind of income they need long term, but they do appreciate the opportunity to quickly bring in decent earnings under flexible conditions.

Unlike other on-demand jobs that require scheduling, Uber and Lyft drivers can set their own hours. They can sign in and out of the app at will to take care of personal business and get some time off to relax and have a meal. Other mobile apps offer some flexibility, and drivers are allowed to set their own weekly schedules during a set time, on a first-come, first-served model.

Yet no matter how often the argument is made about freedom over strict work hours, drivers are feeling the squeeze. They’re typically given generous incentives for joining the networks, getting five-star customer ratings, bringing in their friends as drivers, and working long hours. But that eventually fades away when per trip earnings are cut back as the companies cite pressure to reduce their costs. Drivers have to find the best, peak demand hours to work where they will get rides and deliveries, and earn decent pay. They also face the ominous threat of being “deactivated,” which would mean being fired if they were employees, without warning.

The inconsistency in the work and pay can be very frustrating. There’s nothing worse than scheduling a block of hours, and then to sit there looking at your smartphone for long periods wondering when the trips will begin. Near the end of the shift, downtime could be dragging on when suddenly another ride or order is offered to you that will take an extra hour after the end time to fulfill, and may conflict with personal plans. 

Drivers do value the flexibility in meeting their goals, but the advantage always goes to drivers willing to work long hours. The new law could push Uber and Lyft to give preference to the workers who can and do work full-time hours in California, says Robert Maxim, a research associate for the Brookings Institute’s Metropolitan Policy Program.

Which labor unions could be representing these workers?

This is a gray area, as most drivers in passenger trips and freight hauling don’t have union membership. Labor unions have progressively lost membership since the 1980s, and are taking on battles as much as they can such as the UAW announcing a nationwide strike after negotiations with GM stalled. Here are a few unions that could be involved in representing California workers under AB 5………..

> Teamsters has 1.3 million members, representing heavy-duty truck freight hauler drivers and over 200,000 UPS drivers. Independent truck drivers may want to join up with them.

> Service Employees International Union (SEIU) disputed reports of a backroom deal made with Uber and Lyft executives, saying that the union supports AB 5 and full employee status for drivers. SEIU is known for its 1.9 million members in hospitals, home care, and nursing homes; public services (such as city and county workers); and property services (janitors and cleaners). With AB 5 addressing janitors and cleaners, SEIU will likely be involved in contract negotiations for these workers.

> Transport Workers Union of America represents more than 150,000 members across the airline, railroad, transit, universities, utilities, and services sectors. They’re not likely to be involved and see most of their membership on the east coast.

As mentioned earlier, new entities such as Gig Workers Rising are being created to take advantage of the opportunity to collectively organize for independent contractors.

A few interesting news briefs:

  • Yemen’s Iranian-backed Houthi rebels hit major Saudi Arabian oil installations during a drone airstrike early Saturday. The Khurais oilfield operated by Saudi Aramco, the state-owned oil giant, and the Abqaiq oil processing facility, were struck by a number of drones that caused fires at the plants. Saudi Arabia shut down half its oil production Saturday, which is expected to impact almost 5.7 million barrels of crude production a day, about 5% of the world’s daily oil production; and up to 70 percent of the country’s crude output. The government said the attacks also led to a halt in gas production that will reduce the supply of ethane and natural gas liquids by 50 percent. Saudi Aramco CEO Amin Nasser said nobody was hurt in the attacks and emergency crews contained the fires. Secretary of State Mike Pompeo blamed Iran for ordering the attack, in tweets on Saturday, while Iran said it had nothing to do with the bombing. President Donald Trump later tweeted that the US has “reason to believe that we know” who is responsible for the attack and the country is “locked and loaded depending on verification.” Houthi rebels in Yemen have claimed responsibility for the attacks, and said 10 drones had targeted the oil installations; reports are coming out that the attack may also have been caused by cruise missiles. The US secretary of state and presidents’ remarks came amid rising tensions between Washington and Tehran after President Trump’s decision last year to pull the U.S. out of the Iran nuclear deal.
  • The Frankfurt Motor Show continues to showcase electric vehicle launches as European automakers invest tens of billions into their new lineups to comply with stricter emissions rules and expected growing demand. Volkswagen, Porsche and Mercedes-Benz unveiled electric models that will be heading to dealerships soon. VW’s ID.3, the first model from its new MEB product line, and Porsche’s high-performance Taycan electric sports car, grabbed much of the attention. Pressure is mounting on automakers to go green. On Saturday, thousands of protesters marched in front of the car show to demand a swift end to internal combustion engines and a shift to clean vehicles.
  • For fans of the HBO series, “Game of Thrones,” Henrik Fisker is in a good position to showcase his upcoming all-electric SUV. Nikolaj Coster-Waldau, who played Jaime Lannister on the recently completed popular TV series, has been a United Nations Goodwill Ambassador for climate change and other social issues. Now he’ll be serving as a partner and sustainability adviser to Fisker Inc. chairman and CEO Fisker in working toward a future with advanced, affordable, electric mobility. It will be a good fit in helping the UN meet as many sustainability goals as possible, the company said. Fisker Inc. will unveil its electric SUV at the end of this year. The company said it will offer a range of approximately 275 to 300 miles per charge.
    German auto supplier Bosch said it has earned about 13 billion euros ($14.5 billion) since the beginning of 2018 through “electromobility” orders. That product lineup includes software, production projects for electrical powertrains, automated valet parking, and other projects focused on making mobility more automated, connected, and personallzed.
  • Volvo Group North America became the first trucking OEM to join the US Department of Energy’s Better Plant Supply Chain Initiative. The company recruited eight Volvo Group vendors to commit to reducing energy consumption by 25 percent over 10 years. The federal agency said that 85 percent of US energy consumption is a result of the industrial supply chain, a majority of which is comprised of small- to medium-sized manufacturing companies.

