The Cost of Driving
And The Savings from Reduced Vehicle Use
~~~~~~~~~~~~~~
Victoria Transport Policy
Institute
~~~~~~~~~~~~~~~~~~~~
Updated
26 July 2008
This chapter describes the full costs of driving an automobile and the savings that result from TDM strategies that allow consumers to reduce their automobile use. Also see the “Vehicle Costs” chapter of the Transportation Cost and Benefit Analysis Guidebook at www.vtpi.org/tca.
What does it cost you to drive an automobile? What do you save by reducing your automobile travel? This chapter examines these questions. For more information see Transportation Costs.
Several organizations provide typical vehicle purchase, ownership and operating cost estimates:
· Your Driving Costs in Southern California, SCAA (www.aaa-calif.com),
provides estimates of typical annualized ownership and operating costs for
several types of vehicles during their first four years of operation.
· The
Canadian Automobile
Association’s Driving Costs (www.caa.ca/PDF/3708-EN-2005.pdf),
provides estimates of typical annualized vehicle ownership and operating costs
for several types of vehicles during their first four years of operation.
· Runzheimer International (www.runzheimer.com), sells estimates of
typical annualized ownership and operating costs for several types of vehicles,
which are the basis for cost estimates published by automobile associations.
· The Black Book,
National Auto Research Division of Hearst Business Media Corporation (www.blackbookusa.com and www.canadianblackbook.com), and
the Kelley Blue Book (www.kbb.com)
provide wholesale and
retail price estimates for new and used vehicles, taking into account model,
age, condition, mileage, accessories and geographic location; also available at
www.cars.com.
· Intellichoice (www.intellichoice.com), provides price estimates for new and used vehicles.
· International Fuel Prices (www.internationalfuelprices.com) is a website with information on international fuel price reports from GTZ (a German international development agency) and other sources.
· UK Automobile Association (www.theaa.co.uk),
provides estimates of typical annualized ownership and operating costs for
several types of vehicles.
· The Way To Go Seattle Car
Cost Worksheet (www.cityofseattle.net/carsmart/carcostworksheet.htm)
calculates your car cost and compares it to other transportation options.
· Highways Design and Maintenance (HDM) 4 Model (http://hdm4.piarc.org/main/home-e.htm) and MicroBENCOST (http://tti.tamu.edu)
are complex computer models for calculating the economic benefits from roadway
improvements. They include formulas for calculating vehicle operating costs
under various roadway conditions.
Vehicle costs are often divided into variable costs (also called operating costs or out of pocket expenses) such as fuel, oil, tire wear, which increase with vehicle use, and fixed costs which are not considered affected by how much a vehicle is driven. Table 1 summarizes one example of this information.
Table 1 American Automobile Association
Vehicle Cost Estimates (2003)
|
|
Medium Car (Cavalier LS) |
Large Car (Taurus SE) |
Luxury Car (Grand Marquis) |
SUV (Blazer) |
Van (Caravan SE) |
|
Gas & oil |
6.1¢ |
7.1¢ |
8.3¢ |
7.9¢ |
7.1¢ |
|
Maintenance |
3.9¢ |
4.1¢ |
4.3¢ |
4.1¢ |
3.9¢ |
|
Tires |
1.5¢ |
1.8¢ |
2.2¢ |
1.5¢ |
1.6¢ |
|
Operating
costs/mile |
11.5¢ |
13.0¢ |
14.8¢ |
13.5¢ |
12.6¢ |
|
Comprehensive Insurance |
$238 |
$191 |
$180 |
$159 |
$130 |
|
Collision Insurance |
$445 |
$386 |
$372 |
$402 |
$354 |
|
Bodily Injury & Property |
$498 |
$498 |
$498 |
$389 |
$389 |
|
Total Insurance |
$1,181 |
$1,075 |
$1,050 |
$950 |
$873 |
|
License & registration |
$167 |
$206 |
$242 |
$289 |
$259 |
|
Depreciation |
$3,051 |
$3,693 |
$4,470 |
$4,286 |
$3,772 |
|
Financing |
$554 |
$751 |
$927 |
$867 |
$755 |
|
Ownership
costs/year |
$4,953 |
$5,725 |
$6,689 |
$6,392 |
$5,659 |
|
Total cost for 12,500
annual miles |
$6,391 |
$7,350 |
$8,539 |
$8,080 |
$7,234 |
|
Average cost per mile |
$0.51 |
$0.59 |
$0.68 |
$0.65 |
$0.58 |
(From Your Driving Costs
2003, American Automobile Association (www.ouraaa.com),
based on data from Runzheimer International.)
