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Why Uber Drivers and Lyft Drivers Need to Calculate Car Expenses

Why Uber Drivers and Lyft Drivers Need to Calculate Car Expenses

When Uber drivers and Lyft drivers first start driving, they often do not understand that they have to incur all the costs that come with the job. Being an independent contractor means that while you have control over how you do your job (debatable with the rules with many on-demand jobs), you are also responsible for all the costs, including any related car expenses. Most drivers don’t fully understand the full accounting of your own car expenses.

For the first year I was driving, I didn’t really understand my car expenses either. I was only driving part time and the miles I logged on Lyft and Uber were only a fraction of what I was putting on my car because of my full time job, so the expenses were minimal since much of the depreciation and maintenance could be apportioned to the cost of getting to my full time job.

A Detailed Breakdown of Car Costs

As I started to dig deeper into my own car costs, I found that much of it was from gasoline. By a lot. The car gas cost was about 4 times the cost of depreciation. When I started really putting numbers together to see what my real car expense were, it was fairly eye opening where most of the car depreciation was.

Back when I first started driving on Uber and Lyft, I had a 2004 Lexus IS300 that required premium gas. It also didn’t do well on gas mileage, so a decent chunk of car expense was gas. I used to get about 15 mpg, so figure about 15 gallons of gas at about $3 a gallon every 200 miles. Every 5000 miles, it needed an oil change and I preferred to have it done at the dealership, which was $75 a pop. There was car insurance that amounted to about $1100 a year for full coverage. Figure another $1000 in maintenance cost and fixes on the car per year. At the time, I put about 15k miles a year. After some research, the depreciation of the car was only $1000 for every 15k miles I drive.

Once you do the math there, you get a total cost of 44.5 cents per mile, which is pretty high. Here is the table:

CategoryMilesCostCost Per Mile
Gas200450.225
Oil5000750.015
Insurance1500011000.073
Maintenance1500010000.067
Depreciation1500010000.067
0.447

The full accounting of car expenses showed me what my biggest component of car cost was gas. I was driving a 2004 car in 2014, so it was already 10 years old. Also, the car already have close to 100k miles already, so I knew that the depreciation would be very small. However, you can see that gas was my biggest expense per mile. I knew that the only way to lower my total car cost was to get a cheap car that got good gas mileage.

How to Calculate Car Cost

If you drive a car that is less than 5 years old and has about 50k miles on the odometer, the above numbers are totally different. There are two different ways to calculate car cost:

Manually

You will need to do what I did above and keep track of costs per mile and then calculate out the total cost per mile. Its a bit tedious, but this is the best way to get an accurate accounting of the cost. The hardest part is to calculate depreciation. The easiest way to do it is to start with the original value of the car and miles, and then find out how much it is worth now. Say you bought a 2013 Corolla for $10k with 70k miles and now its worth $8k with 100k miles. You can then calculate the depreciation per mile. You can check the current value of your car with KBB or searching for your make/model as a used car and finding the value manually.

Automatically

This is the easiest way to do it, but it may not be totally accurate in all situations. This will give you a good benchmark for your car costs with very little work, so this is better than nothing. It may overestimate in some categories and underestimate in other categories, so its best to be used as an estimate of total car cost instead of it’s individual categories.

Below is the website you can use:

https://www.edmunds.com/tco.html

The Biggest Portion of Car Expenses May Be Invisible

If you drive a car that is less than 5 years old and has about 50k miles on the odometer, the biggest portion of car expenses is invisible to you and that is car depreciation. Take a look at the example below of a Hyundai Elantra. Fuel is actually the largest portion of total car expense, but depreciation is a close second. A better example would be the Prius.

Here is an example of a 2012 Hyundai Elantra (GLS):

Year 1Year 2Year 3Year 4Year 55 year totalPer mile (60k total miles)
Depreciation235177968560754549670.0662
Taxes and Fees738505050509380.0125
Financing342273200124449830.0131
Fuel1233127013091348138865480.0873
Insurance68270272474576836210.0483
Maintenance9235894021204145645740.0610
Repairs24329735944537317170.0229
65123960372945234624233480.3113

You can see the depreciation of a Prius is double that of its fuel cost, which is to be expected. However, you are paying an extra 4 cents a mile to save just 3 cents a mile on gas. Is that really worth it? It is very rarely worth it because of the increased depreciation.

And here is an example of a 2012 Prius Two:

Year 1Year 2Year 3Year 4Year 55 Yr TotalPer mile (60k total miles)
Depreciation$3,228$1,440$1,268$1,124$1,008$8,0680.1076
Taxes & Fees$1,167$50$50$50$50$1,3670.0182
Financing$556$443$325$202$72$1,5980.0213
Fuel$789$813$837$862$888$4,1890.0559
Insurance$742$764$787$811$835$3,9390.0525
Maintenance$1,168$818$683$204$1,536$4,4090.0588
Repairs$281$327$381$443$517$1,9490.0260
True Cost to Own ®$7,931$4,655$4,331$3,696$4,906$25,5190.3403

You can see that the Elantra is slightly cheaper to own than the Prius long term. If you ignore the first year cost (especially if you have bought either car used), then the gap shrinks by a little. You can see that while fuel cost is 3 cents per mile cheaper than the Elantra, the depreciation on the Prius is 4 cents higher. In Year 5, the depreciation on the Prius is double that of the Elantra, mainly because the Elantra is about $7,000 cheaper than a Prius brand new.

I did a quick price comparison between a 2013 Prius II and a 2013 Hyundai Elantra. For about 35k miles, I can get a Prius II for around $15k, while I can get the same Elantra for around $11.5k, a savings of $3.5k. With the fuel cost savings, you would need to drive over 130k miles just to break even for the cost of a Prius! This is not even considering the extra depreciation with the Prius.

Why You Need to Understand Total Car Expenses

Once you do this detailed analysis of your car or the car you want to get, you will get much more detail about your actual car expenses in order to make a better decision about what car to get or if you should replace the car you currently have. Once you get your car expenses down, you can stand to profit much more from these on-demand economy jobs. In my example, I saved about 10 cents per mile driven in total cost. I have driven about 3000 business miles between Jan and March, so I saved about $300 in car costs in 3 months, or about $1200 a year.

There are lots of people who only look at the MPG of a car and settle on that, thinking that this will save them money in the long term. It won’t. They believe the more miles they drive, the more money they save with a higher mileage car, which isn’t necessarily true all the time. There is depreciation. If you get a used Prius with lots of miles on it, then that tactic may work, but you will have to deal with repairs and maintenance of an older car. Newer car these days get very good mileage so I would personally recommend something in the middle, like a Corolla, Elantra or a Civic. I personally love my Elantra, the car is big considering the outer dimensions and gets good gas mileage.

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