Forecast on where global car sales are going over next decade, Ugly signs we’ve crossed the line on climate change

Expectations have been in place that the next decade will be as historically significant as the birth of mass production automobiles — when Henry Ford’s company put the first Model T in production in 1908 and watched it reach the 15 millionth unit 19 years later. But will the 2020s be likely to see these historic shifts fall in place, with the year 2030 typically used in forecasts and emissions reduction goals as the benchmark for adoption? That benchmark could include steadily declining new vehicles sales; electric vehicles becoming more important to automakers and vehicle owners than cars and trucks powered by internal combustion engines; autonomous vehicles clearing regulatory hurdles and starting production; mobility services leading the way in traffic- and smog-congested cities; and younger consumers choosing autonomous, electric, shared ride services over owning their own personal vehicles.

Good questions. Let’s take a look at the first one………
Auto sales forecast: New vehicle sales increased in June in China, the world’s largest auto market, but that came during a 14 month period where 13 of them were in decline. July saw the decline fall back into place. Rising trade tensions and tariffs, a slowdown in China’s booming economy, and implementation of stricter emissions rules, have had their impact. Much of the the June sales boom was fueled by dealers cutting prices way down to clear inventory and prepare for exhaust controls coming to new vehicles. LMC Automotive estimates 2019 will see a second straight annual drop in China. India has seen sales decline at an alarming rate this year, with automakers cutting production and putting plans on hold to increase capacity. Analysts worry that U.S. auto sales reached their historic peak and will continue to see decline this year. Germany’s Center for Automotive Research says that the global auto market is about to take its biggest hit since the financial crisis of 2008, with sales declining by more than four million units at the end of this year.

There are concerns over a global economic slowdown potentially dragging out the current sales decline, yet global sales growth is far from being over. Studies by McKinsey, IHS Markit, Bank of America and Merrill Lynch, and AutoForecast Solutions, predict a return to growth in new vehicle sales worldwide. Should these studies be taken seriously? Yes, as they do tap into auto executive interviews on their product pipelines in the coming years, and opinions expressed by shareholders.

A McKinsey report forecasts global new vehicle sales will return to an increase, but not at the steep rate we’d seen over the past five years. That was at 3.6 percent per year, and it should decline and level out around 2 percent annual growth rate by 2030. Consumers are buying a lot of new vehicles, many times for the first time ever. China, India, Brazil, and a few other countries with emerging economies, are expected to see economic growth return with consumers moving to growing metro regions with strong job demand and more need for transportation beyond metro trains and buses.

The McKinsey study expects that the decline and leveling out will come from macroeconomic factors and the rise of new mobility services such as ride hailing, car sharing, and eventually by automated shared rides.

“New mobility services may result in a decline of private vehicle sales, but this decline is likely to be partially offset by increased sales in shared vehicles that need to be replaced more often due to higher utilization and related wear and tear. The remaining driver of growth in global car sales is the overall positive macroeconomic development, including the rise of the global consumer middle class. As established markets are no longer expanding, growth will continue to rely on emerging economies, particularly China and India,” according to the McKinsey study.

These findings have been echoed in other market reports, with many including electric vehicles in the numbers. A dominant topic of conversation among industry panelists last month at the 54th annual CAR Management Briefing Seminars in Michigan, was the speed in which key markets around the world will adopt EVs and increasing levels of autonomous mobility. Cybersecurity was another key concern, with fear of hackers being able to take over vehicles and shut down the grid, being reiterated by speakers.

AutoForecast Solutions and IHS Markit released studies forecasting overall new vehicle sales growth to continue through at least 2026. Electric vehicles are supposed to replace internal combustion engines in large numbers by 2030, but IHS Markit sees that taking much longer — reaching only 7.6 percent of the total by 2025. Another previous forecast has been set aside, with the young Millennial generation actually buying cars like their parents did and keeping them longer.

