To own or Uber? We do the maths

30 January 2018
From our 'Thinking outside the square' series
Car ownership is costly and Ubers don't come for free. David Hensher does the numbers on whether owning or sharing adds up.

There may be many car owners where the economics of sharing does not stack up until we have shared autonomous vehicles that have substantially lower user costs (that is, no driver wages, for example). All the while we have a driver in a shared car, the economics are not very attractive for regular car users. This is the dominant travel mode in most cities in Australia, and hence I anticipate that the exercise below reflects a circumstance of many current car owners and users.

Suppose I have bought a car for cash for $60,000 (the cost of a quality car), and let me assume I keep it for 10 years and simplify the annual capital cost (depreciation) as $6000, maintenance costs of $1000 and parking costs of $300, and the car has a residual value of $5000 after 10 years, which is reasonable.

The annual rego, insurance, maintenance, parking and fuel/toll bill is about $5000 a year, giving a total outlay of $11,000 a year. There is also foregone interest by not investing elsewhere; however, the shared vehicle user cost also has an opportunity cost, so it is reasonably financially neutral.

I now sell my car and enter the sharing economy and use Uber. Assume I used to drive my car to work five days a week and use the car on weekends, and that I intend to continue using a car-based model for these same trips.

If I use Uber for the same trips, then assuming each Uber trip is $20 (which is a basic charge and likely to be greater for some trips, even under a driverless scenario); the weekly cost is about $250 or $13,000 annually – $2000 greater than the ownership model. If we assume I use Uber on average five days a week (this could be a mix of weekday and weekend), the annual cost is $9285 which is less than the ownership cost of $11,000. Clearly the comparison depends on the number of trips to be made within the sharing model and whether this might be less than under the private car ownership model.

Regardless of the specific evidence, this simple exercise is a stark reminder that a sharing model may not be financially attractive to many car-centric users. When we consider the view that for many, car ownership is not about cost, this adds another layer of issues to think through in the shared-car society.

What is the sharing deal? Not currently very attractive!

Some other points worth making are:

  1. Even if we assume this possibility, and note the $2000 difference for the seven-day activity, this is equivalent to 100 Uber trips switching to public transport if that is desirable.
  2. If a car owner were to take full advantage of the car-share systems, they could rent out their own car when they are not using it, and recoup some of the costs of owning a car. The private car may then become nothing more than a rentable asset. (This hardly helps traffic congestion.)
  3. Most people we suspect believe it is less expensive to own a car than to take Uber. This is the issue of perceived costs associated with usage. Hence, for who would it be a good idea to actually sell their car and take Uber instead? Most people forget to include all the ownership costs in this consideration, since they see a high Uber fee, while not considering the hidden costs of owning a car, which have been included in the exercise above.
  4. This is only one market segment, but with dominant interest in the car it seems a very important segment to focus on.
  5. Not included are some future possibilities such as selling or renting a garage at a private residence. Selling garages is quite common in London. One in central London recently sold for more than $1 million.
  6. One questions whether a household might the sell garage at home; however, when deciding on a future house purchase, they may avoid having a garage, or may include one but sublet it. This may impact, however, the future design and scale of residential dwellings and lead to reduced purchase (and rental) prices.

Food for thought.

David Hensher is a Professor of Management at the University of Sydney Business School and a Founding Director of the Institute for Transport and Logistics Studies. Professor Hensher thanks Michiel Bliemer, Matthew Beck, Chinh Ho, Michael Bell and Behnam Fahimnia for comments and suggestions.

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