Driving for Uber and Lyft | Hacker News Reader

Driving for Uber and Lyft

mrmoneymustache.com

205 pointssus_007138 comments

This article rests on the premise that operating a car costs a fixed 50 cents a mile. But several uber drivers have told me the economics work out pretty well for them because they already need their cars, so IMO using 50 cents a mile is an unfair assumption.

Looking at the operating cost of a car is complicated with many variables, but the standard 50 cent estimate is NOT a marginal cost, i.e. you don't actually spend an extra 50 cents to drive a mile. The annual AAA driving costs brochure puts the per mile cost (gas + maintenance) at 14 cents a mile for a small sedan, and 17 cents for a big sedan, plus ~3 cents a mile for depreciation (see "decreased depreciation"). Moving from 50 cents to 20 cents a mile brings his estimate pay from 7 dollars an hour to 12.40.

Brochure link: http://exchange.aaa.com/wp-content/uploads/2017/08/17-0013_Y...

edit: to be clear this math is if you already own a car and are driving on off-times for additional income, which (in my experience) is what a large % of uber/lyft drivers do. It's also what Mr. Mustache was doing in his test.

in that brochure, average total cost per mile is $0.5646 @15k miles per year. I think you're looking at the operating cost per mile, that doesn't include stuff like insurance, registration, and financing. page 9, look in the middle of the green section for the cost per mile - page 8 has the row name you're looking for.

My point is the fixed costs (the ones you list) don't significantly change if you already have a car and decide to become an Uber driver. Mr Mustache didn't pay 18 dollars to drive those 36 miles, he was already going to pay for his insurance and registration.

Most of the costs are not fixed, i.e. wear and tear, gas etc..

A car is literally one giant consumable, good for approx 200k miles. Of which perhaps 100-120k are pretty reliable, and after which reliability steadily degrades.

It's odd that insurance is a fixed cost. The probability of an accident seems like it would increase with more time spent on the road. I assume that either Uber is covering the difference in insurance, or there's a bit of moral hazard at play.

It depends on the policy. Mine is pretty much a fixed rate. But many policies do have mileage bands.

Both Uber and Lyft cover additional liability insurance as long as the app is open. They also cover comprehensive if a passenger is in the car.

https://www.nerdwallet.com/blog/insurance/best-ridesharing-i...

My insurance company asks me approx how many miles I drive per year and also how far away I live from work (because I list commuting as the purpose of my car). I assume those variables are included in my premium and my (very low) premium would be higher if I drove more or lived far away from from work - my commute is only 4 miles.

I also assume the Uber driver would have to tick off "business" as their car's purpose and your insurance may go up just because of that check mark, no matter if the mileage was higher or not.

Right, insurance does care how much you drive, but there are costs to being fine-grained about how you measure it, so they usually lump in everyone below ~30k miles/year and don't bother to count the differences there. I remember entering 10k vs 15k miles per year and the quote was the same for Geico.

Of course, you're absolutely right, and insurers have been slow to account for this parameter; the startup MetroMile exists solely because regular insurers overestimated what a difference the mileage makes. (MetroMile charges by how much you actually drive.)

To a point. If you are conscientious, then more time on the road makes you a better driver, by knowing your car better and being better able to predict what others will do.

Exactly. Insurance rates change with greater mileage and also with using a car for business instead of personal use.

If there is an accident, an Uber driver will need to pay out of pocket, unless they lie and tell the insurance company the ride wasn't for Uber.

I mean, it's your source. You're free to disagree with it. the cost per mile clearly goes down as milage goes up. as witnessed by the 10/15/20 brackets of driving. but 20 cents a mile isn't even close.

Insurance isn't a fixed cost, they want a yearly mileage estimate.

The argument is that those costs don't matter so much if you're going to be owning the car anyway. But cost accounting is complicated. The reality is that, for a car used a minority of the time for taxi service, the number is somewhere in between the IRS cost/mile and the bare minimum fuel + standard maintenance. For one thing, the car will get into higher maintenance costs and will need to be replaced sooner than if you just used it for yourself.

I would expect that an Uber driver would be doing far more than 15k miles per year. That's just normal usage.

You're also mixing up your accounting. The parent was discussing marginal costs, and you're discussing average costs. The marginal cost is what's used for making economic decisions, like deciding to drive for Uber or not.

My wife does 3-4 days a week for prime now. On track to hitting 12k miles this year. Just as a data point

The average driver between 20-50 drives around 15,000 a year.

https://www.fhwa.dot.gov/ohim/onh00/bar8.htm

The average driver implicitly isn't using ride sharing so there's really no relationship between that stat and this discussion other than it'll be closer to your number than to the average daily miles of a glactic starship captain.

A better number would be a taxi driver.

From op's data,

    10,000 - $0.7354 
    15,000 - $0.5646
    20,000 - $0.4944

I just don't see how you get that marginal cost down to $0.20, yes mile n+1 is a little bit cheaper than mile n. and sure, let's pretend that high milage cars used cars sell for the same as low milage cars. so financing is fixed. I just don't see how you can get regular maintenance and gas and insurance down to 20c/mile.

