Matthew Stoudt has always been a new-car kind of guy, but when the lease on his BMW 3 Series was coming to an end in 2014, he started doing some math. He had just sold his company, so he no longer needed to commute to an office. Even though he lived in Los Angeles, a traditionally car-centric city, the calculations in his Excel spreadsheet told him he might be able to ditch his car in favor of ride-hailing services like Uber and Lyft and actually save some money.
His Bimmer returned, Stoudt started taking Uber and Lyft everywhere. Within a week, he was hooked. “I loved the freedom of it,” he said. “Not having to worry about going to get gas, not having to worry about parking, not having to worry about having a cocktail at night. So it really became freedom for me, being able to call up my fleet of drivers anytime that I wanted.”
Stoudt admits it wasn’t easy to give up his car, and for many other car-loving Americans, driving is an ingrained part of the culture. Vehicle ownership per person peaked in 2006 at 0.786 then dipped during the recession, but it has steadily returned to nearly its peak, according to a report by University of Michigan researcher Michael Sivak. But alternative transportation services like Uber and Lyft are trying to change that philosophy of personal car ownership.
According to a Pew Research Center study in fall 2018, 36 percent of U.S. adults said they had used a ride-hailing service such as Uber or Lyft, up from 15 percent of Americans just three years before. But like most trends borne of coastal environs, those who ride-hail tend to be younger, wealthier, and better educated, according to Pew data.
As someone who’s driven for Uber and Lyft since the early days, it’s been amazing for me to see the meteoric rise firsthand.
But it’s the actual number of rides happening on these platforms that may shock you. Ubiquitous Uber recently completed its 10 billionth trip, and second-place Lyft just completed its first billion. There appears to be no slow-down in sight. Uber and Lyft have raised billions of dollars in investor capital, and both are preparing for 2019 IPOs that could value them at $120 billion and $15 billion, respectively. Uber and Lyft are also investing in other modes of transportation, such as shared bikes and scooters. Getting you to take that first trip may be just the tip of the iceberg.
Fighting for Rides
Uber launched in 2013 with the slogan “Everyone’s private driver,” but its first real competitor was the taxi industry. Taxis have been around for 120 years, but within just a few years Uber and Lyft had overtaken them in market presence in key cities.
The reasons for the spectacular rise vary, but it was clear that Uber and Lyft offered a superior experience to taxis with the ability to hail a ride via an app, pay via credit card, and rate your driver. But taxis were only the first casualty in this ongoing saga.
The real market share for these companies will come when they can get consumers to ditch their cars entirely, as that would mean casual customers becoming super users like Stoudt.
“If only 4 percent of consumers are using ride-share weekly, there’s still huge room for growth in getting consumers to rely on ride-share as one of their primary modes of transportation,” Dmitry Shevelenko, an adviser to leading mobility companies and former head of business development at Uber, told MotorTrend, “Riders take more trips with each subsequent month since their very first Uber trip. So from a long-term growth point of view, ride-share companies benefit from getting as many customers started on their journey of more and more trips each month.” He has a point: Transportation is a $2 trillion market in the U.S. alone, according to Lyft data, so the opportunity is huge.
Car companies know the future of mobility is changing, but the timeline remains a question. Slower car sales are forecast, but could customers already be ditching their cars for ride-hailing services? Lyft and Uber sure seem to think so.
Lyft has always held a more utopian view of the ride-share world. In its early days, the company even encouraged passengers to sit up front and fist-bump drivers when they got into the car. But a recent promotion called Ditch Your Car took this a step further and offered passengers transportation credit if they were willing to give up their personal vehicles for a month for a mix of transportation options—including public transportation, bikeshare, Zipcar, and, you guessed it, Lyft.
“We are on the brink of a massive shift in personal transportation, moving away from ownership and into transportation as a service,” Lyft co-founder and president John Zimmer said. “Ditch Your Car is an extension of the mission we’ve been committed to for over a decade.”
The program was available in 35 cities. More than 130,000 customers submitted applications, of which just 2,000 were selected to participate. Obviously, free transportation is a compelling giveaway, but the results were also promising. According to Lyft, during the challenge:
- 49 percent of participants used multiple modes of transportation to reach their final destinations (e.g., bicycle for part of the journey and public transport for the remaining part);
- 35 percent reported they’re very likely to combine multiple modes of transportation for their commute to work;
- 53 percent reported to love ride-hailing, but only 23 percent said they loved their household car;
- 68 percent said that they experienced less stress;
- 54 percent said their lives were easier during the challenge; and perhaps most important …
- 57 percent said they intend to use their car less following the challenge.
Granted, this is a small sample size, derived from a cohort of hardcore early adopters of Lyft’s brand philosophy. But the participants could also be seen as brand ambassadors and influencers who could persuade a much larger population to follow their lead.
Traverse the touristy areas of almost any major American city these days, and you’ll likely see a large number of e-scooters and e-bikes being ridden, with many more parked ready and waiting for use. Companies such as Bird and Lime have raised hundreds of millions of dollars, and many are referring to them as Ride-share 2.0.
Bird and Lime weren’t around when Stoudt decided to ditch his car. But in the past year, these new modes of transportation have perhaps made the no-car argument more compelling because they’re even cheaper than UberX or Uber’s shared product, UberPool. Additionally, in 2018, Uber purchased e-bike company Jump, and both Lyft and Uber have recently followed in Bird’s footsteps by launching e-scooters in many U.S. cities.
