Category: Observations

“The disturbing word bandied about this year so far is comparability.” It came up in President Bush’s plan for solving the S&L mess-to make the NCUSIF accounting comparable to those other funds. . .Comparability is also echoed in the phrase, “bank envy”, the desire of some credit union people to enjoy more of the powers of banks. . . this comparability stems from a kind of inferiority complex. Those who embrace the notion believe that by becoming more comparable we are somehow elevating ourselves. In fact, the opposite is true. Credit unions are different. There were set up to be different and should remain different. They are different because we put the emphasis on the people we serve. Our strength is that we help people.”

(Ed Callahan July 1989)

Many credit unions find their web site is in a state of constant makeover, or expansion. Often these changes are internally generated. Sometimes external consultants are used.

Canada’s largest credit union is redoing its opening web pages. Want to help? Just visit their beta site and click on the feedback link.

The draft design is a powerful statement, as is, of the credit union difference. But it goes a step further and asks the members to give their insight.

Question: When was the last time you asked your members to contribute to a development project in your credit union?

I recently received the following comment from Doug Fecher, CEO of Wright-Patt Credit Union reflecting on celebrating another year of experiences. Or as he opens his remarks: “knowing that we know a whole lot less than we did just a few years ago.”

His reflection is a reminder of a leader’s influence as a mentor, whether intended or not.

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I remember my first boss in credit unions – a former Ohio State All American who played for Woody Hayes, won a Rose Bowl and national championship with the Buckeyes in 1954, and played for the Steelers for a year or two until he blew out his knees (before they knew how to fix them). Bill came home a local hero for his success on the football field so they made him manager of the local credit union.

I’m starting to understand what Bill must have thought about us young kids as we went at our jobs like we knew it all. Of course he’d forgotten more than we knew about credit unions and the business of running them. His genius was in letting us make our mistakes so that we’d come to know what he did: that none of us is as smart as we think we are. Of course he would never let us make a serious mistake, and he went about it in a way in which none of us really knew how much he was teaching us. I remember him growling at us (he always growled even when he was being nice … I think it was the football player in him). “I don’t care what you do, just do something even if it’s wrong!” (I removed the expletives he used about every third word.)

Sitting still was never Bill’s style … Moving the ball down the field was his way, even if every once in a while you’d get thrown for a loss.

I think about Bill every so often, and especially as each year goes by. He played the part of a dumb football player pretty well … dumb as a fox. The man taught me more than I ever gave him credit for and I only started realizing that a few years ago.

Some days I think that’s the way people look at me, as if our business is starting to pass me by. And it makes me smile.

– Doug Fecher, CEO Wright-Patt Credit Union

It is accepted as a foregone conclusion that Uber and other shared ride platforms will eventually destroy the taxi medallion industry.

There is no contesting two facts at the moment:

1. Ride sharing is a very popular and important addition to the public transportation industry.
2. Medallions have been significantly devalued as collateral for lenders.

As a consequence of number 2, financing for taxi medallions has dried up in most cities. This means that medallion sales are now primarily on a cash only basis, which further lessens the value below what their actual earnings potential might be.

But will Uber and its competitors actually eliminate taxis as one form of public transportation in major cities? Recent events suggest that the future viability of ride sharing services is still uncertain.

Financial Performance as Public Companies

As Lyft and Uber are now public companies, they are filing quarterly financial reports. Neither company has ever made a profit. As one reviewer wrote about the Lyft IPO, the company loses money on every ride it makes.

Uber lost $5.4 billion in the 2019 second quarter.  Lyft’s losses for the same quarter were $644 million.

The Driver Challenge

This week, on the dominant local news and weather radio station for D.C., WTOP, Uber broadcasted an ad. Not for passengers, but for drivers. The ad stated that drivers would have a guaranteed income of $2,700 in their first 90 days. All they had to do was complete 400 rides. Even if that did not add up to the guarantee, they would still be paid that amount. That guarantee equates to an annual income of $10,800. If only the minimum total of 400 was completed, the average charge per ride would have to be $27.

If a driver had to work a 40 hour week to achieve this ride total in a 90 day period, that would work out to $5.65 per hour before taking into account any operational expenses from using one’s auto. If the rides could be done in half that time, the rate would be $11.25 per hour, fewer expenses. Still way below DC’s minimum wage law.

At a time of historically low unemployment, finding drivers for ride sharing firms will likely continue to be a challenge. Maybe that is why Uber leads this employment ad with an income guarantee.

The Uber Culture

In a new book, Super Pumped, the Battle for Uber, author Mike Isaac tells the story of the company’s early years led by founder Travis Kalanick. In the words of the book review by Leslie Berlin, “Kalanick understood that Uber could succeed only if it grew faster than any competitor, attracting large numbers of riders and drivers in cities across the globe. He let nothing get in the way of that growth–not the livelihood of the drivers, not the health and welfare of employees, not the counsel of his own advisers, not the laws and regulations of multiple states, and not the rules of Apple’s app store. He hired former NSA, FBI and CIA employees to spy on competitors.”

The review proceeds to describe the undoing of Kalanick by a number of individuals who revealed the toxic culture that had been created.

Disruption Is Not Necessarily Terminal

The future resilience of ride sharing systems, and their systematic underpricing of taxi rates, has disrupted the regulatory monopoly that taxi licensing system created. But it is not clear that the taxi industry will in fact be killed, and that the subsidized, financially losing strategy of ride sharing companies will wipe out their regulated competitors.

Hedge funds are reportedly buying up taxi medallions in New York for cash. Just as was done in the 2008 housing crisis, investors are coming in, paying cash at the low point in the valuation cycle, hoping to turn an above average return, when the market normalizes.

So the taxi medallion story is a long way from being over, even though there will be painful adjustments in the interim.

The White House
Washington D.C.
July 2, 1936

MEMORANDUM FOR
THE SECRETARY OF THE TREASURY

What do you think of some
publicity on Federal Credit Unions?
I understand 1,479 of them have already
been organized, with an estimated
membership of 205,000. We might do
something to push this. They are
popular.

–F.D.R.

My only question is, who brought this opportunity to FDR’s attention? That is the kind of “Washington presence” credit unions should have today!

In CUInsight’s Sunday jobs report, there are credit unions listing 10 to as many as 40 job openings in this weekly post. In addition to individual senior management positions, the most recent numbers ranged from a high of 23 to a low of 7 openings per credit union.

Finding and keeping employees is getting tougher. In a recent presentation by Economics Professor Alan Gin from the University of San Diego, some of the macro trends show why today’s labor market is so competitive.

All traditional measures of under or unemployment segments are the lowest levels in the past 15 years.

Secondly, the labor force participation rate is at its lowest since the 1980s. He cites four factors contributing to this structural decline:

1. Baby boomer retirements;
2. Fewer students working;
3. Disability leavings;
4. Affordable Care Act enabling persons to be insured when leaving a company plan

The Human Factor Challenge

Tactics for responding to this tight labor market are vital. Retaining and growing current staff becomes more urgent.

Other efforts include automation (how many credit unions answer the phone with a live person), moving jobs to different areas with less tight labor markets, process and productivity improvements, and outsourcing.

Whether the situation is short lived or a more permanent feature of the evolving economy, the need for new ways to find and retain the right staff will be a critical factor in many credit union’s ability to grow and to serve members well.