You're looking at average cost, which includes half-ton pickups and large SUVs. Look at page 6, which contains small and medium sedans.

Ah, i see. I misunderstood your argument. I thought you meant something like "an average person want to pick up some uber shifts. they already have the car, so the expense can't be that much." I'd assumed an average person would have an average car, and thus average cpm.

you mean (i think) someone needs a car for whatever reason. They specifically select a car they can use with uber, maximum mpg, least maintenance, and used. That might work. i'm still (very) skeptical of the $0.20/mi cost. But i could see you might be able to get that quoted $0.37 down to $0.32 or if you're really lucky, $0.30

A full time Uber driver is likely to do about 75,000 miles in a year.

Quick and dirty math. Let's say a new Kia Soul has 200K miles of useful (as an uber car) and costs $20K USD. The driver drives 2500 miles per month, getting 25 miles per gallon $4/gallon. Insurance is $100/month. And every 5000 miles there's $100 of maintenance to do.

20,000 USD / 200,000 miles - 10 cents per mile.

200,000 miles / 25 mpg = 8000 gallons

8000 gallons * $4/gallon = $32,000

$32,000 USD / 200,000 = 16 cents per mile

200,000 miles / 2500 miles/month = 80 months

80 months * 100 insurance/month = $8000

$8,000 / 200,000 miles = 4 cents per mile

(200,000 miles / 5000 miles) * $100 maintenance = $4000

$8000 maintenance / 200,000 miles = 2 cents per mile

10 + 16 + 4 + 2 = 32 cents per mile.

That's my best guess while typing on my phone in a Chipotle. 32 cents sounds like best case, so 50 cents seems like a conservative & realistic plan. Cars have ways of eating ones money in expected ways, and I didn't account for costs associated with driving for Uber/Lyft, such as needing a good cell phone plan, self employment taxes, etc. Did I make any math errors? Anyone wanna tweak those numbers to be more realistic?

Need to include interest on the $20,000 purchase. Most Uber drivers aren't buying new cars for cash. Even if they are, it's fair to include the opportunity cost.

A five year $15,000 loan @2.5% interest is $972.63 interest over the life of the loan. Round it up to an even $1,000.

You also should count sales tax, which looks like 7.5% in California,so an extra $1,500 total.

Those are fixed costs but your car won't last nearly as long if you drive for Uber vs if you don't. You also don't have the choice of driving your car into the ground if you want to continue to drive for Uber.

According to Bankrate, 2.5% interest isn't a reasonable assumption these days. Looks like it's more like 4.5%, and I presume that's assuming you have really good credit.

That said, even at 6%, you're only looking at $1,172 over the life of a 5 year loan, so I agree that it's a fairly negligible difference for the purposes of this calculation.

I was going with best case with perfect credit. My credit union offers 2% loans - https://www.navyfederal.org/products-services/loans/auto/aut... those are 36 month loans though.

You're right I probably should have done average case.

I just got a new 30k Kia for 2.2% with 5k bonus cash. They also offered 0% and 3k bonus cash but taking the extra cash was better for me.

Gas is not that expensive in most parts of the country. It's been a while since it hit $3/gallon where I live. That portion likely should be 10-12 cents/mile.

Maintenance/repairs is always hard to predict...

True. Gas prices can be spikey, and a few years ago I was paying over $5/gallon, so I went up a bit.

But it does tend to be more expensive in cities, which is where these cars operate more.

You should make a phone app to calculate income for Uber and Lyft drivers.

That would be a pretty interesting tool.

I imagine that the tricky part is getting it to plug in to all the relevant information for the calculation. Uber won't let anything actually pull data from the app, and the driver would have to make sure to mark their mileage at the beginning and end of a shift so they can plug in the "amount driven". (They can't just copy over Uber's figure, which would only tell them paid miles driven.)

You'd also want it to calculate the after-tax income, which would depend on their estimated income from other sources.

If you could get that to work, though, I imagine you'd see a quick exodus.

Uber does have a public API, not sure if it includes the stuff you need though.

I wouldn't say that's best case. A Prius basically doubles the gas mileage you've listed here.

And the cost of the vehicle too no?

I think you definitely underestimate the maintenance cost. For example, you’ll probably need to replace the tires at least 4-5 times in those 200k miles, which will set you back around $800-900 each time. You will also need to replace clutch plate, brake pads, likely battery etc, and you are likely to end up needing to repair something in these 200k miles. I’d add at least $5000 to maintenance cost, and likely more.

Discount tire/America's best tire will cert your tires in which case you won't be spending that much money at all. Over the course of 1.5 years driving for Lyft I had about 12 tire changes, each one going for about $30.

Real experience:. I made about 90k over 1.5 years of driving for Uber/Lyft. Much maintenance I did myself, and took my car (Honda insight, 30mpg city/45 highway) from 70k to about 260k. Obviously this paid for itself (~16k) and rent in the expensive bay area, and some.

