Finance Minister Nirmala Sitharaman recently said that one of the reasons for a slowdown in sales in the automobile industry is because millennials prefer taking cabs like Uber and Ola services to buying cars.
That statement stirred up a debate over a cup of coffee, which led to some back of the envelope calculations as to what works out more economical – buying a car like the Maruti Suzuki Wagon-R or riding in one run by Uber or Ola?
We present to you the gist of the back of the envelope calculations. Before that, some assumptions have been made.
This calculation does not take into account rising fuel costs and differential insurance rates. The calculation is based on a daily commute of just 25 Km. Petrol price has been assumed to be Rs 72 per litre constant, even though it is likely to change over a period of time.
It also assumes that the car has been bought outright. If you were to factor in a car-loan, then the interest payments will increase overall ownership cost by about Rs 1.15 lakh more.
It also does not take into account parking charges, toll charges and other incremental costs over the period of ownership, just to keep calculations simple. (Obviously, if one owns a car, they are going to use it for other trips as well, not just driving to work and back.)
If You Take A Cab To Work
The average fare on the Uber app for a distance of 25 Km in Delhi works out to between Rs 341 to Rs 447 from its estimator for Uber Go. Hence, it's been rounded off to Rs 390 (including base fare) for ease of calculation. All things being constant, you will end up spending about Rs 11,622 a month.
There are obvious advantages like not having to bother with parking or maintenance. The only discomfort is probably the wait times and quality of the cars that come to ferry you.
If you use cabs every day to get to work and back, you will end up spending Rs 6,97,320 in five years.
Now how would it work out if you bought a small car like the Maruti Suzuki Wagon-R, which is what most Uber drivers use?
If You Buy A Car
This example assumes that you have bought the car outright with savings from your piggy bank and hence doesn't include interest payments. The on-road price of a Wagon-R VXi is Rs 5.46 lakh.
Assuming you use the car only to work and back, with it giving about 12 Kmpl in city conditions, in five years, you will end up spending Rs 7.70 lakh commuting with your own car.
Works out more expensive? Not quite. There's more.
Wait There's More...
We still haven't factored in insurance and maintenance costs. Plus the loan payments, if any. Factor that in and you end up paying even more to commute to work.
However, there is a catch. The car is a depreciating asset, but it can recover some of your money for you when you sell it.
If you sell the car after five years, the total cost works out to less than that of using cabs for the same period to commute. This works only for small cars like the Wagon-R though – cars that cost up to about Rs 5.50 lakh to Rs 6 lakh at the most.
There are advantages and disadvantages to owning a car. One has to factor in unproductive time spent driving. If you hire a driver, then factor in another Rs 15,000 per month as salary, which makes it unviable. Then there are the parking charges, toll charges and general upkeep.
However, you do have the pleasure of owning your own car, keeping it the way you want, listening to your choice of music and having it at your beck and call, anytime of the day and night.
Convinced? Or not. Let us know.
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