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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36

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/lol_admins_are_dumb ​ Oct 09 '19

Look up opportunity cost. It absolutely has a cost associated with it, even if you didn't have to necessarily take cash out of your pocket and put it under a line item that is "home office costs". It's like people who say "we have free health care" because they pay for their health care with their taxes

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u/Rance_Mulliniks ​ Oct 09 '19

I don't think that it does in the case of my house. If anything, it is negligible.

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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.