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Replacing a car with ride-hail, and Lyft's $299/month subscription

Cities adapt to Uber and Lyft

Today, Lyft announced a $299/month subscription plan which isn't really very good, but it opens up the discussion of how people will switch to robotaxi service from car ownership, a subject I was already debating in my own household.

The Lyft plan gives you 30 "free" rides of up to $15 for the $299. Plus you get a discount on other rides. If you take a bunch of rides that are less than $15 it could actually lose you money, but for a heavy user it will be a saving of $150 plus the discount on the other rides. $15 is good for rides around a small city, but well under the cost of rides in a metro area like San Francisco's Bay Area.

People buy cars very differently from rides. Most people have a monthly loan payment or lease payment, and then pay for insurance on a monthly or annual basis, maintenance and repairs as needed (but typically only a couple times a year) and tanks of fuel around once a week. Only parking is paid for per trip. That's different for Lyft or Zipcar or even transit tickets where you see the cost with every trip, which is psychologically harder. In addition, once you have paid for a car (or Lyft subscription) you feel motivated to use what you have already paid for.

Living 50 miles from San Francisco, I know my behaviour will be different if I were to think of the round trip as costing $50 at the typical 50 cent/mile cost of car operation. Who will pay $50 to go to a dinner or a party? Worse, the Uber/Lyft price would be closer to $140 round trip -- how could it be justified? Yet I want the freedom to go to events there. (Sadly the train is a terrible choice for trip time, and for two people would be over the $50 car price if you add some short Uber rides to/from the train stations.)

Giving up a car for ride-hail

I investigate this because we have two cars. I've wondered if it makes sense to have only one car and use ride-hail (Uber/Lyft) for the times when we need both of them. Financially it probably makes sense because neither of us commute, and I think it makes sense for a lot of people already. The ride-hail would need to be used only when one person was making solo use of the household car when another wanted to travel.

To help with that decision, it would be great to look at past patterns. Turns out that information is available. I have a small bluetooth device in my car that logs my travels so I can record business trips for my tax returns. Absent that, many people have Google Location History enabled, which allows you to download all your movements. The trips at car speed can be isolated. It would be not too hard to build a software tool that would tell you how many miles you drove in each car, and how many miles you drove together vs. apart. A smart tool could even model how you would share a car, either on a "first person to go out grabs the family car" or a "Person doing a long trip takes the family car unless parking is expensive at their destination" basis. That tool could tell you how much your existing pattern would cost if you switched to one car plus ride-hail.

In fact, Uber or Lyft should write such a tool, however, it is important that they write it as a downloadable tool to run on my computer -- I am not interested in uploading all my travels to these companies; bad enough if Google has it in the cloud already.

My guess is that for many families, it would report a cost of one car plus ride hail as lower than the cost of two cars, if you consider that the ownership cost of a typical new-ish car is around $8,000 per year, plus parking. Enough for probably 5,000 miles of ride-hail. Because the single car would be driven more when shared, its cost would go up modestly.

There is then the big trade-off between a private car and ride-hail:

  • You can keep stuff in the trunk of a private car, both all the time and during stops
  • The ride-hail car may take 5-10 minutes to show up.
  • The ride-hail car is more expensive, and may have surge prices, but involves no hunting for parking or paying for parking.
  • While in the ride-hail car, you are free to work or relax or play with your phone.

The last one is huge, depending on how you value your time and stress, and I think it dwarfs all the others -- almost.

I will note that the average car is driven 10,000 miles/year, so people with 2 cars driving 20,000 miles/year won't win with ride-hail. However, if they drive together a lot (particularly if one or both don't commute) the numbers can work.

That psychological factor

The problem is that even if I calculated that ride-hail would cost $4,000 while ownership would cost $8,000 one still faces the cost of $140 for that round trip to a party. Or worse, far more than $140 if surge pricing is in effect. It will be very hard to spend $250 on a ride to a party, even if your brain knows that the overall decision to go this way has saved money. You're just going to skip that party.

That's where subscription can play a big role. While $15 rides are not very exciting, the option for a subscription that included a wide variety of rides would change people's minds. In fact, having already paid for the subscription, they would be more eager to use it. Immunity from surges would also be a major factor. People don't like having to make different transportation choices because of random factors.

The problem for ride-hail companies is they have to pay their drivers the same no matter what their deal with the rider is. If there is a surge, all the drivers get surge pay. The company would need to eat that loss. If the subscription gets very heavily used, the drivers must still be paid. Subscriptions work better when your extra use of a service has minimal extra cost for the provider; transit passes are an example of that.