Global plug-in vehicle deliveries reached 2.1 million units for 2018, 64 percent higher than for 2017 and 2.4 percent of the world’s overall 86 million units sold last year. The International Energy Agency’s New Policies Scenario expects that by 2030, global EV sales will reach 23 million for that year and the stock of owned EVs will exceed 130 million vehicles (excluding two and three-wheelers). That’s under one forecast analysis including the impact of announced policy ambitions by several governments; the IEA scenario includes another potential outcome where the number shoots up to 43 million and the stock coming to more than 250 million. Either predicted scenario would cut oil demand substantially.

China saw its first drop in recorded EV sales in July. Monthly global sales fell 14 percent with declines in China and North America during that month. Reductions in EV subsidies and a cooling economy impacted the China market. Another top auto market, India, is struggling to get consumers and rickshaw drivers to convert over to EVs and meet goals the government had laid out.

For now (and in another study), the IEA sees oil being king and the US playing a leading role over the next six years. That comes form rapid growth in the shale industry. By 2024, the US will export more oil than Russia and will come close to Saudi Arabia’s exports.

Other advanced fuels, such as renewable natural gas, will offset the advantages stable fuel prices offer petroleum suppliers when it comes to fleets. Affordable gasoline and diesel, and concern over incentives diminishing, are expected to keep EV sales at bay in the US for now with fleets and consumers. Traditional ICE vehicles with good fuel economy, strong crash safety ratings, and a full spectrum of features and connectivity, are leading the way for now. As for new vehicle purchases, it appears that major markets won’t see their numbers go way down over the next decade. It will take longer before alternative modes and energies will be fundamentally and historically altering the industry.

Signs that we’ve crossed the tipping point with climate change:  New fires are continuing to start up in the Amazon rain forest, caused by famers, cattle ranchers and other sources. The world’s largest absorber of greenhouse gases may change roles and begin emitting them, according to scientists. There are other indicators of environmental hazards approaching: Australia’s Great Barrier Reef may be seeing the end of its days….. More than 1 in 10 Americans — 34 million people — are living in rapidly heating regions. Seventy-one counties have already hit the benchmark 2-degree Celsius mark………. The Intergovernmental Panel on Climate Change predicts a further rise of between 1.4°C and 5.8°C by the end of the century in oceans. It would take out many species which are already under stress from overfishing and habitat loss; and the oceans are becoming increasingly acidic…… Scientists recently announced that July equaled, if not surpassed, the hottest month in recorded history. The heat wave that wreaked havoc on Europe in late July has now reached Greenland, causing the ice in the region to melt at a rapid pace.

A few interesting news briefs:

  • On Friday, China’s Ministry of Industry and Information Technology, announced Tesla is receiving an exemption from a 10-percent purchase tax. It’s part of a broad national policy applying to domestic electric vehicles. Prior to that on August 20, Tesla was included in Shanghai’s Pilot Free Trade Zone, which will also help the EV maker gain a financial advantage in the world’s largest EV market.
  • Chinese automaker BYD took third place (behind Qualcomm and MasterCard) on Fortune Magazine’s “Change the World” list 2019, which is the American publication’s annual ranking of companies that are hitting targets to help the planet and tackle society’s unmet needs. BYD’s cited achievements include building a flexible “e-platform” for EV design and construction, competitive pricing that’s helped further commercialize EVs, and the recent deal to jointly develop electric vehicles with Japan’s Toyota that should expand BYD’s global reach.
  • The 2019 Hyundai Nexo hydrogen fuel cell electric SUV has earned a TOP SAFETY PICK+ award from the Insurance Institute for Highway Safety (IIHS) for vehicles built after June 2019. The Nexo, which is only available in California, is the first such hydrogen fuel cell vehicle that IIHS has tested for crash safety.
  • The Ford Police Interceptor Utility 2020 model is now the first-ever pursuit-rated police utility vehicle with a standard hybrid engine. Agencies in cities such as San Diego, Columbus, Ohio, and Madison, Wisc., have committed to adding hybrids to their law enforcement fleets. So far, these agencies have ordered more than 2,600 units equipped with the standard 3.3-liter hybrid engine.
  • Car sharing service Share Now, which was created this year as part of a joint venture between BMW and Daimler, will expand its electric fleet significantly under the agreement with the City of Munich. A total of 200 BMW i3s will be available to Share Now customers on Munich roads by the end of the year.
  • From GAM editor’s blog post, called The mysterious vanishing of Americans 40 to 60 — and why we were named Generation X: “The next time you go out and about, take a 365-degree look around you. Millennials (ages 23 to 38 during this year) and GenZers (ages 7 to 22) are out doing things in vast numbers, with Millennials nearly as big in population as Baby Boomers — and GenZers following right behind. But what’s happening to my peers in Generation X? We’re there, but in smaller numbers; and many of us are somewhere else — such as working long hours.”