Economy

Owning a car vs hiring Ola-Uber: What does math say?

Rajalakshmi Nirmal | Updated on September 13, 2019 Published on September 12, 2019

The social media is unfair to the finance minister’s attribution linking millennials with auto sector slowdown.

BL Research Bureau

The Finance Minister Nirmala Sitharaman attributing the slowdown in the automobile sector to millennials preferring taxi-hailing services like Ola or Uber to buy a car and committing EMI has come under sharp criticism. Twitteratti is exploding with memes and the ‘#BoycottMillennials’ handle is trending.

But, we feel social media is being little unfair as the math shows that hiring Ola/Uber taxi is cheaper to own a car. Given, that millennials today count every penny they spend, it is only a fair assumption that they have been deterred from spending on a depreciating asset like a car. This is how the numbers compare:

Owning versus hiring

Being a regular Uber rider myself, I can say that the cost here in Chennai works to an average of ₹20/kilometre. Now, let us figure out the cost of owning a car.

Let us assume it was a hatchback bought for ₹ 7 lakh in 2014. After an upfront payment of ₹2 lakh, you would have taken a loan for ₹5 lakh to be repaid in five years. The total amount you would have paid towards the interest in five years assuming an interest rate of 9 per cent per annum comes to ₹ 1.23 lakh. So, the total cost of your car comes to ₹ 8.23 lakh. If you sell this car now, you may earn ₹3 lakh provided it is in good condition. The net cost of the car thus come to ₹ 5.23 lakh.

Read also: Used cars, not just millennials, likely behind auto slump

For getting your car insured, you would have paid at least ₹ 75,000 over five years. The maintenance cost for any mid-sized car would be about ₹10,000 a year, which comes to ₹50,000 for five years. Now, the most important of it all – the running cost – the price of the fuel. Assuming that your car gives 10 kilometres/litre (in city conditions) and you drive on an average 25 kilometres in a day and 700 kilometres in a month, at an average of ₹70/litre for petrol, you would have spent ₹2.94 lakh in five years on petrol.  Then comes all your miscellaneous expenses like parking fees, the change of perfumes or seat cover, etc. Let us assume that you spend about ₹15,000 on all of these in five years.

So, adding all of the above, the total amount you would have spent on the car in five years comes to ₹9,57,000. This is ₹23/kilometre.

The cost will shoot up if you add the upkeep expenses like hiring a cleaner. Assuming it costs at least ₹1,500 a month, it works out ₹90,000 for five years. Adding this, the total cost increases to ₹ 10,47,000 or ₹ 25/kilometre.

If you hire a driver, the cost may rise even further. Assuming his pay at ₹12,000 a month, it cost a whooping ₹7.2 lakh for five years. With this, the cost would rise to ₹42/kilometre.

Thus, the cost of owning a car can be anywhere between ₹23-42/kilometre. This is much higher to what you would pay for Ola/Uber at ₹20/kilometre.

However, if you consider the peak hour surge pricing, the cost will significantly go up. In Chennai, the cost of peak office hour travel in Ola/Uber comes to ₹28-30/kilometre. But, not all days, you travel in peak hours, and the cab providers also often come up with discount through pass for frequent riders.

Other factors to consider

Purely, on cost consideration alone, hiring a taxi for daily commute appears cheaper. Besides, one also need not worry over parking spaces and struggle through the maddening traffic on the roads. That said, there are also drawbacks with hiring a taxi – one, they are not reliable. You don’t get Ola/Uber across all locations in the city, especially if it’s a weekend or past 8’0/9’0 clock in the night. Other, with increasing cost and demand, there has been a hefty surcharge that is levied for peak hour travel, which eats into savings of the rider significantly.

Published on September 12, 2019
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