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Money Saving Resolution 2017: Ditch Your Car and Uber

This article was originally published on 1 December 2016

It’s amazing how quickly we become use
d to innovation. When Uber launched in 2013, the idea that you could request a driver to your precise location in minutes just by tapping a button on your phone was mind-blowing. But by now, like smartphones and social media, few of us can even imagine a world without the service.

Most of us appreciate how useful Uber is for weekend partying or getting to the airport. But an increasing number of people are now using Uber as their exclusive mode of transport. So as our latest money saving tip, My Treasury crunched the numbers to see when it makes financial sense to ditch your car and just Uber.

If, like many South Africans, you drive less than 50km a day, Uber could save you money.

Don’t have Uber? Save on your first two rides with the My Treasury promo code! Enter ‘MyTreasury’ in the promotions section of the Uber app & get R50 off each ride.

The high cost of car ownership

Owning a car is expensive. Unlike a good wine, it depreciates with age. So although a car is technically an asset, it’s not an investment.

We have based our calculations on a Toyota Corolla, the most common car used by UberX driver-partners (of course if you drive a more expensive car, the costs of ownership will be even higher). The Toyota Corolla 1.8 Exclusive sells for R300 900.

Assuming that you replace your car in fairly conservative five year intervals, we calculate the car’s depreciation and financing costs at R61 000 per year. This takes into account that you able to finance the car over 5 years at prime and sell it at the average market price.

The current listed price of a 2010 Corolla 1.8 Executive is around R120 000 on Auto Trader.

Car ownership involves a number of additional costs. For most of us, insurance is the most significant added cost of car ownership. We consulted one of the country’s largest insurers, and were given a quote of R1 500 per month (R18 000 per year) for comprehensive insurance with a minimal excess.

Next, we considered the bane of driving in South Africa’s major cities: parking fees. Assuming parking at home and at work is free, we estimate parking fees of R1 560 a year.

You’ll also want to keep your car in reasonable condition. If you wash your car at the modest rate of once a month, at an average of R150, your annual cleaning costs come to R1 800.

 Licences, tolls and fines comes to about R2 000 per year.

Those are our calculated fixed costs for the average car owner. What about the cost of petrol? That will, of course, depend on your driving patterns, but we can calculate a convenient average estimate of R27 000 a year1.

Putting all these numbers together, the cost of car ownership for the average South African driver works out to R111 000 a year.

Your time is your money

By comparison all your Uber costs are variable. You only pay for what you use.

The cost of taking an UberX cost is R7.50/km + 75c/minute. At average urban traffic conditions, we calculate an average cost per km of R9.

Any sound financial analysis doesn’t only consider what you spend but also takes into account what you gain (opportunity benefits)

What are the benefits of not being stuck behind the wheel? As an Uber rider, you’re freed up to make calls, send WhatsApps and finally clear out your inbox. We calculate this to be about R2.50 a kilometre.

We’ve assigned a numerical value to this time by considering the hourly rate of a R320 000 annual salary. That comes to R150 per hour. Let’s be conservative and assume only half your commute time is productive. The rest of the time is spent gazing wistfully out the window or chatting about your kids to the driver (you can’t put a price on that).

An average South African driver would save 485 hours a year using Uber. That’s a very significant 40 hours per month.

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Tying it all together

The money saving benefit of using Uber all comes down to how much you drive. With your own car, the less you you drive, the higher your cost per kilometre. (That’s because of the high fixed costs of car ownership.) By contrast, with Uber your cost per km is constant2

If you drive less than 50 km per day (that’s 1 500 km per month or 18 000 km per year), selling your car and using Uber will save you money.

 So how much could you save?

Based on these numbers, the average South African, driving 40 km per day (14 575 km per year), would save as much as R14 000 per year by selling their car and switching to Uber.

The real winners are those who live close to work. To put that in context, if you’re a Capetonian who lives on the Atlantic Seaboard and works in the the City Bowl, you’re driving less than 10km from home to work and back each day. For Joburgers, someone who lives in Fourways and commutes to Sandton, would drive about 30 km to work and back. For these commuters, Ubering would translate into even bigger savings.

So if your daily commute is below 50 km, you might just want to stop wasting time behind the wheel and start saving money by switching to Uber.

Before you ditch your car, be sure to try out Uber for yourself. Get R50 off each of your first two rides by downloading the the free Uber app and using the My Treasury promo code: MyTreasury

Notes:

1. The petrol price is currently R12.79 a litre in Gauteng. We estimate that the average fuel consumption of the Corolla in traffic conditions is 7 km per litre. Thus the average cost of petrol is thus R1.83 per kilometer.  The Road Traffic Management Corporation estimates that South African car drivers drive on average 14 575 km per year. Assuming drivers are operating in urban traffic conditions, we estimate an average speed of 30 km per hour, which results in R27 000 spent on petrol a year.

2. The breakeven number of kilometres is calculated using the following formula: breakeven km =  fixed cost of car ownership / (variable cost of Ubering – variable cost car ownership)