Is Private Car Ownership Becoming Obsolete?

The fourth part in a six part series on the future of transportation.  Click also for part three – ‘The New Transportation Opportunity‘ and earlier parts of the series, and for part five – ‘The Totally Transformational Opportunities Offered by Hyperloop Technology‘ and subsequent parts of the series.

Some things in life we take for granted and accept without question.  Brushing your teeth, for example.  Learning to read and write.  And so on.

Another instinctive thing, for most Americans, is the essential inviolable need for and benefit from privately owning one’s own automobile.  Sure, if you live in mid-town Manhattan, you can create a cogent case against car-ownership, but for those of us in the suburbs and smaller towns, it is an essential part of our lives.  How else would we get to our jobs, to the shops, to our social activities, and so on?  As we discuss in our series on our new national transportation opportunity, traditional methods of mass/public transportation do not work in lower density environments.

This is a chicken and egg situation – the growth of private auto ownership allowed our lifestyles to change so that we no longer needed to concentrate in the same small areas to live in and the same small areas to work in, and now that it has become part of our accepted lifestyle, it is very hard to break out of these expectations, but until we re-concentrate our housing and our working, public transportation remains unaffordable and unappealing.

So, if we can’t count on buses, metro lines, light or even heavy rail to move us variously from where we are to where we want to be, what choices do we have other than our own private car?

As good as cars are, they are becoming less appealing.  The cost/convenience of a car is getting worse – commute times and congestion in much of the country are going up, while our brief respite from high gas costs is sure to disappear with the suddenness that it appeared, and sooner rather than later.

Taking taxis is an expensive and awkward process, often involving dirty decrepit cars and rude drivers.  They have little appeal as an alternative to private cars.

Two New Paradigm Changers

Two new paradigm changers are appearing.  The first is quasi-taxi type services such as Uber and Lyft, which are transforming the taxi type of travel experience.  Not only is every part of the experience nicer and better with these new companies, they are also less costly and more convenient for ad hoc short distance travel.

The second paradigm changer is car sharing services such as Zipcar and Car2Go.  These offer a solution for when we need a car for half a day or so at a time.

There are now three ‘sweet spots’ for personal transportation – Lyft/Uber for single journey ‘about town’ travel, Zipcar/Car2Go for a half day or full day of driving around ‘doing things’, and traditional rental car services for when we need a car for multiple days in a row.

With the growing appeal, affordability and presence of these alternatives, it is time to re-examine something we tend not to consider.  How much does owning and using a car truly cost us – is it still the most cost-effective and convenient solution to our personal transportation needs?

We seldom study or think about the costs of our car ownership, because the cost comes under several different ‘categories’ in our lives and budgets, and is viewed as unavoidably essential.  Similarly, with the concept of owning a car an instinctive automatic ‘given’, few people outside of central city centers look for or consider alternatives.

The Surprising Cost of Owning a Car – Fixed Costs

Where to start when picking apart the entirety of all the costs of owning a car?  Well, there’s the cost many of us make each month in car payments or lease instalments.  For most of us, our biggest monthly commitment is what we pay for our house or apartment.  Then the second biggest is our car payment.  And they are both generally accepted as unavoidable.

We also have the cost of the car’s insurance – something we think of as ‘sensible’ and ‘virtuous’ (and possibly mandatory as well).  This is probably about $100/month, and maybe gets lumped in with our health, home, personal belongings, and other types of insurance payments we also make monthly.

Then the car’s registration – if you’re lucky, that’s not much; if you’re not so lucky, it can be many hundreds of dollars a year.

Add these up, and many of us are paying over $500/month, every month, before we even step into our car.

And wait, that’s not all.  There’s more, and possibly more obscured.

Where do you keep your car while you’re at home?  Do you garage your car or park it on the street?  If you park it somewhere on or inside your property, there’s a cost associated with that (sometimes there’s even a cost associated with a street parking permit, too!).