I don't know if it's as lucrative as it used to be, and I was also very very good at it. Usually ~50-75% of my fares were not at base rate.

The AAA analysis is a misleading sales document which fails to factor in risk, pretending that the insurance they're trying to sell you is sufficient. It doesn't take into account things like lost wages and other opportunity costs, catastrophic injuries, denied or underinsured claims, and so on.

The MMM article makes exactly this point -- it is hard to calculate the cost of driving. We're even failing so miserably in this thread...

> because they already need their cars

If you take out the car, insurance and registration out of the revenue-cost system of being a uber driver, then those costs still need to be paid. How?

If the default is that they are unemployed and need a car then they can't have one. You can't have a cost without a revenue source (support from the state don't count here since any benefits would be lost at the point of gaining a revenue above minimum standard). If they intend to use the revenue from being a driver, then the cost are added to that system and one have to account for the significant lower income in return for fulfilling the outer system "need" to have car.

If a person already have a job that require a car and they want to work a second job as a uber driver, then you can subtract the fixed car cost to either job. Similarly a person could have saved up money in advanced to pay for the fixed costs for the duration of the uber driving, similar to an investment, but that result in a limited cost saving for only as long as that initial capital will last.

When you have to replace your current car, do you plan on getting your next car free?

So in a way driving Uber is like taking a loan from your future self. You have a car and need money. Uber gives you good gross pay. 5 years down the road when you have to sell or repair your car, that's when you have to pay up for all the wear and tear.

It's really a shame to see who gets rich off this. As a rider, these services are incredibly convenient. But I wish I wasn't basically relying on unpaid labor.

Something I don't think people really think about in the Uber equation. Driving also has a massively higher risk of dying than sitting on the couch, so it's part loan part Russian roulette.

It's not just traffic, Taxi drivers have double the risk of being murdered as cops, without any of the benefits. http://www.syracuse.com/opinion/index.ssf/2015/01/by_the_num...

And there's the psychological stress of sitting in traffic. My mental status takes a huge nosedive when I have a job where I have to commute by car.

I think that feeling can probably be split by the fear of being late, fear of being in a bender fender and the general unpleasantness of navigating traffic - so as a professional driver you don't care about lateness and can take a small insurance to reduce the mental stress of being in a fender bender.

won't solve everything, but maybe it can bring the stress down enough to be manageable as a career.

When it comes to finances, people have a shockingly hard time figuring out the true cost of things. I've seen this a lot with things such as driving and income taxes. As he mentions, this informational asymmetry works to Uber/Lyft's advantage, so I doubt we will see any changes from them.

Can you explain what people confuse about income taxes?

In my experience the confusion surrounds 2 things. How brackets and deductions work. Many people don't understand that once your income goes into a higher bracket, you are only taxed at that higher bracket for the income that pushes you into it. For deductions, I've met a lot of people who think that it works essentially as a credit, rather than just saving you your tax rate on that portion.

It's wording like that that's confusing. Once your income goes into a higher bracket, you are only taxed at that higher bracket for the income _that falls within that new bracket._ The income that _pushed_ you into that bracket is taxed the same way.

(and AGI does affect deduction phase-outs so there's that complication...)

There are two major problems with the sharing economy that most people don't mention when they write articles about it.

First, the overwhelming majority of gigs don't teach you any marketable skills whatsoever. So over the course of your contracting, you may as well be unemployed. This hurts most people's chances of finding gainful employment, and ends up being a massive hidden cost above and beyond car maintenance and similar expenses directly related to running the gigs.

Second, because you make so little, you also save very little, if any, for retirement. Since saving for retirement is all about compound interest, people who run gigs while young instead of looking for full-time employment are in for lots of pain and discomfort later in life. In fact I suspect we're witnessing the creation of yet another underclass, consisting of people who will probably have to work until they die. Lots of Baby Boomers (who were unfortunate and/or made poor choices earlier in life) are already in this situation and it will only get worse.

As an aside, one thing I don't get about the gig economy is how the workers can afford health insurance. I assume most don't have any, or they are on their parents or spouses' plans because even the cheapest plans are really expensive and I doubt your average Uber driver can afford them.

1. They're young so they go without or buy the cheapest possible one.

2. On their parents' plan

3. Don't make enough and get huge subsidies from the marketplace.

Retirement and lack of any marketable skills is the bigger issue, however.

$0.50 of vehicle costs per mile does not compute. If you're spending $30 a day on gas and driving 250 miles, you can just rent a car for the week at a daily rate of $30 or less, and come out with $60/day in costs rather than his stated $125, which makes the whole thing quite a bit more profitable. Probably profitable enough that my poor as shit unskilled and unemployed college self would have been better off doing that than tutoring during the summers.

Am I missing something?

Commercial use is almost certainly prohibited in your rental car contract. Also, Uber requires a vehicle inspection before driving.

It’s probably against the terms of the rental agreement to do any commercial driving.

~$.50 a mile isn't a made up number, it's what the federal government has calculated as the cost of driving for business purposes. Actual value is 53.5 cents a mile.

https://www.irs.gov/newsroom/2017-standard-mileage-rates-for...