These estimates assume a relatively new car (typically the first four years of vehicle life). As a result, these values tend to overstate depreciation and insurance, and understate maintenance and repair costs compared to the overall vehicle fleet. Consumer expenditure surveys (Table 2) indicate somewhat lower average vehicle costs. Mohammadian and Miller (2002) estimate annual fuel, maintenance, depreciation and insurance costs for vehicles of various types and ages.
Table 2 Average Transportation Expenditures (2002
U.S. Dollars)
|
|
Per Household |
Portion of Household Total |
Per Vehicle Year |
Per Vehicle Mile |
|
Vehicle
purchases |
$3,665 |
9.0% |
$1,833 |
$0.15 |
|
Gasoline
and motor oil |
$1,235 |
3.0% |
$618 |
$0.05 |
|
Vehicle
finance charges |
$397 |
1.0% |
$199 |
$0.02 |
|
Maintenance and repairs |
$697 |
1.7% |
$349 |
$0.03 |
|
Vehicle
insurance |
$894 |
2.2% |
$447 |
$0.04 |
|
Other
vehicle charges |
$483 |
1.2% |
$242 |
$0.02 |
|
Total vehicle expenses |
$7,371 |
18.1% |
$3,686 |
$0.29 |
|
Public transport expenses |
$389 |
1.0% |
$195 |
NA |
|
Total transportation
expenses |
$7,760 |
19.1% |
$3,880 |
$0.29 |
(2002 Consumer Expenditure
Survey, Bureau of Labor Statistics, www.bls.gov.
“Public Transport” includes intercity air, rail and bus transport, as well as
local transit services).
Depreciation is usually considered a completely fixed cost, but it is actually partly variable since increased driving increases the frequency of vehicle repairs and replacement, and reduces vehicle resale value. Surveys of used vehicle price guides (www.edmunds.com), which provide guidelines for adjusting prices based on vehicle mileage readings, indicates that mileage-related depreciation typically averages 5-15¢ per mile, or about as much as vehicle operating costs. Most leased vehicles have additional charges averaging about 10¢ per mile for mileage over a certain level. Increased driving also increases the risk of costs associated with a crash, traffic or parking citation.
|
Mileage-Based
Depreciation Example (by Art Ludwig, www.oasisdesign.net) It
is significantly more expensive to drive your car, and you save much more
when you reduce your vehicle mileage, than indicated by the American
Automobile Association’s widely reproduced car cost estimates (www.aaa-calif.com/members/corpinfo/costbrch.asp).
These estimates treat depreciation as a fixed vehicle ownership cost,
ignoring the higher rate of depreciation that occurs with increased vehicle
use. For
example, according to Kelly Blue Book (www.kbb.com)
a 2001 Honda Accord with 10,000 miles has an estimated resale value of
$21,175, while the same car with 20,000 miles has a value of $19,350,
indicating that mileage-based depreciation averages 18 cents per mile. This
is greater than the entire vehicle operating costs estimated by the AAA. If
the condition also drops (which is likely to occur with greater use),
per-mile depreciation is even greater. In the case of the 2001 Honda, if the
condition drops one increment, from excellent to good, the
vehicle’s value declines to $18,230, representing mileage-based depreciation averaging 29
cents per mile, about three times the estimated vehicle operating costs.