People might decide they would rather pay $8,000 for a car than what they know would be $3,000 to $7,000 for ride-hail to replace it. Because they buy a car to get freedom of mobility. Feeling you should not go somewhere because it's expensive right now takes away your freedom of mobility even if you always saved money.

With robocars, it won't be as stark. For one thing, I think solo robocar rides will eventually drop down to as low as 30 cents/mile. The $30 100 mile roundtrip is easier to deal with. Robocars also should never have surge pricing unless the fleets are seriously underprovisioned. Right now, surge pricing exists because there are thousands of cars and drivers out there not working because they don't feel like it, and they can be convinced to come online with higher pay. You don't need to convince robots with higher pay. All operable cars will always be available. There is also a bit more flexibility for the fleet operator to offer subscription pricing.

More options

There is a third option, but it is not currently practical. It would be to keep an old but serviceable car around for trips when the main car is not around and ride-hail is too costly. The problem is I don't know of insurance companies who would insure that extra rarely-used car at a fair price. Even the so called "pay as you drive" companies aren't really PAYD, yet. So keeping the older car costs a parking space plus $40-$50/month for insurance, and its higher repair costs.

Other options could include owning a scooter or e-Bike and using it for very short trips and also for trips to pick up a rental car (Zipcar/Hertz/Getaround/Car2Go/DriveNow.) These rental services (particularly the older ones) need to become frictionless to make that work. If Lime/Bird are reliably in your area, they can also work.

What Uber and Lyft should do

Most talk I have seen involves people giving up their personal car for Uber. For a couple to drop from 2 cars to 1 is a much more compelling case. Uber and Lyft could build tools to help this happen, it's good for them. This includes the tools that examine your tracklogs to tell you how much it will cost, as noted above. It also includes special subscription plans aimed at this particular market. Finally, they should put into their apps tools to help the people in a household share the car. For example, to declare need for the car at certain times, or lack of need. To help avoid the situation where one person runs a short errand in the car, forcing the other to take a very long and expensive ride-hail trip, when the usage should have been flipped.

In addition, there should be a market for tools to assist with other types of transport other than ride-hail, like owned and shared scooters, private ROW transit lines, Hertz/Zipcar/Car2Go/Getaround class of services and more. While all those resources might in theory deprive the ride-hail company of a ride, creating more satisfied customers is worth it.

In other news

Lyft and Uber are rumbling about going public, Uber at $120B, Lyft at $15B. On the one hand it will give them more capital. On the other hand, they now will have investors demanding good quarterly numbers, which may make it harder for them to do more radical experiments, the sort of experiments needed to explore the ideas above.

Comments

Really enjoyed this one, Brad. I gave up my car for ride-hail about a year ago, for exactly this reason. I wanted to know if it was feasible yet so I figured I would test it for a year.

I went back three years in my finances and calculated all-in how much I spend a year on car-related expenses and then I split that up over 12 months, and it came out to a little over $600 per month.

I set that as my ride-hail budget and got rid of my car. It's been really interesting. Some of the biggest things I've learned is the little things like taking clothes to the cleaners or running out to grab something small from the drugstore are where I get hit the hardest. And I've found your predicted psychological effect to be very true.

On the plus side, there have been unexpected gains in the process as well. Mostly, by using a ride-hail service everywhere I find that I'm much more likely to carpool or ask if I can get a ride from a friend, and I walk way more often. I supplement with a Zipcar membership and heavy use of bird/lime scooters.

I'll be writing something up on my findings when the year is up and any data I've managed to gather. I'll make sure to share it with you when it comes out.

There is another barrier to giving up a car, whether first or second, in favor of something else. How sure are we that this something else won't disappear overnight? How much are we willing to commit our lifestyles to the proposition that Uber will still be here in n years (or, for that matter, months)? Say what you will about municipal mass transit systems: for all their flaws, which are many and varied, they are too subject to political forces to simply wander off in a different direction because they got bored.

Sure, it's remotely possible Uber and Lyft would vanish due to some regulatory change (particularly in some towns.) But is that really a factor? If it happens, then go back to having 2 cars. I guess if it happened pretty soon after you got rid of your car there would be a cost, but people sell old cars and buy newer ones all the time. Doing this switch around the time you were planning to do that has no risk -- in fact, it has the benefit that you can buy a better car if you switch back. I would not sell a brand new car I just bought in order to switch, I agree.

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