Okay, so maybe your home came with a garage, so you didn’t think of it as an optional item.  But with a bit of extra finishing, that garage could be a den, a storage room, a home theater, a mother-in-law apartment/income-generating rental unit, or used for any of many other purposes.  So, there’s an ‘opportunity cost’ to your garage, even if not an obvious direct cost.  Actually, there are or will be direct costs too – the next time you need to reroof or paint your home, you’ll be directly paying more for the garage as part of that process.

Perhaps you’re in an apartment/condo building where you pay extra for each parking space, and can clearly see the cost of parking.  Or maybe you get one park ‘free’ but have to pay for a second park for your spouse’s car.

If you’re renting a place, you probably already know that homes with onsite parking rent for more than homes with nothing.

The cost of garaging your car is usually ignored in studies of what it costs to own a car (inexplicably, our sense is that just about all such studies prefer to under-estimate the true total cost of car ownership).  There’s a similar cost that also is generally never included.

Another Cost Invariably Overlooked

So, when you take the car to work, or anytime you drive anywhere, what happens when you arrive at your destination?  Are you paying for parking?

It is hard to walk away with much under $20 to park your car in a downtown parking lot.  You’ll pay more at the airport unless you choose an off-site option that adds considerably to your total travel time and hassle.

Should we also mention the times when you go over on your parking and suffer a parking penalty ticket?  And if we’re talking about such things, don’t also forget other types of traffic tickets that you might get from time to time, especially if you have a bit of a lead foot!  Whatever the circumstance, the cost is still a cost, isn’t it.

Maybe you have some sort of monthly parking contract and pay ‘only’ $300/month to park somewhere close to your office.  That is sort of good, but if your commute is 10 miles each way (which is about the national average) and if you’re working 20 days a month, then the $300 means that for the 400 miles you’ve driven to and from work, you’re spending another 75c per mile.

Perhaps we should almost mention tolls – our sense is that this cost too is often overlooked.  Unfortunately, now that new technologies make it easy to electronically charge tolls, as compared to when you had to slow down and drive through a lineup of toll booths, they are springing up everywhere.

Another Somewhat Obscured Cost

Now let’s mentally step into our car and start it up.  Time to start thinking of the costs of driving the car.

You’re probably now thinking of your regular visits to the gas station.  Surprisingly, for most of us, the biggest cost isn’t gas.  Believe it or not, it is depreciation.  If you buy a $40,000 car, then you know that after putting 200,000 miles on the clock, it is going to be worth close to zero.  In simple depreciation terms, that’s 20c a mile.  And that’s a best case scenario.  Few of us drive our cars 200,000 miles before trading them in.

At the other end of the scale, if you buy a $60,000 new car and sell it after a year, on average you’re going to lose 20% of its value in the first year – $12,000.  So for that first year, you’re paying $1,000 a month for depreciation – you can think of this either as a flat cost, or perhaps if you’re driving 12,000 miles a year, you can think that it is costing you $1 per mile for depreciation alone.

What’s that, you say?  The IRS only allows you to claim 55c a mile, in total for everything, and your depreciation alone is twice that?  Well, golly gee, did you really think the IRS was going to let you ‘win’ on that allowance?  (Your tax alternative of course is to claim actual costs incurred.)

Most people find themselves paying $500 – $1000 a month to own their car, before they ever use it at all.  A few outliers might have a lower cost (an old reliable car that no longer has any payments or remaining depreciation), and some will have a much higher cost (an expensive luxury auto that is leased or which gets traded in regularly).

Note that the depreciation cost might be reflected in your monthly payment cost.

Running Costs

Now let’s start to look at all the costs once you’ve stepped into the car and turned the key.

Now we can mention gas.  It is the obvious cost you most regularly incur.  But it isn’t the only cost.  Every mile sees you using up your brake pads, your tires, and getting closer to the next oil & lube and periodic replacement of other fluids, hoses, belts, and so on.  Replacing these ‘consumable’ items is predictable – you know about how many miles you get per set of tires and brake pads, so you know there’s a direct cost for every mile for such things.

Even the occasional car wash, while not a huge sum, is still another $10 out of your pocket.  Do that once a week and you’re spending $500 every year (so if you drive 10,000 miles, that means you’re spending 5c a mile just for car washing, alone).

