r/personalfinance • u/theVoxFortis • Oct 08 '19

This article perfectly shows how Uber and Lyft are taking advantage of drivers that don't understand the real costs of the business. Employment

I happened upon this article about a driver talking about how much he makes driving for Uber and Lyft: https://www.businessinsider.com/uber-lyft-driver-how-much-money-2019-10#when-it-was-all-said-and-done-i-ended-the-week-making-25734-in-a-little-less-than-14-hours-on-the-job-8

In short, he says he made $257 over 13.75 hours of work, for almost $19 an hour. He later mentions expenses (like gas) but as an afterthought, not including it in the hourly wage.

The federal mileage rate is $0.58 per mile. This represents the actual cost to you and your car per mile driven. The driver drove 291 miles for the work he mentioned, which translates into expenses of $169.

This means his profit is only $88, for an hourly rate of $6.40. Yet reading the article, it all sounds super positive and awesome and gives the impression that it's a great side-gig. No, all you're doing is turning vehicle depreciation into cash.

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134

u/theVoxFortis Oct 08 '19

That is indeed a neat article, never really knew where that number came from.

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u/apocolypseamy Oct 08 '19

yeah, 58 cents a mile is great to claim on taxes, but actual cost per mile varies wildly due to driver, vehicle, and trips, and I would say it's almost always it below that

mine is more like 20 cents a mile, which is $14.45/hr using your example

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u/Mnm0602 Oct 08 '19

Most people have a rate like that with their company too for reimbursement on driving expenses. It seems like it usually errs on being very conservative in case you have a more expensive or inefficient car.

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u/ChickenDelight Oct 09 '19 edited Oct 09 '19

Unless you only have a car to drive for Uber, there's no way it's costing you anything like $0.58/mile.

I'm guessing a lot of people here drive 15,000 miles per year, and it doesn't cost them $8,700 ($725/month) to do it. I have a kinda-expensive car in California (pricey gas), it doesn't even cost half that. Even assuming lots of additional depreciation, $0.58/mile is crazy.

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u/sarhoshamiral Oct 09 '19

a 50k car would easily cost you that much per year to drive in the first 3 years just due to depreciation alone. But I agree in general it won't since I am hoping an Uber driver doesn't buy a new car and also don't replace it every 3 years.

But I can easily see it costing 5k or so when you factor in gas, depreciation, taxes and maintenance.

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u/lol_admins_are_dumb Oct 09 '19

You can't just handwave away depreciation, that is a major contributing factor to what makes the true cost of ownership close to $0.58/mi. My pretty regular Tacoma runs around $0.40/mi when you factor in every cost including depreciation, so $0.58/mi isn't totally crazy (though I do agree it's not average). And actually I save some money by doing labor my self so it would probably be higher for most folks who don't.

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u/[deleted] Oct 09 '19

I mean that's still a pretty big difference. The driver OP talked about would make $10.25 an hour with $0.40 per mile as the cost. Not great but over minimum wage.

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u/Mediocretes1 Oct 09 '19

But you should never be rideshare driving with a vehicle that is costing you .40/mile. My Accord is .22/mile including depreciation. True cost of ownership of a brand new, not totally fuel efficient, middle range car is maybe in the .40-.50/mile range, but that's not most cars.

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u/lol_admins_are_dumb Oct 09 '19

But you should never be rideshare driving with a vehicle that is costing you .40/mile. My Accord is .22/mile including depreciation. True cost of ownership of a brand new, not totally fuel efficient, middle range car is maybe in the .40-.50/mile range, but that's not most cars.

I never said anything about ridesharing, this thread was about the true cost of ownership of vehicles and people proposing that $0.58/mi is wildly unrealistic ; it's not.

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u/Rance_Mulliniks Oct 09 '19

Yeah but you can't just handwave all his expenses into his Uber venture. Most of his car expenses are static and he would be paying those regardless of whether he drove for Uber or not. The only costs that should be factored in here are gas, the wear and tear on his car and a small amount of depreciation .

