I have been driving a Car, a Swift Diesel, since 3 years. A car comes with it’s own comforts and with it’s own problems. Availability is part of the comfort, and maintenance one of the problems. But overall it appeared fair deal to me. Well, until recently.
Lot’s of changes have been in transportation segment in past 3 years. The biggest being emergence of on-demand cabs i.e. Ola & Uber. The on-demand cabs have already started to disrupt the traditional taxi/auto businesses. But if we go a step further and ask — would it start affecting the ownership of Cars? Well nobody knows for sure, but Auto industry stalwarts have started dropping the hints in hushed voices. Even Elon Musk’s Tesla is trying to predict future.
Well, let’s analyse purely in monetary terms. Let’s create a persona Mr A, who belongs to urban upper middle class. He lives 10km far from office and commutes daily. Sat & Sun are office holidays during which he occasionally goes out from shopping, eating, movies, meeting friends etc. And sometimes drive around city for weekend gateway.
Calculations for Mr A, if he uses his own car —
Cost of purchasing a decent mid-segment car: 5 lakhs
Annual cost of petrol: 28K (assuming daily travel of 20Km including weekends, mileage of 17Km/L and Petrol price of Rs 66/L)
Annual cost of maintenance: 25K (my personal experience)
Calculations for Mr B, if he users Uber –
Annual cost of travelling: 72K (assuming daily travel of 20km, and Uber fare of Rs 10/Km)
Now if we talk purely in terms of economics, just a difference of barely 20K in maintenance cost doesn’t justify an initial investment of Rs 5 lakhs.
This simple means that after 5 years, Mr A would save Rs 4 lakhs using Uber rather than buying his own car.
But in actual terms, we have to also consider the Resale value of car after 5 years, and opportunity cost associated with monetary investment in Car. So let’s do some calculations around that.
Car Loan Scenario:
Let’s assume that for purchasing the car, Mr A puts in Rs 1 lakh, and get’s a Car loan of Rs 4 lakhs.
The best deal he would get would be — Paying Rs 8427/- monthly for 5 years, at a compound interest rate of 10%.
So Mr A would pay money to bank for repaying above loan — Rs 5,05,620/-
Total money Mr A would be paying for purchasing the Car — Rs 6 lakhs
Now if Mr A is not purchasing car, and he is minimum smart enough to make a FD at-least, let’s see how it pans out.
If we calculate how much Mr A would make, if he makes a FD with initial investment of Rs 1 lakh, and adds Rs 80K annually to it (8,427*12 *EMI he would have been paying on Car loan* — 20,000 *extra money he is paying on Uber*).
His bank balance would have been — Rs 6.72 lakhs at end of 5 years.
Car Re-sale value:
In ball park numbers, if the car is extremely well maintained, owner should be lucky to fetch half of car price in 5 years. Let’s assume Mr A is great at maintenance, so car value after 5 years is Rs 2.5 lakhs.
So now including the opportunity and other costs. Final tally looks like this –
So it turns out, after the thorough analysis, Mr A has a saving of Rs 4.5 lakhs (in span of 5 years), if he chooses to use Uber instead of buying a Car.
However, it’s important to understand that –
This saving will go down if –
a. Mr A’s commutes more than 20 km daily
b. Mr A opts for a cheaper car
c. Mr A opts for a diesel car
d. Uber increases it’s per km pricing
And this saving will go up if –
a. Mr A opts for a costlier car
b. Mr A isn’t great at maintenance, Car’s value deprecates more
c. Petrol rates increases but Uber rates don’t
d. Mr A also chooses to have a driver along with Car
In conclusion, if you are looking for a value for money solution, on-demand cab apps should be your go to thing :)