Thus, the true cost of operating this vehicle is two to three times greater
than what an owner would conclude from the AAA’s published estimates. |
This indicates that the real cost of driving, and so the real potential consumer savings from reduced driving, are about twice what is usually recognized. Motorists and modelers often assume that driving costs about 10¢ per vehicle mile, considering just direct vehicle operating costs, but there are additional mileage-related costs that average another 10-15¢ per mile. As a result, TDM strategies that allow motorists to reduce their mileage provide about twice the financial savings than is usually recognized. Savings typically average 20-25¢ per mile. Below are examples of TDM strategies that can help consumers save money by reducing vehicle mileage and ownership costs:
Pedestrian and Cycling Improvements
Vehicle ownership also involves parking costs, which typically range from about $250 annually for a space in a suburban parking lot, up to $1,200 annually for a space in a parking garage (Parking Evaluation), and even higher for underground parking. Most vehicle parking is not individually priced. It is usually included with housing, or provided free by businesses and local governments. As a result, motorists usually consider it a “sunk” cost, with no savings from reduced vehicle ownership and use. However, in some cases motorists do pay directly for parking, either because they lease a parking space, or because the space they use has an opportunity cost, such as being able to use a garage as a workshop or storage area. Parking Pricing, Parking Management and Location Efficient Development allow motorists to capture additional parking cost savings from reduced automobile use.
In addition to financial costs, travel involves substantial non-market costs associated with time and risk (Transportation Costs). These are often the largest cost of travel. For example, travel time and crash risk average about 40¢ per mile for an average trip, assuming travel time costs of $10 hour, and 7¢ per mile in non-market crash costs per vehicle mile.
Alternative modes are often slower than driving and some have higher per-mile crash rates, implying that TDM strategies that shift modes increase consumer time and risk costs. However, consumers often compensate by reducing their total travel. A local walking or cycling trip may substitute for a cross-town car trip. Transit users rely more on local services that are within walking distance of their destinations. Non-drivers travel about 1/3 as much as much as an average motorist (NPTS, 1995). As a result, total travel time costs are about equal, and total crash risk tends to decline (TDM Safety Impacts).
Existing transportation models often evaluate economic impacts by assigning standard values to travel time, which assumes that any increase in travel time represents a cost to consumers, and any reduction in travel time represents a benefit (Litman, 2001). This ignores the possibility that some travelers may sometimes prefer slower modes. This tends to favor transportation improvements that increase vehicle mobility, and undervalues TDM strategies that increase Accessibility or improves Transportation Options.
For example, many people enjoy walking and cycling and will chose them for some trips even if they are slower. Consumers sometimes consider time spent walking and cycling a benefit rather than a cost as indicated by the popularity of recreational strolling and cycling. Similarly, some people prefer ridesharing or transit because they find it less stressful than driving.
The assumption that any mode shift increases consumer costs is clearly incorrect for strategies that rely on positive incentives. With such incentives, travelers who continue driving are no worse off, but they have improved transportation choices or financial rewards for using alternative modes. Many TDM strategies rely on positive incentives to change travel behavior. In fact, more TDM strategies are based on positive incentives than negative incentives, as illustrated in Table 3. As a result, travelers only change mode if they are directly better off overall, regardless of whether they increase or reduce travel time.
Table 3 Comparing Direct Consumer Impacts of TDM Strategies
|
Positive Incentives |
Mixed |
Negative Incentives |
|
|
TDM strategies in the left column tend to have positive
direct impacts on consumers, while those on the right tend to have negative
direct impacts. Some strategies have mixed impacts because their consumer
impacts vary depending on circumstances and perspective. Direct benefits occur
in addition to indirect consumer benefits, such as reduced congestion, tax
savings, increased road safety and environmental protection.
A study by McCann (2000) found that land use and
transportation factors can affect per capita transportation costs. Households
in more Automobile Dependent communities devote more
than 20% of household expenditures to surface transportation (over $8,500
annually), while those in communities with more diverse transportation systems
spend less than 17% (less than $5,500 annually). Polzin,
Location Efficient Development
Automobile use imposes various costs on others, including congestion, crash risk, road and parking facility costs, and various environmental impacts. Table 4 summarizes estimates of these costs. This suggests that reducing vehicle travel can provide external benefits that average about 40¢ per vehicle-mile. Of course, actual savings and benefits depend on specific conditions.
Table 4 Motor
Vehicle External Cost Summary (Transportation Costs).
|
Costs |
Per Veh-mile |
|
Traffic Services |
1.2¢ |
|
Fuel Externalities |
1.6 ¢ |
|
|
2.6¢ |
|
Traffic Congestion |
4.0¢ |
|
Environmental Costs |
4.0¢ |
|
Roadway Costs |
4.8¢ |
|
Non-residential Parking |
12.0¢ |
|
Crash Damages |
10.0¢+ |
|
Land Use Impacts |
? |
|
Equity Impacts |
? |
|
Total |