Plus you have the ever-present excitement of never knowing when something expensive isn’t going to fail, landing you with an unexpected four figure repair bill.  Or maybe you buy an after-market extended warranty, but if you do that, all you’ve done is swap unexpected costs for another per mile cost.  If you get a 50,000 mile warranty for $5,000, you’ve added 10c a mile for most maintenance, except that, as you’ll know from past experiences, there might be a $100 per repair deductible, and sometimes you’ll encounter items that aren’t covered.  So you’ll still be paying more, even with the warranty.

There’s no avoiding the cost of repairs.

Back to the Hidden Costs

Now, think about something we all are usually very careful never to consider.  What would happen to your personal wealth situation if instead of making a car payment and/or incurring depreciation every month, you were paying the same amount into a retirement/investment account?  With cars, most of the money you pay to own a car is money you’ll never see again.  Hopefully, with savings and investments, it is money you’ll get back, several times over, in the future.

For example, say you have $50,000.  If you use that to buy a car, in 12 months’ time, your $50,000 would have dropped to $40,000, plus you’d have had to pay $1000 – $2000 for insurance and registration and other costs, even before you started to drive it – a net outcome seeing you down to $38,000.  But if you invested the $50,000, maybe at the end of the year it is worth $55,000.

The ‘opportunity cost’ of the car is the extra amount that you are not getting by investing your money into a true appreciating asset.

Official Costs of Car Ownership

Various organizations such as AAA come out with annual costs of car ownership.  As we note above, these costs don’t include all the costs of car ownership/use, and so seem to be under-reporting the reality as reflected on your credit card statements and bank balance.

The IRS are happy to allow you to claim 55c a mile in 2017, no questions asked, which a cynic would say implies the real cost is higher than this.

This article suggests a cost of between about 37c and 93c a mile, depending on the miles a year you drive and the car type you own.

But remember that we calculated that monthly parking costs alone might be 75c a mile (for the part of your driving that takes you to and from work).  Car washes are 5c a mile, also not included.  And so on.

How do these costs compare to other types of semi-personal transportation?

Car Ownership Costs Compared to Alternatives

If you call a ride from Lyft or Uber, you’ll be paying somewhere between 70c and $2.00/mile, plus a few dollars ‘flag fall’ at the start of the journey, plus also a cost per minute of around 10c – 50c.

If you choose their ‘ride share’ type option, these costs might reduce from 10% to 50%.

In other words, it would seem, at first blush, that your own personal car is cheaper.  But if you are using Lyft or Uber, while the cost per each journey is probably a bit higher than driving your own car, you’re not also tying up maybe $50,000 of your cash in a car, and you’re not taking as much as a $1,000 a month hit with depreciation or car payments.  That $1,000 a month – $35 a day – pays for the extra cost of a lot of Lyft/Uber rides, doesn’t it!

If you only drive a little each month, the higher per trip cost of Uber/Lyft is balanced by the high fixed costs of car ownership, making Uber/Lyft a better deal.  If you unavoidably drive 1,000+ miles a month, maybe owning your own car might remain the better choice.

If you choose a Zipcar for a couple of hours of driving around town, you’ll probably be paying $6 an hour and upwards, or, if renting for a full day or longer, $56 and up per day.  These rates typically include insurance, gas, maintenance, and probably 180 miles of driving per day.

Competitors to Zipcar include Car2Go, which simply charges 41c/ and up per minute, or $15 and up per hour, and $59 and up a day, for a Smart or Mercedes-Benz car.

So even if you’re paying $75/day, compare that to owning your own car at a cost of $1000+/month.  That $1000 pays for a lot of $75 days, doesn’t it.

If you’re renting a car for multiple days at a time, you can pay as much or as little a day as you like, depending on the type of car you choose, the insurance options you select, and whether you’re with a leading brand name company or a no-name ‘Rent a Wreck’ type company.  You could pay much less than $56/day, and of course, you could also pay much more.  You also pay for gas, but nothing else.