For consumers looking to forgo car ownership, there are now multiple modes and multiple price points. Shorter one-person trips are better served by scooters and bikes, while Uber and Lyft handle longer multipassenger trips.
Here’s a comparison of costs for the various modes on an average 2-mile, 12-minute trip:
|UberX||UberPool||Bird scooter||Lime bike|
|PRICING||$0.24 per minute, $1.06 per mile, $2.30 service fee||Variable: 30-60 percent off UberX price||$1/unlock + $0.15/min to ride||$1/unlock + $0.15/min to ride|
Is it a smart financial move to ditch your car? According to Shevelenko, “while ride-share may still be too expensive as a complete alternative to car ownership, when users combine ride-share, scooters/bikes, on-demand car rental, and public transit, the reasons to keep their cars, which on average sit empty 95 percent of the time, will dwindle.”
For Stoudt, ditching his car was an interesting experiment at first, but the cost savings ended up being the real bonus. “I looked at my credit card bills for the last year, layered in all my vehicle costs (such as gas, lease payments, insurance, depreciation, and annual miles driven), and did the math,” he said. “Assuming you use UberX for all your trips, it would end up being a third of the cost.”
As the saying goes, however, your mileage may vary. If you’re considering making the jump, here are several important factors to consider:
- City makeup: Ride-hailing is most prevalent in large metropolitan cities such as Los Angeles, San Francisco, New York, and Boston, so your options for getting around will be more attractive in these types of cities.
- Commute time: Generally, the shorter your commute, the better value you’ll get from ride-hailing or alternative mobility services (bikes and scooters).
- Cost of your car: If you drive a luxury vehicle like a BMW, that will likely tilt the scales in favor of ride-hailing services.
Ride-hailing is still finding its way outside metropoles. About 45 percent of urban residents have used the service, as have 40 percent of suburban residents. But rural penetration is only 19 percent, as “lower population density, long travel distance, and relatively low incentives for drivers” hamper reasons for usage, according to Pew.
Over my own five-year ride-hailing driving career here in Los Angeles, it’s been eye-opening to see how many passengers now rely on these services for all their transportation needs. In 2014, it was just a passenger here and there. These days it seems like every time I drive, I meet at least one person who doesn’t own a car anymore. As ride-hailing services have become more prevalent and more reliable, more people are looking to make the switch.
There isn’t a specific threshold that determines whether you live in a good or bad ride-hailing city, but in general the larger the population and the denser the city, the better the dynamics for ride-hail growth.
The federal mileage reimbursement rate for 2019 is $0.58 per mile, and this is a good starting point to compare the cost of owning a vehicle versus mobility services. If you’re driving a fancy luxury vehicle, your cost might be higher, but if you got a great deal on a 2- to 3-year-old used Prius, the cost will be much lower. For one local Prius driver, the total cost per mile of driving his 2013 Prius was less than 20 cents per mile.
In 2018, AAA’s average cost to own and operate a new vehicle was $8,849 per year; that figure is calculated based on the cost of fuel, maintenance, repairs, insurance, license and registration, taxes, depreciation, and loan interest. That figure might sound like a lot, but depending on the length of your commute, it could come out way ahead or way below ride-hail services.
In Los Angeles, for example, a typical commute could be from Santa Monica to Downtown, and we’ll assume it takes 31 minutes and 15.7 miles. That ride on Uber or Lyft would cost about $26. Assuming an each-way commute, five days a week, and 48 weeks a year, the total cost for hailing a ride every day to work would be $12,480. So in this scenario, driving your own car comes out ahead.
But if your commute is shorter, say from Santa Monica to Beverly Hills, your ride-hail cost would only be $6,240—or $2,609 less per year than owning a car.
In general, this isn’t a perfect comparison because you’ll need to take some trips outside of commuting to and from work. But you can also reduce the cost of ride-hailing by opting for shared rides. You can also use apps like Bellhop to compare prices between Uber and Lyft in real time to ensure you’re getting the cheapest ride.
But whether you rely on ride-hailing services or a mix of mobility options in the future, the macro trend is that the cost of these new alternatives is going down.
The Sacrifices of Carless Life
Even if the finances pencil out, there are still some downsides to not owning a car—things that Uber and Lyft might not be able to help with. For Stoudt, one of the main negatives was that he lost the control he was accustomed to when behind the wheel. “The No. 1 negative is when you’re late for somewhere and you feel like you gotta get there, it can be frustrating if the driver is slow, even if they’re driving completely legal,” he said. “You can’t sit there and complain about it since they’re following the law, but since you don’t have agency, it just leads to anxiety and some frustration.”
That links to the matter of quality control. Uber and Lyft currently have more than 1 million drivers in the United States, but the consistency of the passenger experience can be a mixed bag, depending on the quality of the car and the skill of the driver. High turnover among drivers means that most drivers don’t stick around. A recent Uber study found that 68 percent of drivers quit within six months.
Profitability is another issue for both Uber and Lyft. Although they’re both slated to issue massive IPOs in 2019, the losses they’ve racked up have been staggering; Uber has lost nearly $2 billion in the most recent two fiscal quarters. There are only two options for the company to stem losses: Pay drivers less or charge riders more. If Wall Street pushes ride-hailing companies to prioritize profits over growth, there’s a chance that the cost of riding could increase, and owning your own car might not be such a bad deal anymore.
Julie Walmsley contributed to this report.
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