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Ride Sharing and Car Sharing – Cheaper Than Owning a Car?

By Brian Martucci

carsharing and ridesharingI own a car, a bike, and two legs. When the weather is nice and I need to run to my neighborhood store or get to an appointment in another part of the city, I walk or bike. If the weather’s bad and I’m not in a rush, I take public transportation. And if I need to buy a lot of stuff at the grocery store or make a suburban rendezvous, I use my own car.

Lately, for a variety of reasons, I’ve been driving less. But since I like to feel mobile and want to keep my transportation options open, I’ve been reluctant to get rid of my trusty automobile.

A broad new trend may finally give me the push that I need to take the leap: Ridesharing and carsharing purport to provide all the benefits of car ownership – with none of the drawbacks – at a lower cost than traditional rental car or taxi services. It’s increasingly prevalent in American and Canadian metropolitan areas.

What’s Behind the Trend?

Ridesharing and carsharing benefit from some long-term social and economic changes. Many American cities are experiencing a long-running development boom that’s driven by lower crime rates, frustration with long commute times, and a desire to downsize. According to statistics furnished by NYC.gov, New York City is a microcosm of this, with Brooklyn – urban, centrally located, and (relatively) affordable – growing at 3.5% between 2010 and 2013. Staten Island, the city’s most suburban and geographically isolated borough, grew by just 0.8% over the same period, much slower than the city as a whole.

In other cities, dense, centrally located districts are adding housing at a rapid clip, from downtown Chicago’s 5,000-plus new apartments in 2013 and 2014 alone (according to Crain’s Chicago Business), to the 10,000-plus units currently under construction in Denver’s urban area, according to the Denver Post. There, according to an analyst with the Colorado Division of Housing, the boom is being driven by young professionals who don’t have kids (or even pets), don’t own cars, and prefer vibrant, bustling neighborhoods to suburbs.

Scientific polls suggest that a broader swathe of Americans feel the same way. In a National Association of Realtors survey, 60% of respondents said they wanted to live in a neighborhood with a mix of housing, shops, and restaurants. 45% said providing alternatives to driving – such as walking, biking, and public transit – should be a high or extremely high priority of local governments.

In spread-out suburbs, small towns, and rural areas, car ownership is essential. When you live within walking, biking, or transit distance of everything you need on a daily basis, it’s a luxury. And if rents in your convenient, close-in neighborhood are higher than in outlying areas, it could be an expensive one. Why pay monthly loan installments and insurance premiums for a vehicle you don’t use everyday?

Types of Sharing

There are two clearly defined flavors of vehicle sharing, each dominated by national or international companies.

Ridesharing: Like a Taxi, But Different

Uber and Lyft are the primary ridesharing providers in the United States, with Sidecar a distant third. The concept is simple: You sign up for an account and provide a credit or debit card for the company to keep on file. Then, using a downloadable mobile app, you summon a nearby driver to your location. Depending on the service, the app may give the driver’s contact information, show you a picture of his or her car, map the route he or she is taking to your location, and provide an ETA.

It’s a lot like calling a taxi company and arranging a pickup, just without the phone call. But to keep supply and demand in balance, ridesharing apps don’t let you reserve a ride ahead of time – all pickups are ASAP. It’s called ridesharing because you’re sharing someone else’s ride – although, to be fair, Uber, Lyft, and Sidecar prefer to be called “transportation network companies” to distinguish themselves from taxi services.

Though Uber offers high-end services that compete with livery and limousine companies, most ridesharing takes place at the lower end of the price spectrum. Accordingly, it’s usually cheaper than a taxi. (Uber and Lyft both claim to be up to 50% cheaper. Depending on the service, prices may rise during periods of peak demand and fall during slower times.) Since drivers use their own cars to provide service, it’s also more casual – Lyft even encourages you to sit up-front. However, there is a downside: Because you’re usually matched with the closest driver, you could get a compact or subcompact car with limited legroom and seating.

For each ride, you pay a base fare, per minute charge, and per mile charge. When your ride ends, the app automatically charges your credit card or account and mails you a receipt. You aren’t allowed to pay your fare or tip in cash, though you can charge a gratuity to your card or account.

Carsharing: Not Quite a Rental

Zipcar and Car2Go are the biggest carsharing providers in the U.S., though there are many local and nonprofit outfits scattered about as well. Unlike typical rental car companies, which almost always charge by the day, carsharing organizations charge by the minute or hour for short trips. For longer trips, you can pay by the day, although that may not be any cheaper than renting a car through Hertz or Avis.