Students are usually under 25 thus largely are unallowed to rent cars.

I doubt using a rental car for this type of business is allowed under the terms of a rental contract or under Uber's rules.

Insurance isn't free.

Ah, fair enough - I was just wondering because I've known Uber drivers that do exactly this, and have given me advice on where to find cheaper rental cars.

All consumer rental car contracts in the US include a provision that disallows the usage of the vehicle for commercial purposes. Additionally, most personal vehicle insurance prohibits the use of the insurance for commercial ride sharing activities without a special waiver.

So as soon as that first fare is picked up (if not sooner), then the renter is in breach of contract. Any insurance from the rental agency is now void, and without special personal insurance waivers, the driver is now driving uninsured.

That is both illegal, and all liability will now be 100% on the driver.

So if someone is going to do that, then they need to calculate in the risk of an accident/arrest and all of the full liability that goes with that.

Uber insures drivers in the US while they are giving a ride. However, it probably wouldn't cover you if you're breaking your rental contract at the time of loss or wasn't the car Uber approved.

https://www.uber.com/drive/insurance/

There are specific programs to do this above-board: https://www.hertz.com/rentacar/misc/index.jsp?targetPage=ube...

I don’t think it’s necessarily appropriate to use that figure to calculate your actual costs as an Uber driver, especially if you’re not driving full-time. It seems like the 53 cent figure is amortizing the entire cost of the vehicle, fuel, and maintenance over its entire lifetime. If you’re in college and just drive for Uber on occasional weekends, it doesn’t make sense to include all of the fixed costs of the vehicle in your profit calculations. Note that the IRS figure for variable costs per mile is 17 cents.

I don't necessarily disagree with you but I certainly couldn't afford an "Uber eligible" car when I was in college. Are college students overspending on cars just to drive for Uber?

Is it feasible to pass their inspection in a borrowed car and actually drive something else?

No. Your license plate and vehicle description are shown to each passenger. If they don’t match, you’re going to get reported pretty quickly. Also, if your car is dumpy, people will report you.

That would be a terrible idea. It obviously violates Uber's driver's agreement so you risk getting kicked off the platform or at the very least confusing your passengers who are looking for a red ford focus and you're driving a white Chevy Cavalier. Not only that but if you get into an accident with a rider you're going to be in a world of hurt. Uber's insurance company would certainly deny the claim and so would yours, assuming your insurance policy covered ride sharing in the first place.

> It obviously violates Uber's driver's agreement

As if Uber is a poster child for following rules and regulations.

Does Uber actually inspect cars?

I suspect a large number of college students have Uber-eligible cars.

"If you’re in college and just drive for Uber on occasional weekends, it doesn’t make sense to include all of the fixed costs of the vehicle in your profit calculations."

But it does make sense to prorate the portion of those fixed costs associated with the Uber use. Failure to do so is a major business mistake, since you will have to replace the vehicle, etc., sooner than you would otherwise.

Which means something like a conservative 53¢ per mile.

You have to prorate some portion of the fixed costs, but it seems like the 53 cent figure is assuming that the entire lifetime of the vehicle is used for business.

That's not how proration works.

53¢ is the US government's ("We're here to help you!") estimate of the total cost of an average vehicle divided by the lifetime of the vehicle as measured in miles.

If your vehicle's lifetime is 200,000 miles, and 10% of that is assignable to Uber, that is 20,000 miles or $10,600, which is 10% of the estimated lifetime cost of $106,000.

If you try to break that up into different "buckets" ("I need a car anyway, so I shouldn't apply the fixed costs to my Uber income"), you end up with a car that effectively only lasts 180,000 miles and therefore your fixed costs for the car for personal use are artificially higher. It is the same thing as if you had decided "I would just burn that gas anyway" and didn't count fuel costs against your Uber income.

Why then do you suppose the IRS gives a lower figure for a mile of driving for the purposes of moving?

The combination of the US Congress and the IRS bureaucracy is as crazy as a six legged weasel?

There are companies that explicitly rent cars to rideshare drivers. The rates are around 300-500 per week. I did some contract work for one of them.

I doubt using a rental car for this type of business is allowed under the terms of a rental contract or under Uber's rules.

Looks like GM is definitely in on this with Lyft: https://blog.lyft.com/posts/expressdrive

Also, apparently Hertz: https://thehub.lyft.com/express-drive-hertz-update/

Program: https://www.lyft.com/expressdrive

This is all I could find on cost for Lyft: https://help.lyft.com/hc/en-us/articles/218196557-Express-Dr...

For Uber, they also partner with Hertz: https://www.hertz.com/rentacar/misc/index.jsp?targetPage=Ube...

Keep in mind that the IRS has a number of incentives in calculating that number, and "accurately reflect the cost of driving" is not the dominant one.

