Should I Buy A Car or Use Car-Sharing Services? Part 1

Recently a friend mentioned that he is thinking of buying a car. He lives in Cambridge, like me, and does not currently have a car. He relies on walking, transit, and various car or ride sharing services to get around. My immediate reaction was to say “don’t do it!” My gut told me that it would inevitably be more expensive to buy and maintain a car than take Uber or rent a Zipcar, even if you took Uber or rented a Zipcar every time you had the slightest inkling to do so.

I thought that I should run some numbers and really test this theory out. I’m sure that many people living in urban areas have had this debate with themselves. To own a car or not to own a car, that is the question!

This exercise turned into a LONG post, so I’ve broken it into three pieces so as not to overwhelm anyone. Today, I will share my analysis of what it costs to own a car. Tomorrow, I’ll post my analysis of the costs of car sharing and cab services, and finally on Saturday I’ll share some additional considerations that I think should factor into the decision to buy a car.

It is worth noting that I do own a car, even though I live in the city and have good transit access. As with everything, the decision to own a car is a personal one, and just doing what the numbers say isn’t always the right choice.

The “rent” vs. “buy” analysis

There are so many options available today for people who live in urban areas and do not own cars. There are car sharing options, such as Zipcar and its more recent competitor, Enterprise Car Share. There are also person to person car sharing options, such as Relay Rides and Flight Car. (I’m less familiar with these options and also feel that the personal nature of these options complicates the analysis, so will not consider them in this analysis.) There are of course traditional cabs, but also ride sharing services like Uber and Lyft.

All of these options make the “rent” (car share/taxi) vs. “buy” (own a car of your own) analysis interesting. Gone are the days when no car meant you were on your own two feet. There are so many choices, meaning that price becomes a real differentiator. So what does each of the available options cost?

Option 1: Buy a car

The first option I analyzed was purchasing a car. My friend is considering buying an older, cheap car, so I figured that my car would provide the perfect example. I know what all of the registration, maintenance and insurance costs for my car are, so I can provide accurate information. I utilized Kelley Blue Book to determine the value of my car. For my 2004 Honda Civic LX with 150,000 miles, KBB estimated that I would get $3,500 from a private seller or $2,500 from a dealer. Interestingly, KBB estimates that you would pay $3,500 to buy my car from a private seller (makes sense) or $4,900 to buy it from a dealer. That is an insane dealer markup! For the same car! Lesson learned: buy from a private seller.

For this analysis, let’s assume that I am selling my car directly to my friend, at a price of $3,500, cash. This analysis would change DRASTICALLY if he were to obtain a car loan to pay for the car. I’ll leave that analysis to another time.

Of course the purchase price is just the beginning of the costs of car ownership. I looked through my expenses and created the charts below to elucidate all of the car-related costs that I incur on a regular basis. There are fixed costs, such as insurance and taxes, as well as variable costs, such as gas and parking. For this analysis, I’ve considered a fixed cost to be anything that you don’t really have an option not to pay. Oil changes and maintenance are not technically fixed costs, you don’t HAVE to get them, but you really should. You also don’t NEED resident parking, but as I’ll explain in a future post it’s the best deal in town, and you have to put your car somewhere.

All of these numbers are based on my real expenses. I have rounded to whole numbers.

Fixed Costs Cost per Occurrence Frequency Yearly Cost Notes
Insurance $257 Every 6 Months  $514 Basic coverage, as required in Massachusetts; No collision coverage
Oil Change $30 Every 6 Months  $60
Maintenance $600 Every 2 Years  $300 Older cars require more maintenance
Inspection $30 Yearly  $30 Required in Massachusetts
Registration $125 Every 2 Years  $63
Excise Tax $40 Yearly  $40
Resident Parking $25 Yearly  $25 In Cambridge
Total  $1,032  

 

What does this tell me? It tells me that owning a car is expensive! My car costs me $1,032 per year before I’ve even driven anywhere! And this excludes the cost to buy the car in the first place! I know that’s a lot of exclamation points, but I think they are called for!

Variable Costs Cost per Occurrence Frequency Yearly Cost Notes
Gas  $30 Monthly  $360 Based on current (very low) gas prices and use of one tank per month (approximately 300 miles)
Parking  $100 Yearly  $100 Highly variable and potentially highly expensive
Total  $460  

 

Adding in variable costs, the yearly cost to own and drive my car (again excluding purchase cost) is $1,492. Every. Year. MORE if I drive more, or get in an accident and my insurance rates go up, or pay to park in expensive garages, or buy a more expensive car thus increasing my taxes, etc. That is a LOT of money!

In order to get a number I could use in comparison to the “rent” option, I looked at how the costs to buy and maintain a car would pan out over a four year period. There is no magic to a four year analysis; I just thought that it seemed like a reasonable time frame to amortize the purchase cost over. I also thought that my 2004 car might not live much beyond four years (and would have almost no salvage value, simplifying the calculation). So what is the yearly cost to own my car, including purchase, over a four year period?

Four Year Hold Costs Cost per Occurrence Frequency Yearly Cost Notes
Purchase Price  $3,500 Once  $875 Amortized over four years
Yearly Costs (Fixed + Variable)  $1,492 Yearly  $1,492
Total Yearly Costs  $2,367

 

$2,367 per year, or $9,466 over four years. Eek! That is A LOT of money. How many UberX rides do you think I could buy for that money? Come back tomorrow to find out!

Do you own a car? Do you know how much it costs you each year?


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