So, on the face of it, Lyft and Uber might be less or more expensive, depending on the travel you would do.  On the other hand, you’re never up for parking costs with them.

A Zipcar or similar is cheaper if you just want a car for a few hours, a rental car is probably more expensive, but if you’re about to go on a long journey, then quite a few people choose to rent a car and leave their car behind, so as to avoid taking a large hit with extra depreciation (or lease penalty fees) by putting a sudden few thousand extra miles on the car.

On the other hand, many people choose to ignore these calculations entirely, because car ownership isn’t so much about the last penny or two per mile of cost, it is about convenience.

We’ll accept that, so let’s now turn our lens to focus on the convenience of private car ownership.

Some Inconvenient Truths About Car Ownership and Convenience

Your car – your greatest liberator, right?  The world is, more or less, all of a sudden at your feet; you can go anywhere you want.  You can be 500+ miles from home in less than a day, and so on.  You can not only go where you want, but also when you want, and you can control your environment.  You get to set your car temperature, the music that plays, and who travels with you.  You’ve plenty of leg and shoulder room, and can bring as many bags (or even shove stuff loose into the car) without caring.

Around town, what easier way to go shopping and bring everything back home?  Bulk stores like Costco couldn’t exist if everyone had to hand-carry their purchases to a bus and then from the bus stop to their home at the end of the bus ride.

But sometimes, the perceived advantages of owning your own car are not as great as they seem.  It just requires a new way of thinking.  For example, if you want to go into town and drive to three or four different shops, buying items at each store, the convenience of your own car almost certainly beats getting more and more burdened with items, calling for multiple cars and incurring minimum ride fees for each hire, and so on.

But even that isn’t as clear-cut as you might expect.  What say you have to pay for parking at several of the places you are stopping at?  An alternative is to get a Lyft/Uber car, and simply ‘leave the meter on’ – paying their cost per minute while they are waiting for you.  At, say, 15c a minute compared to a $10 parking fee, you could have the car wait up to an hour for you and still save money.  Or maybe on these types of occasions, you simply rent a Zipcar for the afternoon.

What say you’re going out for dinner and drinks with friends?  Using a hire service means you can enjoy yourself and not worry about drinking too much.

Some cities also now have intelligent car-pooling.  This means your Lyft or Uber ride might already have someone else in it, going the same way you are going, or you might detour on the way to pick someone else up.  It might take you a bit longer (or it might not, depending on the sequence of pickups and drop-offs) and it will definitely save you more money.

This becomes practical, even for daily commuting.  Your cost goes down, your ride gets to travel in car pool lanes if available, and you don’t have to conform to the restrictive requirements of formal car/van pooling schemes.

Think about going to work.  If you don’t have guaranteed (and company-paid) close-by parking, you’re up for the hassle of finding somewhere to park, the extra time walking between your park and your office, and of course the extra cost.  Compare that to a literally door to door service with Lyft or Uber.

Let’s also think about how ‘convenient’ it is when your car’s battery fails on the cold wintry day when you have no spare time and in the most inconvenient location (have you ever had a battery fail on a warm summer’s afternoon when you’ve plenty of spare time to deal with the unexpected problem?).

Or how ‘convenient’ it is, even when you have to take your car in for regular servicing, or for unscheduled repairs.  Something as simple as fitting a new set of tires can take up half a day if you go somewhere that doesn’t have exactly scheduled time slots – and if they say ‘come back in a week’s time for us to re-torque the wheels’ you’ve just wasted another half day.  And so on.

How convenient is it to be stuck in stop and go traffic, or an unexpected traffic jam?  At least, if someone else is doing the driving, it is possible these days to catch up with emails, phone calls, or just to enjoy the time by reading news articles, websites, watching videos, or whatever.  Our ability to be connected everywhere now means that having to concentrate on driving has become from ‘something to do during an unavoidably unproductive time’ to now disadvantaging the driver while allowing passengers to be as productive as they wish, in the car, same as if they were at home or in the office.

Perhaps a Partial Approach

Just because you have your own car doesn’t mean you should always use it.  For example, when commuting to work.  That ‘free’ carpark your company is paying for?  It might be free to you, but it surely isn’t free to your employer.