Like every other safe harbor in the tax code, the primary purpose is "reduce the cost and uncertainty of tax administration." The IRS has to review 1~2% of all firms in the economy every year; if they pick a number too small, many of those firms will have hundreds of extra line-item entries in their books to satisfy the Actual Cost method. The IRS truly does not want to overly burden taxpayers. They also don't want to burden their examiners over what, for the overwhelming majority of small businesses, is a trivial amount of money -- the net difference in taxes between Maximally Accurate Car Costs and the 53.5 cents/mi approximation is likely on the order of a few hundred dollars, and that is below the care floor for business returns.

So how did they arrive at 53.5 from 54 if it is one way or another for them?

You are talking about $/mile. Moving that figure up or down a penny quickly approaches a billion on the macro scale and their overarching incentive is keeping it down.

I mean, I will take this figure any day over someone higher up the thread essentially arguing it's much less because all Uber drivers have cars anyway that they finance through (?) so accounting it towards the Uber income doesn't make sense (??).

This is a subtle and difficult thing, but I promise you it is true: the IRS is not primarily scored on revenue generation. Their incentives are (approximately) hire more IRSians, minimize complaints to Congress regarding the tax code, minimize complaints to Congress regarding the IRS specifically, efficiently administer taxes, and generate revenue, in order.

There are a lot of changes that are within the IRS' authority to make which would be net-positive from a tax collection perspective and which it would not do and, if it did, would be undone from above. One is "radically increase the number of audits administered."

The $.50 per mile is egregiously high, and he doesn’t mention where it comes from. If you make it $.25 or $.30/mile the numbers work out much better. Still not super high pay, but livable. Not to mention the fact that he’s measuring the most efficient part of a job that an Uber driver could calculate - a suburb in the middle of the day.

https://www.irs.gov/newsroom/2017-standard-mileage-rates-for...

There are both fixed and variable costs (in addition to fuel costs) in operating a car. I expect the IRS number surprises a lot of people but I doubt the IRS is in the business of passing out free money to people who drive a lot for business at tax time. People can reduce their own average cost with inexpensive, low MPG, older vehicles although this is somewhat limited by Uber rules/preferences.

Cars cost more to operate per mile than a lot of people think they do. I expect if there were a meter in personal cars, people would drive a lot less.

To start with, you're going to be violating your rental car contract. Also, irrelevant at that point, but you're probably not going to be able to get a rental car for $30--after all taxes etc.--if you don't carry your own insurance and there are going to be various costs if you do get into an accident.

Enterprise only gives you 100 miles per day, which is very generous in an urban area but if you're visiting out west where the "local" airport is 40 miles away from town...

To make the numbers easy to do in your head, a thirty K car sounds average-ish and lasts 150 K miles, thats a fifth of a buck per mile depreciation for that miracle car that never needs oil changes or any other form of maintenance.

When I was younger I had a sportier car that used ultra high performance tires that cost me a kilobuck per set and only lasted something like 20K miles, which is a nickel per mile just for tires. Of course most cars tires last longer but prices only increase with inflation such that some SUV and truck drivers are likely paying more than five cents per mile just for tires.

dollars per gallon divided by miles per gallon gives you dollars per mile, so 2.5 or so divided by 25 or so (to make the math easy to do in head) implies at least 10 cents per mile just in gas costs. Of course many people spend a lot of the life of their car paying more than $2.50/gal for gas and 25 MPG is a daydream for most cars and most drivers on most roads.

My car insurance is very interested in miles driven per year and if I drove my band limit (which I don't) I'd be paying about ten cents per mile for insurance.

I'm thinking 20 cents for car depreciation, 5 cents for tires, 10 cents for gas, 10 cents for insurance, another 5 cents for misc maintenance costs, the IRS 50 cent estimate isn't bad.

I'm thinking 20 cents for car depreciation, 5 cents for tires, 10 cents for gas, 10 cents for insurance, another 5 cents for misc maintenance costs, the IRS 50 cent estimate isn't bad.

These numbers are very difficult to align with the prices advertised by the rental companies for Uber and Lyft drivers, which are usually claimed to be about $200 per week: https://www.nerdwallet.com/blog/loans/5-ways-car-uber-lyft/

For example, Hertz's site says they charge a base of $214 a week for Uber drivers, including unlimited mileage and insurance, but not including taxes, fees or fuel: https://www.hertz.com/rentacar/misc/index.jsp?targetPage=Ube...

While it's possible that the rental companies are losing money on these rentals or that the undisclosed fees are much more than the rental cost, I think the more likely explanation is that your estimate is inaccurate. Do you have another explanation for the discrepancy?

Hertz buys cars for less than you can because they buy thousands per year. Hertz also maintains cars for less because they employ their mechanics and probably pay wholesale for common parts, while you pay $40/hr or more for labor and double retail for parts when you take you car to a shop for service.

>These numbers are very difficult to align with the prices advertised by the rental companies for Uber and Lyft drivers, which are usually claimed to be about $200 per week:

That $200/week turned out to be severely undercharging. According to this article [1], it allowed the driver to put a lot of miles on the car without paying its full depreciation:

>>"The Xchange Leasing division had been estimating modest losses of around $500 per auto on average, these people said. But managers recently informed Uber executives that the losses were actually about $9,000 per car — about half the sticker price of a typical leased vehicle."

