The Economics of Car Rental

We’re flying back to the UK for a week later this month, so once again we’re forced to rent a car. Both sets of parents live too far from public transport for it to be a realistic option, even assuming the trains in the UK break the habit of a lifetime and work for a change. (Rail replacement bus service? What sadistic bastard thought of that?)

It got me thinking about the outrageous cost of hiring a car for the week. To get a car large enough for the three of us and all our luggage (who knew we needed to take a kitchen sink for a 1 week trip?), it will cost us over £200 for the week. I could practically buy a car more cost effectively than that… if only there was some way of everyone clubbing together to buy a car that you can drive when you need it. Scaled up, you’d have… a car rental company. Are they just ripping us off? Or does it plausibly cost that much to hire cars out? I made up some numbers to see if it would shed any light on the situation.

New price £24,000.00
Price @ 3 yrs £12,000.00
Annual running costs £2,000.00
Cost over 3 yrs £18,000.00

A fairly low-spec, family sized car would cost about £24,000 to buy brand new. Assuming you kept it for 3 years, and allowing for insurance and up-keep etc, I reckon you’d need to make about £6,000 a year to cover it. Is that a lot?

Annual cost £6,000.00
Average utilisation 50%
Min daily cost £32.97

Assuming the car is being used 50% of the time, you’d need to charge about £30/day to make your £6,000 a year back. Which works out about the same as I’m actually paying – so it’s probably not a million miles wide of the mark. Which is slightly depressing – unless you buy an older car, and risk spending more money on maintaining it and repairing it… it’s difficult to see how you could rent a car for less than they currently charge.

Although I’m hiring a car for the week, I don’t actually need the car for 7 full days of 24 hours. Maximum, I’ll probably be in the car for 12 hours across that week. If only there was a way that I could rent a car for an hour at a time? (Zipcar and the like only serve big cities, which is useless when you’re visiting the sticks)

Self-Driving Cars

Well, maybe this is where self-driving cars could massively change things. With a self-driving car, it wouldn’t matter that I’m parking up in the middle of nowhere. It can scoot itself off into the nearest city to continue ferrying people about. I’d only need to pay for the time I actually use it.

Annual cost £6,000.00
Average utilisation 25%
Min hourly cost £2.75

Obviously the utilisation would be lower (I can’t imagine many people will need carrying about in the middle of the night). But instead of paying £230 for a week’s car parking, I could instead pay £33 for 12 hours of driving. In theory, the car would still be paid for over three years – but the cost to individual users would be massively lower.

Not Just for Holidays

At those prices, could it even replace my main car?

Annual mileage 12000  miles
Average monthly mileage 1000  miles
Average speed 40  mph
Average monthly time 25  hours
Average monthly cost £68.68

If I was paying for the exact same car, to spend the bulk of it’s time parked outside my house, it would cost £500 per month. But renting it by the hour is a fraction of that. Of course, if everyone did this, you’d need a massive number of cars to cover the peak demand at rush hour – but the utilisation could drop to 5% and it would still be cheaper than owning the car outright. That’s each car in use for just over 1 hour each day, given that’s the average UK daily commute that seems easily achievable.

So, it’s 2013, I only have one question:

Where’s my goddamned self driving car?

 

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