Since you drive the company’s vehicles yourself, you need to provide a valid drivers’ license and submit to a thorough driving record check and provide a credit or debit card. (Standards vary by provider, but you can’t have any recent DUIs or reckless driving charges.) Once approved, you get a membership card that opens any of your company’s vehicles. You can find them at central locations, such as university parking lots, or parked on neighborhood streets in your city. An interactive mobile app shows you the location, make, and model of every available car.

Carsharing services let you drive a car whenever you need to. If demand is high in your area or you want a particular make and model, you may be able to reserve a specific car in advance – Zipcar usually requires reservations at least 30 minutes in advance. When you reach your destination, you use an in-car touchscreen or your phone’s carsharing app to formally end the ride and free up the vehicle for other users. This automatically charges payment to a stored credit card or account. You generally pay per minute or hour, with no base fee, per mile charge, or fuel surcharges.

Providers may charge a one-time application fee to run a driving record check. However, they may also offer monthly membership packages that can reduce driving costs.

One note: Under Car2Go’s rules, once you swipe your card to the reader and end your ride, the car becomes fair game for other users. If you’re taking a trip to go grocery shopping and want to make sure the car is still in the lot when you get out, you may want to leave the meter running. With Zipcar, you reserve cars for a specific period of time, so you shouldn’t have this problem.

carsharing and ridesharing

When Ridesharing and Carsharing Make Sense

Though each company has different coverage areas, ridesharing and carsharing are typically restricted to the most densely populated parts of larger metropolitan areas. For instance, in the Twin Cities area (where I live), Uber operates in the urban core and the first two rings of suburbs. Car2Go doesn’t have any suburban coverage at all – I can drive into the suburbs on a trip, but I have to park my car somewhere within the border of Minneapolis or St. Paul when I’m done using it. So if you don’t live close to a bigger city, you’re probably out of luck.

If you do live in an area with ridesharing and carsharing service, you’ll find somewhat different uses for each.

Ridesharing

Ridesharing is useful in any situation that would call for a taxi:

  • Riding to and from the airport
  • Getting home safely after a night out and/or while intoxicated
  • Getting to and from locations with poor transit access
  • Getting around an unfamiliar city without learning a new transit system or renting a car
  • Everyday transportation if your driver’s license is suspended or revoked

It’s not as useful for:

  • Trips with pets - drivers can refuse to carry animals, and there’s no way of knowing until they show up
  • Round trips with long layovers, such as shopping for groceries or home goods – like taxis, these services charge for every minute of waiting, and drivers can refuse to wait at their discretion
  • Longer trips, since there’s always a per mile fee

Carsharing

Carsharing is great for:

  • Longer trips, since you usually don’t pay by the mile and don’t pay for fuel
  • Reaching locations with poor transit access
  • Running errands, with lots of short stops

It’s not good for:

  • Getting home safely after a night out
  • Getting to and from the airport, unless there’s a carsharing lot at your local airport
  • Getting around an unfamiliar city – you still have to learn the local geography and navigate potentially busy streets
  • Transportation when your license is suspended

Under certain circumstances, both ridesharing and carsharing can be useful for commuting. Since ridesharing services charge by the mile and minute, they can be significantly more expensive than transit. But if you’re in a hurry, and know that driving is faster than taking the bus or train, that may be an acceptable tradeoff. If you live near coworkers, you can cut commuting costs per person by sharing the same ride.

Since carsharing services generally don’t charge per mile, this may be a cheaper commuting option if you can avoid traffic or take passengers. However, you need to make sure you park in an acceptable space. In some cities, short-term meters and private parking garages may be off-limits.

Is It Cheaper Than Owning a Car?

Car ownership costs vary by location, fuel costs, frequency of use, your driving record, your car’s make and model, and other factors. I crunched the numbers for two hypothetical urban residents, one in a major coastal metropolis (Los Angeles) and the other in a Midwestern hub (Milwaukee) – however, it is important to keep in mind that your situation may be different.

Both subjects live in densely populated, centrally located districts served by their city’s transit system. Neither has to pay for overnight parking in their neighborhood, and neither regularly drives to work. Both use their cars for shopping trips, excursions to local points of interest, and occasional instances when they’re late for work and can’t wait for the bus. For simplicity, both own a used car of the same make, model, and year, averaging 30 miles per gallon. They pay identical monthly car loan installments ($120 per month) and insurance premiums ($70 per month). But the L.A. resident drives 510 miles for 17 hours per month, for a monthly average of about 40 one-way trips. The Milwaukee resident drives 390 miles for 13 hours per month, averaging about 30 one-way trips. And the L.A. driver pays about 20% more per gallon ($4.10 vs. $3.40). Both try Zipcar and Uber as alternatives to car ownership.