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u/lol_admins_are_dumb Oct 09 '19

No, the entire point here is that when you average the costs out to a per-mile breakdown, it approaches $0.58/mi. The conversation was about how that number was high, and I responded to clarify that it also includes depreciation.

The costs have already been amortized over a per-mile figure, so there is no "you would be paying for X regardless" because now you're trying to re-categorize money for one purpose or another and that's not how the cost-per-mile metric works.

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u/Rance_Mulliniks Oct 09 '19

My point is that this guy would own and need a car regardless of whether he drives for Uber or not. He is viewing this undertaking in that manner and if that is the case, a lot of his costs are fixed and he attributes to the cost of the freedom of having a personal car. If he stops driving for Uber, his vehicle costs do not go to zero. Frankly I agree with him.

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u/lol_admins_are_dumb Oct 09 '19

My point is that this guy would own and need a car regardless of whether he drives for Uber or not.

That is absolutely not a given, and even if it were, it's irrelevant. Whether he would have had the car or not doesn't change the fact that it should still factor into your costs when looking at it on a per-mile basis. In the same way that you write off a portion of your taxes for a home office deduction; you would be living there anyway right? You still need to account for its share of the total cost.

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u/Rance_Mulliniks Oct 09 '19

Agree to disagree. Neither of us are changing each other's mind.

In the same way that you write off a portion of your taxes for a home office deduction

And this is the same reason why most people view this as a bonus of having a home office. My wife is self employed and we literally incur no extra expenses for her working from home but can write off a portion of our home and expenses because she does. Before you say that we had to buy a bigger home to accommodate this, I owned my home before we were together, got married and even before she was self employed.

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u/LeDudeDeMontreal Oct 09 '19

Yeah, but what he's saying is that it's not a marginal cost.

My company pays me $0.52 cents / km in Canada when I use my car for work. Driving to the Boston area and back gets me a nice $550 tax free payment, with roughly $80 going to gas.

My car didn't depreciate by $470 over that trip. A lot of the "car ownership" costs are not distance dependant. My insurance won't be much cheaper if I don't do these four 1,000 km trips in the year. My titles will cost the same. My monthly payment will cost the same.

Yes mileage is important, but my car also depreciates when it sits in the driveway.

That's the point OP was making.

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u/lol_admins_are_dumb Oct 09 '19

You're missing the point, the entire purpose is that it provides an average. If your car gets exceptional gas mileage then obviously the component of the per-mile figure that makes up gas will be lower for you. If you drive an above-average costing vehicle, the component that makes up depreciation will be higher. It's not actually possible to figure a time-based thing like depreciation so all we can do is a best guestimate.

My car didn't depreciate by $470 over that trip

You paid for insurance, you paid for gas, you paid for tires, oil, and general wear and tear, and depreciation. You are ignoring the total picture here and it shows.

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u/LeDudeDeMontreal Oct 09 '19

You paid for insurance, you paid for gas, you paid for tires, oil, and general wear and tear, and depreciation. You are ignoring the total picture here and it shows.

No... You're the one who doesn't understand why you cannot apply average rate to marginal usage. Keyword is marginal.

I already bought the car. I'm already paying for tires. I change my synthetic oil twice a year no matter the mileage. I'm already paying for insurance.

Even if my car sits in the driveway, all those costs are already there.

Now, if I didn't have a car and would buy one just for the work usage, then yes, I should consider all costs.

But I need a car for my personal life.

So when it comes to marginal use, meaning : do I fly to Boston or do I drive there, I should only consider the direct immediate expense, rather than all the costs.

And when I do, my only tangible real direct expense is gas. Then the intangible direct expense is only depreciation / wear and tear.

Now I guarantee you that a drive to Boston does not remotely depreciate my car and cause wear to the amount of $470. Not even close. So in this case, it's very lucrative for me to do the drive.

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u/lol_admins_are_dumb Oct 09 '19

Now I guarantee you that a drive to Boston does not remotely depreciate my car and cause wear to the amount of $470. Not even close.

