Car ownership and the future

why Uber, Lyft, et al are not going to dominate

There’s a problem with Uber, Lyft or any other massively capitalized car service. They’re too expensive.

They can’t even get close to the economy of a private vehicle… even if it is left sitting parked for 22 out of 24 hours, 5 days a week — and 20 out of 24 hours on Sat. And Sun. It’s crazy how cost effective it is to own your own vehicle; including insurance, maintenance, fuel and even depreciation.

Here’s how cheap they’d have to be.

According to Kelley Blue Book a mid-size car 5 yr cost to own is about $36k.

Let’s break that down to the hour.

36,000 / (5 yrs * 52 wks * 7 days * 24 hrs) = 36,000 / 43,680 = $0.82 / hr.

Let’s be generous and only count the hours the vehicle is in use. (2 hrs * 5 days + 4 hrs * 2 days) = 18 hrs / week * 52 weeks * 5 years = 4,680 hours / 5 years. 10% usage, approximately (4,680/43,680). So $36,000 / 4,680 = $7.69 / hr.

This is a simple calculation. There’s nothing to interpret here (assuming you accept KBB as an authority for the cost to own) and the usage is not overly optimistic. Still we come to a cost that is less than $8/hr with the assumption you never run additional errands during the week or on the weekend and of course never go to visit anyone, take anyone out in the evening and certainly never go on a long distance trip.

How are they going to beat that? Just on cost alone, they lose significantly. I’m very confused by anyone claiming that car services, no matter how optimized they may become, could ever replace private car ownership for anyone who already owns a car and many who would like to. In the future with autonomous cars (no driver to pay), it’s entirely possible they could get it down to $8/hr but that’s hard to imagine seeing as how you can’t rent a vehicle for less than that price today.

What would it take to make it cost effective? Let’s say that a service can get their cars much cheaper than the rest of us. Let’s go crazy and say the manufacturer gives them a 50% discount on the vehicle. We’re talking about an average price of 19k, so cut out 8k. 36k — 8k = 28k / 4680 still = $5.98 / hr. That’s a decent discount from where we were and beats ownership if you use the vehicle at most 23 hrs per week but not a near term realistic scenario.

What about Rental Cars

Budget rental lists $19/day for compact car w/ a minimum 5 consecutive days. Let’s use the same calculation which is 2 hours per day on weekdays.. so $19/2 or $9.50/hr plus gas, insurance and taxes. On weekends if you use it 4 hours per day, that gets down to $4.75/hr plus those other costs — not too bad but still you’re paying $19, not $4.75 whether you use it or not. Our personal vehicle is actually about the same cost at $19.68 (especially if you add fuel, insurance, taxes to the rental). In my experience, you never get away from a rental car without paying quite a bit more than this however. Surcharges, mileage charges and other fees seems to somehow add up to substantially more than the sticker price of the vehicle.

Hours or Miles?

I saw something from an analyst about this stuff and apparently Silicon Valley is using mileage as their core unit and they want to charge $1–1.50 per mile! So let’s say you’re driving 30 miles per hour. Let’s divide our half-price car costs per hour by miles. $6 / 30 — yeah… you do the math (it’s $0.20/mile). Still way cheaper to own.

Apparently we drive a lot in America at least. ~13.5k miles annually. At $1/mile that would be $67,500 over that same 5 yr period. Wahhhhh…. completely ridiculous. That’s per driver, per household… ugh.

Exceptions to every rule

There are of course exceptions. People who live in very dense cities, rich and poor alike. These dense cities provide two options. Car service or mass transit. In wealthy cities car ownership is so expensive because the space needed to store it is worth way more than the cost of the vehicle being stored. In poor cities nobody can afford a car that isn’t being put to work to pay for itself.

Commuters commuters every where commuters.

Here’s the thing though. People aren’t moving to cities the way the analysts have been saying. Nope. They’re moving to suburbs and working in cities. The top growing metro areas (by population) are all massively suburban. So the trend isn’t towards dense cities, at least not as far as miles that have to be driven go. These areas are also not investing in mass transit… they’re expanding existing highways to meet demand.

Autonomous? How will that change things?

So autonomous vehicles are set to change the world right? Right. Will they displace private car ownership in areas where cars are commonly owned and operated privately? No. In fact, cars may become more affordable than ever for far more people than before.

Let’s review.

Cars are cheap to own and operate outside of dense cities. If you need a car for more than 2 hrs per day, owning will be cheaper than renting whether it’s from a ride service or a full rental service.

Autonomous cars will make it even cheaper for many. Consider. If you live in a city where parking is impossibly expensive, having your car park itself miles away in a cheap garage, returning when and where you need it, could make owning a car suddenly more affordable. Having the car charge itself, go through a wash on its own, drive itself to have maintenance performed — all of these reduce the overhead associated with car ownership both time and money.

For families the savings could be substantial. Many families now own 2 or more vehicles. An autonomous vehicle would allow for overlapping schedules. Essentially the vehicle would become a dedicated carpool driver. Both adults could get to and from work in one car with minimal schedule changes. Children could easily be dropped off and picked up from school with or without an adult present. Errands could be run for a whole household. One car to support many people. How many families are there? Considering that nearly all adults start out in one, it must be quite a few. More than single adults? Yes, and if you include ‘unmarried partners’, it is still over 60% of all adults. Add in young adults still living with their parents and… you get the picture.

Ownership will expand even more as well. Consider blind people, paraplegics or those missing arms or legs, anyone who currently can’t physically drive a vehicle. The elderly, the infirm. All will become eligible for ownership and at much lower costs than before. No more need to hire a driver or call a service.

Even if you are single and perfectly healthy (and yes there are more of you out there than ever), there’s an option for you: rent out your vehicle. Instead of being an Uber driver, just be an Uber affiliate. Keep your vehicle in good condition and rent it out while you work — or pay a surcharge and let them clean it for you, while you sleep or whenever. Suddenly you have the ability to finance that car, especially if you get pre-approval as a ride share affiliate. In fact more people than ever will be able to own a vehicle for just this reason.

Ride hail services that want to own their own fleet will have to find some way to make up the costs. Cheaper vehicles, less freedom on the destination route or timeline, to maximize efficiency… it becomes a race to the bottom in terms of service and experience. They’ll be competing with mass transit, not with private car ownership or they’ll be back to limo and luxury car service the way they started.

So there may still be a market for the Ubers an Lyfts of the world in 5-10 years (maybe not as big as they’d like it to be) but there is also a very very healthy market for private ownership of cars, especially autonomous cars. I do suspect that a generalized service will come along and disrupt the Uber/Lyft/AirBnB business model in the next few years though. Maybe Budget Rental will get into the business. Why wouldn’t they? They already do everything except drive the cars… The bar isn’t very high and what the ride hailing services offer isn’t exclusive in any way, but that’s a topic for another day.