In Los Angeles, our theoretical driver is out $190 per month(insurance and monthly loan payment) before he or she gets behind the wheel for the first time. At $4.10 per gallon and 510 miles driven, fuel adds about $70 more, for a total of $260 per month. That’s before random parking fees, tolls, and other unanticipated expenses.

In Milwaukee, our theoretical driver pays $190 in debt service and insurance, plus about $44 in fuel, for a total of $234 per month before tolls, parking, and other fees.

Carsharing

In Los Angeles, Zipcar charges frequent drivers (which applies here) $8.10 per hour, Monday through Thursday, and $9 per hour on Fridays and weekends. Assuming our driver spaces his or her trips evenly throughout the week, that amounts to about 7.3 hours of driving at $9 per hour and 9.7 hours at $8.10 per hour, for a grand total of about $144.30. Zipcar bills drivers for tolls but doesn’t charge for gas or parking, adding another financial incentive. And in this situation, the nonrefundable, one-time application fee of $25 is negligible compared to the savings.

In Milwaukee, Zipcar users pay $7.88 per hour, Monday through Thursday, and $8.78 per hour the rest of the time. Assuming evenly spaced trips, this adds up to about 5.6 hours of driving at $8.78 per hour and 7.4 hours at $7.88 per hour, for a total cost of about $107.50. Again, tolls and the application fee apply, but no gas or parking.

Ridesharing

In Los Angeles, Uber currently has a $1.61 base fare, a $0.29 per minute charge, and a $1.25 per mile charge. In this situation, that adds up to a total monthly base fare of $64.40, a monthly time charge of $295.80, and a monthly mileage charge of $637.50, for a grand total of $997.70. There’s no application fee here, but the driver does have to pay for tolls.

In Milwaukee, Uber currently charges a $2.50 base fare, $0.25 per minute, and $1.25 per mile. With a monthly base fare of $75, a monthly per minute charge of $195, and a monthly mileage charge of $487.50, that adds up to $757.50 overall. That’s before any toll charges.

Both of these ridesharing scenarios assume that our subject is alone on all rides and uses the service to replace all his or her driving trips. This may be unrealistic. Sharing an Uber ride with friends and finding ways to replace or eliminate some driving trips could cut costs here. And if our theoretical drivers owned a more expensive car – with higher loan, insurance, and fuel costs – ridesharing might make more financial sense. But for people who live in a city, don’t drive as much as most Americans, and want on-demand access to a vehicle, carsharing looks a lot cheaper than either ridesharing or car ownership.

carsharing and ridesharing

Final Word

Ridesharing and carsharing are increasingly important pieces of the North American transportation mix. If you live in a bigger city, you probably have access to a service like Uber, Lyft, Car2Go, or Zipcar – maybe all of them. Their development may accelerate as more people move to densely populated urban cores where car ownership isn’t a necessity.

However, these services aren’t perfect. For instance, even if you can hail a car with an app or find and drive a parked vehicle, you may have to wait (or walk) to find one. And it can quickly get expensive to use a ridesharing app such as Uber for all your transportation needs.

The balance between cost and convenience is a key consideration too. Even if carsharing is marginally cheaper in your area, you might determine that the freedom of car ownership is paramount. And if you live in a smaller town or rural area, it’s unclear when you’ll be able to take advantage of vehicle sharing – or whether you’d ever want to.

Are you thinking about ditching your car for a ridesharing or carsharing arrangement? Have you already?

Brian Martucci
Brian Martucci is a freelance journalist and branding consultant who loves to provide practical personal finance advice for regular people. When he’s not writing about frugal living, long-term investing, or consumer-friendly financial products, he’s probably out exploring a new trail or sampling a novel cuisine.

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  • http://www.makemoneyyourway.com/ Clarisse @ Make Money Your Way

    Ridesharing has a good advantages, especially when you are in a hurry. You just need to download an application to your mobile and with just one click you can find a ride for you.

    • BrianMartucci

      Yep, it’s way easier than I thought it would be. I have some reviews of the more popular alternatives coming down the pike, so stay tuned for those!

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    best

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