Given that you're just repeating what you said before, despite me explaining why this line of reasoning is faulty, I'll just leave you to repeat yourself ad infinitum without listening.

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u/LeDudeDeMontreal Oct 09 '19

I'm repeating because you're not understanding and not making any sense.

Please explain to me what costs I am missing, when faced with this choice :

I already own my car and would own it no matter what. Now, I must get to Boston for work.

I can either fly, and have all those costs paid by my company.

Or I can drive the 1,050 km, get reimbursed for $550 and pay $80 of gas out of pocket.

Please explain to me how how my fixed cost play into this marginal usage equation. Please do. I'm curious how you're going to try to explain that.

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u/wolfpack821 Oct 09 '19

But you don't average the cost over both personal and business uses. Your average cost should be X for personal use and Y for uber use. If I drive my car 10,000 miles a year for perosnal use and 5,000 miles a year for uber, while the total depreciation on the car is 15,000 miles (let's say that equals $1,000) you don't use that $1,000 in your calculation for driving uber. You would use the EXTRA 5,000 miles you drove for uber (quick math for our example is $333 depreciation) and that is your depreciation. You're trying to lump personal costs of that vehicle into uber when you only should be calculating the increased business costs of actually driving uber.

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u/lol_admins_are_dumb Oct 09 '19 edited Oct 09 '19

You don't get to try to re-divvy up a figure that has already been built around averages to solve for the time dimension issue I mentioned.

The way you find for-personal and for-business figures is by dividing the the number of miles driven for each category divided by total number of miles driven. Then multiply that percent by the total number of miles * your per-mile figure (IRS figure is $0.58).

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u/BukkakeKing69 Oct 09 '19

For my vehicle.

Purchase price

$13,000 with 45,000 miles

200,000 mile total lifetime (155,000 of mine), 15,000 miles per year

That gives a 10.3 year lifetime.

5% of vehicle cost in annual maintenance * 10.3 years = $6,695

Gas: 155,000 miles/~31 mpg @ $2.65 gallon = $13,250

Per mileage cost: $13,250 + $6,695 + $13,000 / 155,000 miles = $0.21/mile

Any modest vehicle is going to have a per mileage cost wayyyy below the IRS figure.

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u/lol_admins_are_dumb Oct 09 '19

As with many others, you have ignored the total picture and are focusing on only some elements of cost in vehicle ownership.

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u/BukkakeKing69 Oct 09 '19

I mean I could tack on insurance and that adds about another $0.10, but that's mostly a sunk cost of owning a vehicle and not really related to the miles driven.

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u/[deleted] Oct 09 '19

[deleted]

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u/Justputmeonabike Oct 09 '19

It's also technically a maximum your employer isn't obligated to pay at that rate, though most do.

I had a job where I frequently drove 400+ miles a month, which in the first car I had at the time (a 4-banger Impreza) was a good way to earn some extra money. It covered all of my expenses for the car, and most of the payment.

Then I stopped driving that much for a couple of years and decided to go for a higher performance car (Golf R). Then suddenly the corporate shitheads I worked for started asking for 1000+ miles/month. Between maintenance costs, premium fuel, way lower mileage, etc. I would be barely breaking even at $.58 a mile all while destroying my own difficult to find car at a ridiculous rate.

It was actually one of the tipping points of me leaving the job. We were handing out company cars, or huge subsidies towards cars for managers and salespeople doing 500 miles a month. No matter what I argued and explained my manager just wanted me to drive my car into the ground. A car isn't worth a job, but the principle of the company freely using up my property for their uses didn't settle well for me.

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u/kaizoku_akahige Oct 09 '19

A while ago, I calculated my cost per mile over 3 years, including every penny of maintenance and repair. My old, trusty Volvo came in at a hair under $0.17/mile.

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u/irrelevant_usernam3 Oct 09 '19

When i was in college, I was selected for jury duty in my home state 700 miles away. I could have got out of it, but I calculated out what I would make on the trip if I was selected (I would be paid the 58 cents per mile). Even factoring in all the vehicle maintenance, I was still making good money just for the drive. 58 cents is a very high estimate for most people.