>>The "unlimited miles" allowed drivers to work long days and return vehicles with way too many miles, which kills the resale value.

So, Uber is shutting it down.

Side note: a lot of people were getting this wrong and screaming bloody murder about how exploitative the leases were. The problem was, they were comparing it to the really-long-term lease you might get as a substitute for buying a car, in which you're still responsible for maintenance, not the kind of lease that covers high usage and major maintenance over unlimited miles.

[1] https://wolfstreet.com/2017/08/09/uber-gets-run-over-by-its-...

The $200 Uber was charging would have been fine over the lifetime of the lease. The problem was that people were turning their car in way early and cars depreciate a lot faster early in their life than later.

Still, that would mean Uber wasn’t pricing that turn-in option highly enough.

Yeah, exactly. Hertz doesn’t have that problem given they can give you a week of a car that isn’t brand new.

> I'm thinking 20 cents for car depreciation, 5 cents for tires, 10 cents for gas, 10 cents for insurance, another 5 cents for misc maintenance costs, the IRS 50 cent estimate isn't bad.

The point here though is that insurance doesn't go up if you drive for Uber, you would have bought it anyway and paid the same amount. That can be erased from the calculation.

The largest part of depreciation for late-model cars, age of the vehicle, is happening whether you drive for Uber or not, so delete (IMO) $0.15 of that $0.20 from depreciation. (If the car is not late-model, the difference between 150k miles and 250k miles is probably less than $1k.)

So the calculation is more like:

5 cents for car depreciation, 5 cents for tires, 10 cents for gas, 0 marginal cents for insurance, another 5 cents for misc maintenance costs = $0.25.

> The point here though is that insurance doesn't go up if you drive for Uber

That’s simply not true for many insurance policies that a prospective driver would have.

Uber provides insurance, but you’re welcome to prove me wrong. You only addressed one point...

This isn’t a court room, I don’t need to counter every point you made. Besides, your own wording implies that was the important point you were trying to make.

Re: uber insurance

Uber only provides additional coverage, you still need to have personal insurance too, and only for liability are they primary during a trip.

https://www.policygenius.com/blog/insurance-secret-uber-does...

Via another source:

> Uber requires all of their drivers to have car insurance, and provides supplemental insurance coverage, but only while the app is on. Here’s how it works: When the Uber app is off, a driver is covered by their own personal car insurance. When the Uber app is turned on, a low level of liability insurance becomes active. When a trip is accepted, a higher level of coverage kicks in and remains active until the passenger exits the vehicle.

Limited liability coverage only when there isn’t a passenger in the car, hence comprehensive is your personal insurance. If your insurance finds out you are using for business and you didn’t disclose (and pay a higher rate), guess what, your claim is denied and your insurance is dropped most likely.

A simple google search provided that info.

Edit: here’s the link on Uber’s own site to back up the policy. It clearly states the above, comprehensive is supplemental and only while a trip is active (Aka with passenger).

https://www.uber.com/newsroom/insurance-ridesharing-uber/

Sure, but it’s pretty rude to drive-by a “no, you’re wrong” comment with no elaboration.

I asserted that insurance costs with Uber wouldn’t exceed what you would likely already have without Uber, and you claimed that was wrong. I see nothing in your reply here that backs that up, only that Uber provides secondary insurance which is what I meant - although not quite what I said - in my above reply to you. Regardless, my original point, that you aren’t paying more for insurance, seems to stand.

I had a driver once who was using a rental car under an agreement tailored to ride sharing. I can’t recall the company he used, though.

TL;DR: What everybody expects: You basically don't make money if you really calculate the whole cost package.

I honestly believe that it must be lower than $5/hour so I'd say even MMM might've forgotten something.

Yeah, there's a quote in the article that I liked, which made the point:

"Imagine developing a company specifically to take advantage of people’s ignorance of how expensive it really is to drive their own car. What would this company look like?" (i.e. Uber)

With that said, considering how much of the fares they take, and how low their cost of booking is, it seems they could make it work by charging a bit more and taking less of a cut.

Well it's before tax as far as I could tell, unless Uber withholds. Granted you can probably deduct the IRS standard per-mile expense allowance.

Uber drivers are contractors, so they’re not going to withhold, but they will issue you a 1099 for the full amount they pay you. It will be up to you to deduct work expenses, either actuals (repairs, depreciation, registration, etc), or per-mile, but not both.

You’ll end up paying income tax on something like the $5 per hour net income.

I think he's actually wrong.

It's definitely higher than marginal $5/hour, it's just not $5 net profit per hour. You take into account the fixed costs of owning and maintenance on the vehicle (which don't entirely vary directly with mileage driven) and it becomes a smart economic choice to drive Uber even if you're "losing money" each hour - because your marginal gross profit is higher than if you were sitting on the couch.