What do you think they’d say if you approached them and said “I want to become a more eco-friendly commuter, and so I would like to use Lyft and Uber ride sharing.  This will save you the cost of the car park you’re paying for me; can you instead apply that money to subsidize my ride sharing plan?”

With phrases such as ‘eco-friendly’ and ‘ride-sharing’, you’re touching all the essential politically correct buttons, and indeed, some cities have ride-sharing subsidy schemes that you might be able to get your employer to qualify for that would make this request even more of a slam dunk.  Maybe the company will credit you the entire amount saved from your vacated car park – especially if you point out that this means you can do some productive work during your commute – but even if they split the difference and give you half the cost, you’re still well ahead.

Another consideration is to consider reducing the total vehicles owned in your household.  Most households average around two cars.  Why not ease that back to only one vehicle.  You can decide between yourselves who has the greatest need for the car each day, and the other person gets to use Lyft/Uber/Car2Go/Zipcar as needed.  Think about it like this – if the average person can justify about 1/2 to 2/3 of a car, and rounds that up to owning one car, two people together can justify 1 – 1 1/3 cars, and that is better rounded down to a single car, rather than rounded up to two.

Minimizing Miles – Sensible or Not?

We mentioned earlier how some people will leave their car at home and rent a vehicle when going on a long road trip.  That saves them having to take a big depreciation hit (or go over their mileage allowance if they are leasing their vehicle) when suddenly adding a thousand or more miles to their car.  It also means they can own a small ‘about town’ vehicle, and switch to a better car for long distance driving for just the times they need it.

The thing about vehicle depreciation is that it occurs as a combination of both the vehicle’s age and its mileage.  Even a car with zero miles on it will still depreciate each year; and on the other hand, all cars of a certain age have depreciated to a similar amount, within a fairly wide zone of actual mileages driven.  Think of it a bit like “all cars depreciate by a minimum amount each year that includes a certain number of miles ‘for free’ as part of the deal”.

So if you are driving somewhat less than the average of perhaps 10,000 – 12,000 miles a year, you’re not going to get a big saving by avoiding another thousand or two miles.  Similarly, if your vehicle is already being labeled as ‘high mileage’ another thousand miles won’t make a lot of difference either.

In other words, renting a car to avoid adding miles to your car can sometimes have an impact on depreciation issues, but because depreciation combines both the age and the miles of the vehicle, its impact isn’t as great as you might think, and as long as you stay in the typical zone of miles/years, going up or down by 5% or so isn’t really material, especially after the first couple of years.  There’s an obvious difference between a one year old car with 5,000 or 15,000 miles on the odometer, not so much of an obvious difference for a five-year old car with 55,000 or 65,000 miles on it.

If you have a leased vehicle, you probably only need to worry about the mileage allowance if you know you’re not going to buy the vehicle at the end of the lease.  Typically, if you decide to buy the car when the lease expires, you pay the amount specified on the lease you originally signed, and any extra mileage is ignored.  But if you know you won’t buy the car at the end of the lease period, and you’re in danger of exceeding the total miles allowed during the lease period, renting a car for longer journeys definitely is something to consider.

On Balance

Your best future strategy depends a great deal on where exactly you live, your typical driving patterns, the quality of service offered by public transport, by Lyft/Uber, the presence of Zipcar/Car2Go in your neighborhood, and your preferred type of vehicle ownership.

But it seems fair to say it is no longer an obvious foregone conclusion that owning your own car is always automatically your best choice – and even if you do own a car, it may not always be the best way to travel places.

A combination of Lyft/Uber, Zipcar/Car2Go, and regular rental cars, covers just about every possible transportation need and scenario, and quite possibly at lower cost, and with less catastrophic risk in case of major mechanical failure.

This reality is already starting to seep into the market.  Lyft/Uber are skyrocketing in terms of their usage, Zipcar/Car2Go are reporting ‘double digit annual growth rates’, and other new competitors are springing up offering slight variations on the ride or car sharing concept.