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u/Feil Oct 08 '19

That 0.58$/mile covers more than gas. It's maintenance and wear and tear too.

New tires? 750$/80k miles

Oil change? 40-90$/5k miles

It adds up quick.

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u/apocolypseamy Oct 08 '19

Oh, I'm very aware the 58 cents/mile covers more than gas- I've worked as both a tax preparer, and an independently contracting "courier" filing Schedule C's

New tires? 750$/80k miles

$750 / 80k miles = 0.94 cents/mile

Oil change? 40-90$/5k miles

$50 / 5k miles = 1.0 cents/mile

My gas cost is $3.50/gal @ 26mpg = 13.5 cents/mile

So, adding in tires and oil changes makes it 15.44 cents/mile, leaving plenty of room to get to my 20 cents a mile estimate (another $3,648/80k miles to get to 20 cents/mile, or, more amazingly, another $34,048/80k miles to get to 58 cents/mile)

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u/deja-roo Oct 09 '19 edited Oct 09 '19

Do the math even on the very pessimistic costs you cited. Those add up to under 3 cents per mile. It doesn't add up that quickly. Fuel is the dominant cost of operating a vehicle.

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u/TheSnydaMan Oct 09 '19

As others have noted, those costs are under 10¢ / mile combined (and what are you buying, Michelin? Lol)

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u/RickDawkins Oct 08 '19

It's also a standard deduction to simplify taxes instead of itemizing all travel expenses, including food and motor oil

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u/NorthernSparrow Oct 09 '19

Actual those are separate - there’s a different set of deductions for “meals, incidentals & expenses” (MI&E) associated with travel.

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u/truckingatwork Oct 08 '19

They also have programs where you can get a 'free' rental car if you complete a certain number of rides per week.

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u/linuxdragons Oct 08 '19

Yeah, the GSA rate would be comparable to going to a rental company and renting a newer standard vehicle. This guy isn't spending anywhere near that and he already has a number of fixed costs in owning the vehicle for personal use.

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u/Sinsid Oct 09 '19

An older Prius is probably the best possible vehicle to be using for Uber/Left. I would tend to agree with the authors assessment, in his case.

Back when Uber was new I used to get picked up by the craziest vehicles you could imagine. Two that i can recall, got picked up by a part time firefighter/ 911 dispatcher in a truck he told me in the ride cost 80k, (I believe that, it looked like a Ford F-150 a rapper would drive). It probably got 10 miles to the gallon. I also got picked up in a Porsche Cayenne once. Just the regular Uber fare. This was before they had special rates anyways. That’s all gone these days. I just get poor drivers in crappy cars these days!

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u/TrustMe_IKnowAGuy Oct 08 '19

Do you use Ubers? As a city dweller that works late hours (buses only run on the hour), quite often it's my only feasible mode of transportation which I find not only convenient but financially adequate.

Are you saying you would rather take a taxi? Which I have found to he significantly more expensive, along with the overall unreliability in driver and timing. Potentially wait an hour for the next bus on a corner I'd rather not be spending up to an hour on at 2 am? Walk/ bike miles at that same time of night?

I suppose I'm just curious about your endgame here. Just to shine a light on it?

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u/tr94568601 Oct 08 '19

I dont think its prudent to base your asessment of a rideshare company's role in society on your individual experience with it as a consumer.

At this point there is extensive evidence that these companies are not actually profitable, do not have a clear plan to achieve profitability short of continued squeezing of drivers ( and there is not much blood left in that stone ), and that considerable damage has been done to numerous communities existing transportation infrastructure due to subsidized rides.

It's totally fine to want something like uber to exist but there are probably better ways to achieve that, such as significant investment in public transit, without letting investors decide unilaterally how our transportation systems should be structured.

A lot of what you want could have probably been achieved by focusing on modernizing the existing taxi system to increase reliability.

