How Do Car Ownership Costs Compare to Using Uber?
Recently Naval Ravikant, cofounder of the startup network AngelList, said he was “selling his cars” in favor of using Uber and other transportation services. He calculated that his BMW 3-series convertible cost him $1200-$1500 per month: $300 garage at work, $300 garage at home, $600 car payment, $200-$300 registration, fuel, insurance, and maintenance. He uses uberX 3x per day (~$54/day; fewer times on weekends). He adds, “I can relax in the back on phone or iPad, no road rage on arrival, no hunting for parking, door to door service.”
So what do the economics of such a decision look like? While I’ve done this before for taxis, cars are more complex.
In this post we look at how much owning a car in San Francisco really costs and compare that to using Uber instead.
Cars are tricky beasts because, much like housing, the decision to own one is often not one of economics (even though housing and transportation are top two expenses in the average American’s budget). Clearly there are cheaper options to owning a car. However public transportation is limited and, in San Francisco at least, MUNI can be unreliable with only a 52.7% on-time rate. There’s a strong psychological factor to car ownership as well, and a status signal.
In fact, a 2010 British Journal of Psychology study, the “Effect of manipulated prestige-car ownership on both sex attractiveness ratings”, experimentally tested the perceived attractiveness effect cars have. The study had heterosexual men and women rate the perceived attractiveness of the opposite sex. Researchers manipulated the surrounding environment in the photographs of the men and women receiving the ratings such that the people were shown seated in either a Bentley Continental GT or a Ford Fiesta ST:
Okay, here are actual examples of the stimuli used:
Overall, men tended to rate women as more attractive than women rated the men. Car type had no effect on how men rated women’s attractiveness, but women rated men pictured in a Bentley Continental as more attractive than the same men pictured in a Ford Fiesta ST. Here are the results in bar chart form:
This tells us that there is a certain status appeal to being in a nice car. With those psychological effects in mind, let’s now look at the economics of car ownership in the Bay Area. The true cost of car ownership has to account for real-world costs including depreciation of car’s value, fuel, insurance, maintenance and repair, taxes and fees, etc.
Owning a car costs somewhere between $5,000 and $15,000 per year.
Cars depreciate in value. A lot. New cars really are pretty bad financial decisions (but of course, it’s not just about the finances). Unsurprisingly, this cost scales with income, as people with more money buy more expensive cars that are also more expensive to own and operate. Meaning Uber’s demographic probably tends toward the higher end of the $5,000-$15,000 range. Of course these numbers depend on the type of car, driving habits, etc., so caveat lector.
The estimates do not account for parking, tickets, and tolls, which also tend to be pretty high in San Francisco (which is among the expensive places to park in the US).
For those who drive, their daily commute averages around 50-60 minutes roundtrip, and public transportation users spend almost twice as long each day getting to and from work. Only about 15% of San Franciscans use public transportation to get to work.
Given all of this information, how does Uber compare? Well by January 2013, the average SF driver partnering with Uber took only 2 min 40 sec to arrive after they agreed to pick you up.
This means that the average wait time for an Uber is essentially no more than what it would take you to walk to your car and start it up yourself. And far better than what you’d get compared to calling a cab (good luck) or even with a street hail. There’s a hugely significant time savings with using Uber. Is it worth it? The answer to that depends on the cost.
So how much does Uber cost? Again, for San Francisco, the median fare is only $22. For uberX it’s $17. That means that 50% of uberX trips cost less than $17 (and 50% more) but you can expect to pay around $17 for any given trip. The math here is simple:
Ditch your car, and you save enough money every year to afford up to 882 uberX rides per year.
That’s enough to use Uber to get to and from work each and every day, with another 382 trips left for whatever else you wanted to do. That’s enough to support an Uber-only transportation model. Even at the lower end of car ownership costs of $5,000/year, which I think is fairly unlikely for San Francisco, that comes out to 292 uberX rides per year.
The math doesn’t lie. In a city with with a fast, practical (and cool) alternative like Uber, it would very much be worth your time to crunch the numbers and see how much you’re really spending on your gas, parking, maintenance, etc. and how much time you spend doing those things. Because having your own personal driver pick you up in a slick car each and every day is a hell of an appealing alternative.
We have developed a new pilot program – Xchange Leasing – which is a leasing option administered by an Uber subsidiary and designed to fit with the flexibility that drivers value most. The Xchange lease is one of a kind, and offers value that traditional auto leases do not provide. Unlike most multi-year leases that have high fees for early termination, drivers who participate in Xchange for at least 30 days will be able to return the car with only two weeks notice, and limited additional costs. The program allows for unlimited mileage and the option to lease a used car, with routine maintenance also included.
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