At the same time, the number of households in the US with one or more cars is starting to drop.  We’re waiting the release of the most recent National Household Travel Survey to get an update on this.  The previous survey was in 2009; there’s a new one for 2016 expected soon, with the 2009 report hinting at a drop after ownership levels seem to have maxed out a decade earlier.

A More Rational Type of Car Use

It should come as no surprise that personally owning a car is not automatically the best solution.  Our cars – the second most expensive ‘asset’ most of us ever own – are used so little.  And they’re not actually ‘assets’ – assets typically hold their value or go up in value.  Cars don’t.

How many hours a day do you use your car?  Probably, week days, you’re in it for 30 minutes each morning and evening commuting to and from work, and that’s about it.  Maybe a couple of hours a day on the weekends.  So, with 168 hours in the week, you’ve been getting use from your asset for 5 – 10 of those hours.  Even worse, for much of the other 160 hours, you’ve been paying to park the car somewhere, and it has been silently depreciating.

More to the point, for the eight hours during the day between when you drive to work and drive home again, ‘your’ car could be ‘paying its way’ – working for someone else, somewhere else.  If there was an easy convenient no-risk way whereby ‘your car’ could be making money for you when you weren’t using it, wouldn’t this be a great thing for you?

We already see this concept with other types of sharing services such as Airbnb which takes your unused spare bedrooms and allows you to rent them out to overnight guests, and VRBO.com which lets you rent out your entire house by the day or week when you’re not present yourself.  So, why not your car as well?

New internet services are springing up, offering the essential tools to connect people who want cars with people who have cars available.  The missing piece of this puzzle is soon to come our way – when the car itself can do the driving, it will conveniently travel from hirer to hirer, and do the driving while being hired, too.  That makes it brilliantly convenient for everyone, and removes the worry of trusting a bad driver with your expensive car.

We expect with a decade, private car ownership will start to plummet, and it will become something primarily for collectors and enthusiasts.  Most of us will generically just request a self-driving car, as and when we want it.

Car Ownership Traditionally Resists Rationality

Reader Richard, in the comments below, rightly points out how a car has been hyped up as being the quintessential expression of our individuality.  Generations of car marketeers have persuaded generations of car owners that we are what we drive.

Even if we resist such marketing hype, many of us form deep attachments to our cars.  To start viewing them with no more passion than we do the hammers and screwdrivers in our tool box, or the planes we occasionally fly on, will indeed take time and a major attitudinal change.

But we think this is inevitable.  External pressures will force us to rationally confront the concept of car ownership.  Parking, for example, will start to vanish – it won’t be needed when you just call a self-driving car.  As reader Mark points out, also below, homes will be built with less garaging.  Extra lanes on freeways will be opened only for smart self-driving cars (this is already happening with car pool lanes being opened for car poolers and electric vehicles).

Those of us who can’t break free of our love-affair with our cars will of course keep them, just like some people still enjoy horses and buggies, steam-powered trains, and DC-3 airplanes.  But for most of us, and nearly all our children, owning a car will make no more sense than owning a plane or bus.

What You Can Do Right Now

With the rapid changes in vehicle technologies and transportation services, the last thing you should do is to buy an expensive new car.  Some people would say that the last thing you should ever do is buy an expensive new car, and that advice is definitely even truer at present.

Who will want to own an ordinary car when new cars start to truly be self-driving, offering both greater convenience and safety?  Who will want to own a gas-powered car when new cars start offering truly practical battery power and cost one tenth as much per mile to drive?

Make sure you’re not making a big commitment to old technology.  If you need to replace a current vehicle, buy perhaps a two-year old vehicle – something that still has some remaining new car warranty, but which has already dropped in price by a third or more from its original new price.

This is the fourth part in a six part series on the future of transportation.  Click  and for part five – ‘The Totally Transformational Opportunities Offered by Hyperloop Technology‘ where we look at the Utopian future that Hyperloop and other transportation solutions might offer, and wonder if it truly will be as Utopian, and as achievable, as some people hope for.  Or click back for part three – ‘The New Transportation Opportunity‘ and earlier parts of the series.