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The Cost of Driving A Car: A Look Under the Hood

Frank Trotter | April 1, 2017 4 MIN READ

I love my car—but does the math work? When it comes to those times we pull out the wallet, it seems like we all fail some of the basics of math. Buying last-minute tickets at a premium to a game or entertainment event feels like a high marginal cost to us. If we hold much more expensive season tickets, maybe we feel a little sting when we’re purchasing the tickets. But chances are that those feelings are long gone by the time we head to the arena.

But maybe cars are a place where it's time to make some changes. I’m not talking about the forthcoming self-driving models—yet. I am excited about those prospects for a wide variety of reasons. But I am thinking about whether it makes sense to own cars in urban environments. If you live in the country please skip to another article.

Setting the stage a little, I doubt I would have brought this up five years ago, and for that matter, this still may be just a little premature, but I’m forging ahead. Five years ago, most major city cabs were probably not at a cleanliness and convenience level as where many are today. Uber and Lyft were also not really fully operational in most locations. And the price wars between them were only beginning to appear on the horizon. Today cabs have mainly stepped up due to the new competition we see from Uber, Lyft and other entrants around the country—in larger population areas.

So back to the basics. How much does it cost to operate a car? Well there are several reference points out there to help us out. The American Automobile Association has published an annual Driving Cost analysis for many years. So too does Consumer Reports. These analyses typically use a five year ownership period and include the obvious costs of fuel and maintenance, along with the less obvious depreciation and so on.

Car Ownership Costs

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For that typical mid-range sedan driving 15,000 miles a year, this works out to about 70 cents per mile. For a higher end sedan, it’s about 90 cents per mile. If you’re in a BMW 700 series, you should expect about $1.33 per mile. And for that Escalade, it falls back to $1.15. So for your daily commute just plug the route into Google Maps and multiply.

For my five-mile one way, I'll bet on a $5.00 one-way cost. UberX would get me there for $11, and our local cabs for about the same. My workplace is a free parking zone so I don’t have to add in anything for parking. And I have no tolls or other costs to contend with, but what about you? The obvious answer here provokes a little more work with the calculator to see what the break-even figure is. In many cities, ditching the car and dialing up a ride service every morning is the easy and obvious decision. And that’s before taking into account the cost and inconvenience of a periodic accident, and days at the regular check up shop.

But hang on there. What if I have to run further out of town for the day? Renting a car is now about $35 / day with unlimited mileage, and no shopping around. Not a bad outlet for the special run to the country or to pick up some large purchases.

So what are the trends now? On the anecdotal evidence side, I suspect we all know Millennials in New York, Chicago, or San Francisco that already get along quite well without a car. These crowded and overpriced locations are ripe for this approach since pretty much everyone can feel the math intuitively. Worldwide, the World Economic Forum notes that in some major cities, led by Boston, car counts are declining significantly even as the population rises.

So take a look at your world and check your assumptions. Does owning and operating a car continue to make sense? At what point might you actually consider the switch? Think even about re-allocating the capital to some investment and including that expected return in your calculation—getting closer?

As for me, while I’m seriously considering it, I’m not quite ready to tip over. I do strongly think that using cabs or Uber to head out to dinner with friends is a no brainer, especially if there are a few drinks involved. But it may be a year or two before I make extra room in the garage.

Frank Trotter
Frank Trotter
Executive Vice President, Chairman Global Markets
Frank Trotter
Frank Trotter
Executive Vice President, Chairman Global Markets
Frank has over 35 years of experience in banking and global markets. When not in the office, you might find him speaking on the financial conference circuit, giving an interview on the latest world economic news, or at the nearest ice rink playing pick-up hockey.

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