I think you're right, and the article's claim that the drivers' ignorance is being taken advantage of is an unpleasant thing to say. It assumes that the drivers are financially naive, when in fact there are many legitimate reasons why they choose to drive.

Many of them are supplementing their income in between other gigs, or enjoy driving more than other jobs available to them. Others have done well out of the referral, bonus schemes and tips that the author mentions. There are various other factors and incentives which the author does not seem to have taken into account. Much as I dislike the corporate practices of Uber, implying that the drivers are miscalculating the cost of driving and are therefore ignorant is a smug overgeneralisation.

That's Mister Money Mustache's writing style. I don't care too much for him myself either but he writes for his audience.

I liked when he talked about being a retiree, but also about being able to work like an executive from the back of a car to the airport.

http://www.mrmoneymustache.com/2013/02/13/mr-money-mustache-...

Not to mention, you can't pay your rent with saved future dollars.

So you are saying you are losing $2.00 on each unit but making it up by selling a lot of units?

No idea why people downvoted. This is exactly how people think, and in fact exactly how I was taught in university. We had an exercise in economics where we would be doing exactly that: Buying a machine to build car seats to sell which would make us -$2 profit. Total brain fart.

And here's the thing that is really odd: some companies really survive that way exactly because they make lots of units. E.g. customers may shoot them a few months of costs, just because the customer doesn't want them to die, because they are so cheap and produce so many units.

>>it becomes a smart economic choice to drive Uber even if you're "losing money" each hour - because your marginal gross profit is higher than if you were sitting on the couch.

Why are you comparing driving Uber to sitting on the couch?

You should compare it to something more realistic, like learning a marketable skill and/or applying to full-time jobs.

When you do so, the real opportunity cost of Uber becomes clear: the more you drive people around, the less employable you get.

I think one of the reasons that he writes this is that cash in the hand is extremely appealing if you are not in a good economic situation.

For instance, I have some savings, so I can keep the wolf from the door, and I have friends and family so I always have a place to stay and at least something to eat. I won't freeze or I won't starve.

Cash on the barrel every night is extraordinarily appealing to those who have to buy antibiotics for their kids right away, or who have to make the rent that day.

I've never driven Uber, but I am given to believe that they settle up debts every day. Just like why waiters/bartenders like doing what they do. They get a fistfull of cash every day.

Yeah, they offer instant cash out: https://www.uber.com/info/instant-pay/

Your post was a good one, highlighting the problems the “unbanked” / “uncredited” face that something like Uber is an antitode for.

I've used Uber and Lyft a lot in the last ~4 years, and I've realized that there are essentially two different types of drivers: professional, full-time drivers who hyperoptimize, and part-time/after-hours drivers that do it to pull in a little bit of extra cash. The hypothetical driver best represented by this article is of the second type, and no doubt that working this way doesn't really make you a good hourly wage, especially after the hidden costs mentioned.

I'd like to see an analysis of profitability for drivers in the first category. I have met drivers who specifically bought Priuses to drive for Uber/Lyft because of the 50+ mpg and low-ish maintenance costs - just look at the ride-sharing section of the SEA-TAC parking garage and you'll know what I mean. Speaking with this sort of driver, they seem to have done the math on maximizing return based on surge pricing (i.e. driving in the city Friday/Saturday 7pm-2am), practice driving that maintain vehicle quality and fuel efficiency, and are extremely time-efficient in parts of the ride that are within their control.

If even this sort of driver can't make a good wage, then the system is certainly unsustainable. But if it's possible to make a good wage in this fashion, I hesitate to pass judgment before seeing a breakdown of the distribution of hourly earnings across all drivers.

I had a lyft driver tell me that there was a MPG requirement to pick up passengers at SEA-TAC, which is confirmed by the Lyft web site:

"the Port of Seattle will only allow Lyft vehicles with a blended MPG rating of 40 or higher to pick up passengers at Sea-Tac."

https://help.lyft.com/hc/en-us/articles/217879848-Washington...

"...but I have seen bonuses pop up on my app offering between $100-$500 to refer other drivers."

Whoo hoo! Multilevel marketing!

"Provide drivers with the details of where the person is going, or at least how long of a ride it is. Right now, Uber has all this incredibly useful information at the time of booking, but deliberately withholds it from the driver."

And have all drivers ignore assignments for short rides?

And fall into the exact same issue that people have brought up with cabs forever - they just won’t go to some neighborhoods/pick up some groups of people. That’s a very real selling point for ride share companies to people who live places or are members of groups that get discriminated against in that way.

Uber touts itself as a marketplace right? Maybe short trips should pay more than they do if drivers are skipping them. Or as MMM suggested, drivers should be paid for driving to pick up the passenger.

This is interesting. So why are there so many Uber/Lyft drivers? Is it because there is a glut of unused cars in America and they provide a way to monetize it?

That is, if you aren't actually paying for the car's costs, then it IS your profit.

Not a glut of unused cars, a huge deficit in good, stable jobs. That’s what enables the gig economy to exist.

Because

1) People don't understand the true costs of ownership and driving and think they are yielding the entire cost of the fair.