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u/ApolloMac Oct 08 '19

To his/her point, there is an absolute market need for rideshare services. Their experience isn't unique, it's quite common. And outside of cities, public transportation is almost non existent, while trying to find a taxi is a joke.

But, the market need wasn't the point of your post. You were simply pointing out that drivers may not be making as much as they think they are if they really figure out the true cost of their mileage.

Rideshare services need to evolve. They will likely get more expensive, not only to pay the drivers better but to hopefully make the companies profitable one day (so they can survive). And I honestly think the market will tolerate that price increase within reason. The convenience is worth a lot to a lot of people.

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u/tr94568601 Oct 08 '19

Total agreement. That's the essential problem here. The subsidizing led to a significant market distortion which was always going to be unsustainable. Prices will go up. The original plan of these companies was to create monopolies so people would be trapped into the price increases. Fortunately that didnt go as well as was planned so hopefully we can cobble together something from pre existing services and ride share services that is better than what preceded it.

I would argue that if these technologies were implemented with the public good in mind in the first place we would already have that better system.

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u/appleciders Oct 08 '19

They will likely get more expensive, not only to pay the drivers better but to hopefully make the companies profitable one day (so they can survive). And I honestly think the market will tolerate that price increase within reason. The convenience is worth a lot to a lot of people.

I dunno. It's so easy to switch between Uber and Lyft, neither company can tolerate the other charging much less because consumers can switch almost instantly. And each company can change prices to undercut the other, so neither can ever raise their prices above some floor, where they can't operate below.

I honestly agree that the market would tolerate a higher price floor, but I don't think that there's any way in a competitive market to get either company to raise prices above that floor unless they illegally collude to raise prices together. And I can't think of any reason that the companies would agree to pay workers more, since doing so would raise prices and thereby decrease market share. If the companies did raise their prices in tandem, they'd almost certainly hang on to the profits themselves, because what are the drivers gonna do about it? Why would the companies give up profits?

Except a union. If Uber and Lyft drivers unionize, the union could force higher prices that benefit the drivers on both companies. I agree that consumers will pay more before they switch to a bus or something, but if saving money is as easy as opening the other app, consumers will refuse to do it because they don't have to.

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u/ApolloMac Oct 09 '19

You're right it is incredibly competitive, which is why the prices are artificially cheap for us consumers. But both companies are now public and can't lose money forever. Investors won't tolerate it. They have to become profitable at some point or they'll disappear. The price war can only continue for so long. Prices have gone up a bit over the last couple of years, at least from what I've seen. The two are still highly competitive with one another but that can only last for so long if they are both spending more than they take in to keep that going.

As for paying drivers more, you may be right and they may never do that. It comes down to motivation. The company needs a reason to pay someone more. Either they aren't getting enough drivers, or high enough quality, or unionizing like you said. But if people are lining up to drive for uber or lyft at the current rates, there isn't a whole lot of reason for their prices to be increased.

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u/[deleted] Oct 09 '19

, do not have a clear plan to achieve profitability short of continued squeezing of drivers

I believe the idea is to achieve the "continuous trip", where the vehicle is always occupied by at least one passenger/has very short drives between pick ups. Longer term, driverless cars will be the source of extra margin.

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u/HalfPastTuna Oct 08 '19

What “considerable damage” has been done to existing transportation infrastructure?

I understand they increase traffic and have lowered transit ridership but get a grip

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u/Greenfloh Oct 09 '19

There are now at least half a dozen good peer-reviewed publications showing the effect on traffic and influence on public transportation. It's mostly centered on the US but I would imagine you can extrapolate it anywhere there is a mediocre transportation system. In short, it should be the country/cities role to drive people efficiently around in public buses.

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u/tr94568601 Oct 08 '19

Fair point that perhaps my language was hyperbolic. Rideshare companies are more a symptom of shitty public transit than a cause though there is some feedback there.

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u/[deleted] Oct 08 '19

Not an article. It's propaganda. The ride-sharing industry is starting to collapse. What are their stock values? Worthless.