Thursday, May 10, 2012

Car Savings

In discussing the potential savings from using our service, we have focused a lot on what a businessman would call “operational expenditures.” These are the expenses that are incurred on a day to day basis to carry out daily activities. Watching my own father get to work every day, though, I wonder if I missed out on a potential big savings that might be the biggest of all. This savings would be more properly characterized as a “capital expenditure”, or an expenditure of funds to procure something which will serve for a number of years.

Simple question: How many people, if they signed up for our service, could do with one less car in the family?

In a country with 308 million people in it, there are a little over 200 million cars and light trucks in operation. Given that roughly 60 million people in this country are too young to drive, and that there are a little over 24 million people who have a severe disability making it difficult or impossible to drive themselves, and just about everyone who can drive a car owns one. This will come as no surprise to California residents, who have probably seen every one of them during rush hour in Los Angeles. But given that fact, it seems logical that a high number of corporate commuters(who after all do not need to go anywhere except to and from work during the busiest times of day) own one of their cars solely for the purpose of getting themselves to and from work. If Rideshare could furnish a convenient and reasonably priced alternative to doing that, corporate commuters might be able to save on the costs of the car completely by not replacing the oldest car in their family when it dies. That would represent a major savings and an additional incentive to use our service.

So just how much would the average corporate commuter save if they had one less car in the garage?

Kelley Blue Book has the average price of a new car in 2011 around $30,000. Of course, not everyone buys cars new. But for everyone who buys a used car there is someone who sells one, and then has to replace it with a new one, so any reduction in the total demand for cars will ultimately find its way into the new car market. Now, not everyone who uses our service will reduce the number of cars in their family, obviously, but let’s take that number and calculate the savings for someone who does.

At current interest rates, interest expense for buyers with good credit are very low, so to reduce the math here and to be conservative with our estimates, we’ll set the interest cost at 0 and just use the purchase price. A five-year loan is most common, so that’s 60 months. A person who elected to forego a new car and its five year payment plan would save $500 a month in car payments. New cars need an oil change once every five months(the so called experts used to say three, now its five), which costs about $30. So that’s $6 more a month in oil changes. Figure a one-time tune-up when the car hit the 50,000 mile marker. Let’s be conservative again and say that’s only $500. Throw in new tires and new brakes once every couple of years, insurance for the extra vehicle. All told, you get something like this:

Car Payment $500
Oil Change $6
Tune-up(monthly distributed cost) $6.33
New tires(monthly distributed cost) $7.67
Brakes(monthly distributed cost) $5
Insurance $95

I made the new tires $460 and $300, since those are the conservative numbers for good quality of both, which new car buyers usually spring for. If our member foregoes the purchase of a used car, the car payment is lower, but the maintenance and repair costs are higher. So figure everyone comes to around $620 a month in car savings. That outweighs even the other savings we discussed in our Meet Rideshare series. While obviously not everyone will take advantage of these savings, the very high penetration of car ownership amongst possible buyers(upwards of 90% according to the data above) means that quite a few of them might. Add the cost of fuel and that number is around $8,000 a year or 15% - 25% of an individual's income for the cost of transportation.

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