When is Car Sharing Value for Money: the car centric traveller?

30 Jan 2018

David Hensher

There may be many car owners where the economics of sharing does not stack up until we have shared autonomous vehicles that have significantly lower user costs (i.e., 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 (centric) 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 (which is a price for a quality car), and let me assume I keep it for 10 years and simplify the annual capital cost (depreciation) as $6,000, maintenance costs of $1,000 and parking costs of $300, and the car has a residual value of $5,000 after 10 years, which is reasonable.

The annual rego, insurance, maintenance, parking and fuel/toll bill is around $5,000 per annum, giving a total outlay of $11,000 per annum. 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 (assume I only own one car) and enter the shared society and use Uber. Assume I used to drive my car to work 5 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 around $250 or the annual cost is $13,000, $2,000 greater than the ownership model. If we assume that Uber is used on average 5 days a week (which may be a mix of weekday and weekend), then the annual cost is $9,285 which is less than the ownership cost of $11,000. Clearly the comparison depends on the number of trips to be made under sharing 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 some (indeed many) car centric users. When we consider a view that for many, car ownership is not about cost, this adds another layer of issues to think through in the shared car society.

Hmm - 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 $2,000 difference for the 7 day activity, this is equivalent to 100 Uber trips switching to PT if that is desirable.
  2. If a car owner was to take full advantage of the car share systems existing and proposed, they could rent out their own car (if they continue to own it)  when they are not using it, and further 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 that 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 the garage at a private residence. Selling garages is quite common in London. One in central London recently sold for over $1,000,000: http://www.dailymail.co.uk/news/article-4048546/Garages-goldmines-London-2016-s-expensive-lock-goes-670-000-nearly-TRIPLE-average-UK-house-price.html.
  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 rent it out just like a sublet (like airBnB but airG)? This may impact, however, the future design and scale of residential dwellings and lead to reduced purchase (and rental) prices.

Food for thought.

Acknowledgments: I thank Michiel Bliemer, Matthew Beck, Chinh Ho, Michael Bell and Behnam Fahimnia for comments and suggestions.