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    To Own or Hire – Car Vs Cab Showdown

    By

    September 30, 2015

    The taxi business in India is witnessing an all out war. Chicago based UBER Technologies and Softbank backed Ola are fighting for every waiting passenger. With heavy discounts, good quality cars, timely services, ease of payment and enabling all of this through a smartphone, has made the life of a domestic passenger hassle free. Sincere thanks from me too.

    Well, now that we have buttered these giants up, let us get into the question over which many of us have been pondering over – “Would I be better off owning a car or tagging along with the cabs ?”

    A simple and exciting analysis by EY and subsequent discussions by Business Standard journos show interesting findings. For conclusion, go to the bottom. For understanding, read on..

    With increasing traffic levels and urbanisation, driving to reach your destination tests you both physically and mentally. However, the pride of owning a car is a privilege too. It’s only fair that a cost-benefit analysis is performed before jumping, quite literally, on the conclusion whether to step into a brand new car of your own or that of a taxi aggregator’s.

    Assumptions –

    All values used, are at current prices –

    Petrol Car Value Rs 6.5 lakh; 20% downpayment Interest cost: 11% of 5.2 lakh, 5 years (11,306 per month)

    Fuel cost: Rs 6/km (taking driving average of 10km/ litre at Petrol @ Rs60/ltr)

    Insurance and maintenance @ approximately Rs 8,000 and Rs 12,000 respectively

    Replacement cycle: 5 years

    Residual value of car after five years:

    For vehicle travelled < 50 km per day: Rs 2 lakh

    For vehicle travelled 50 – 100 km/ daily: Rs 1. 75 lakh

    For vehicle travelled > 100 km per day: Rs 1. 5 lakh

    Chauffer cost per month (Rs 12, 000)

    Cab fare (factoring average of base fare, per km/ per min pricing):

    0-50 km: Rs 14/km, 50- 100km: Rs 12/km, >100km: Rs 11/km

    3 scenarios are considered to draw conclusions

    Case 1 – At 25 Kms

    So, if your daily travel requirement is somewhere near 25 Kms, above is the chart for you. As can be inferred, taking a cab would cost you Rs420/day while owning a car would cost you between Rs625-667 depending upon the financing of the car.

    Clearly, it seems logical to take a cab here.

    Case 2 – At 75 Kms

     

    The above chart shows a comparison between the costing of an owned car and a cab, if you are travelling near 75Kms every day. Here, all three permutations lie between a range of Rs150, with the best being a car bought on loan cosring Rs 939/day. Though we repeatedly say – taking a loan for consumption isn’t very healthy, but still if your opportunity cost is at 11%, looks like its better to go for a car loan. A cab would cost you more at Rs 1,080 a day.

    If you want a chauffeur however, it will cost an additional Rs 400, which negates this option and makes taking the cab a pocket-friendly alternative.

    Case 3 – At 125 Kms

    Congratulations to you for travelling this much. You must be spending half of your waking life on road. For you it seems best to own a car. Taking a driver with you will cost you as much a cab would i.e. somewhere near Rs 1,650. But if you wish to drive yourself, owning a car would suit your pocket the most.

    So to be specific following are the conclusions drawn –

    As an advise to the automobile manufactures, Anil Vasan, Director, EY has a suggestion – “To prepare a shift from the product mindset to a service mindset, to better align with customers”.

    And why not, taxis are getting popular by the day.

    Credits – EY (Data) and Business Standard (Analysis)

     

    Views presented in the article are those of the author and not of ED.

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