2) They enjoy driving, getting paid for it is a bonus.

3) They don't/can't have "regular employment" for whatever reason and want to make some money in their spare time, even if it's just a little. Like some in college who only works during breaks or weeks when the courseload is smaller.

4) Someone who is employed but only drives when they are bored on the weekends rather than watching Netflix or going to the pub.

Of course #3 becomes self perpetuating at scale.

For #1 - story time: I had already decided I was going to buy a new car, which car I would buy, and that I was going to finance it. I was trying to squeeze another year out of my current car first tho. My sister was absolutely baffled by this and couldn't understand that this would save me money. No matter how much I tried to explain it she didn't "get" it.

From TFA: >"Imagine developing a company specifically to take advantage of people’s ignorance of how expensive it really is to drive their own car. What would this company look like?“ (the answer is of course that it would look like very much like Uber or any other ridesharing company)

But my question is how people live in the Bay Area on $5 an hour. Where is the difference coming from? Debt, parents, unused car etc.?

They don't live there, they just come there to drive. http://www.sfgate.com/business/article/When-Their-Shifts-End...

When I ask where there are coming from it's rarely from around the bay, usually Stockton or as far as Reno and coming for the weekend.

They could have rent control or prop 13 housing (often via parents).

I think you're missing

5) Because it is hard to find a reliable 2nd job where the hours do not impinge on a 1st job, especially when low-wage/unskilled jobs tend to schedule in ways to make having a 2nd job difficult (e.g. not consistent, last minute changes, etc).

6) Because it is harder for some to find as many unskilled jobs as most due to their age, race, or education.

I imagine many of these drivers do it simply because, despite the costs that may be coming down the line, they can't pay their rent with future dollars.

The cynical answer, which is absolutely valid, is that a lot of people don't accurately estimate the marginal costs of operating their vehicles.

That said. You need to compare to not minimum wage but minimum wage that takes into account commuting and random scheduling BS. As a somewhat counterexample, I was talking to a recent grad at a Meetup a couple weeks ago who was looking to get into CS things who was going out to drive for a few hours after the Meetup. Not something you can do with a McD's job.

I'm no fan of the gig economy in general but there are some advantages to on-demand work so long as every agrees that there isn't a lot of money to be made. As a full-time job I fully agree with MMM.

Addendum: On second thought, I shouldn't have been so quick to agree with MMM. Some of the other commenters pointed out flaws in his calculations and logic. Good job HN :)

One more thing.

Uber is pouring huge amounts of money into this business. And it's not profitable.

I shudder to think what will happen when all the subsidies are removed. If you don't have any assets besides a clean driver's license and a recent car, you got nothing coming.

I'm not sure they can realistically cut what the drivers are earning by much. What seems more likely is that fares rise to $2-3 per mile (or whatever number), which puts them more in line with traditional cabs, and let ridership fall where it may.

Maybe that matters psychologically, but not in bottom lines.

Drivers might be fooled for a bit, but once the fares rise, I'll be willing to bet the driver network collapses. They're not that stupid. If slinging burgers is more lucrative than driving Uber, they'll be slinging burgers.

That's fair. Less work for no more money on a per-ride basis. The driver network will certainly decrease. Not clear what the overall dynamics look like. I do think that prices need to get to breakeven in the fairly near future and self-driving isn't going to make a difference in an interesting time horizon.

the author makes the implicit assumption that someone can find a better way to make money and that driving for uber comes with a large opportunity cost, but that is not always the case. $5/hour driving pays more than an hour watching TV ding nothing.

A friend of mine is about to start delivering/shopping for Shipt, I'd like to see a similar breakdown.

Heck, I'd like to see what pizza delivery drivers costs are as well.

“Imagine developing a company specifically to take advantage of people’s ignorance of how expensive it really is to drive their own car. What would this company look like? “

This has always been my #1 complaint about Uber.

Their business model is like payday loans. It's not that 'it . can only work' like this - but given human nature and competitiveness - 'it will effectively work' like this.

Too many drivers will forgo the 'wear and tear' calculation and drive the price down.

It has an effect much like migrant labour (nothing to do with the 'migrant' aspect per sey - just that they are paid under minimum wage) - once a few farms start doing it - the rest of the farms are forced to follow suit or go out of business.

It's just bad for everyone.

I wish there were a way to make sure that drivers were comped a min gas + wear and tear + servicing and THEN wages - and if that was not above min. wage then Uber would have to up the comp.

Driving full time for Uber costs $214 a week in maintenance and depreciation costs (minus Hertz’ profit): https://www.hertz.com/rentacar/misc/index.jsp?targetPage=Ube...

That is way less than the 50 cents a mile that the author cited.

Agree Uber could calculate that and provide that info to drivers, which would be useful.

Surely it's below 50 cents a mile ... but it's 'something' an whatever it is, I suggest that drivers will delay the costs.

Interesting. So they are not only hurting the entire society by weakening the rule of law (google "greyball") but their drivers as well. Wonderful company.

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