FM Nirmala Sitharaman said milennials increasingly prefer to ride Ola-Uber cabs instead of buying their own car. Here's the math.
Finance Minister Nirmala Sitharaman recently attributed weaker demand for automobiles to a change in millennials' habit of preferring app-based cab services such as Ola and Uber to travel, instead of buying their own cars.
The statement attracted plenty of criticism on social media, with milennials, referred loosely to as a section of the population aged between 22 and 37, saying the FM was blaming them for no reason.
The reasons for the slowdown in the auto industry are fairly well-documented -- and while it may be argued that the rise of app-based cab services such as Ola and Uber may be one factor, it is not the sole reason.
But if millennials, among others, are increasingly taking to Ola and Uber to travel, the choice comes down to several reasons.
Hailing a cab offers its own set of conveniences, such as not having to worry about driving in heavy traffic congestion or paying steep penalties. Then, as the FM pointed out, buying a car entails committing to a monthly EMI, which not everyone would be comfortable doing in an uncertain economic outlook.
But what about costs? How much does riding an Ola or Uber come to as opposed to buying your own vehicle?
Exact fares for Ola or Uber are difficult to estimate. They depend on the city, the class of cars avails, and even the time of the day, route taken and the expected traffic therein.
But a back-of-the-envelope calculation based on about 25 rides we have taken recently in Mumbai -- over short distances and long, during rush-hour traffic as well on non-peak hour, in the city and the suburbs -- gives us an average cost for an Ola ride at about Rs 20 per km.
Most of the rides taken were on the Ola micro or mini segment.
After talking to a number of regular users of the cab services, we concluded that the fare will not be significantly different for any other average Ola or Uber user.
So while a cab could cost you an average Rs 20 per km or therabouts, here's how the cost for car ownership pans out.
For comparison's sake, we have assumed the cost of a Wagon R (price: Rs 5.67 lakh on-road in Mumbai), a popular hatchback that is widely available in the cab fleet.
To make the calculation possible, we also had to make a bunch of other assumptions, such as:
- EMI of about Rs 9,000 (based on financing of 75 percent, for a loan of 5 years). Besides an upfront down payment of Rs 1,41,750, which works out to an amortised cost of Rs 2,362 per month. We are ignoring the opportunity cost of investing the same amount in a fixed deposit if you chose to not buy a car.
- Fuel cost: Rs 6.5 per km (assuming mileage at 12 kmpl and petrol at Rs 78 per litre)
- Maintenance cost about Rs 417 per month (Rs 5,000 per year)
- Driver's salary: Rs 15,000 per month
- Depreciation cost: Rs 4,725 per month (assuming sale of the car after 5 years of ownership at 50 percent cost, or Rs 2,83,500).
Put all of this together and, assuming a monthly run of about 1,000 km per month, you get a monthly cost of about Rs 18,280 per month if a driver's salary is not included, and Rs 33,280 if it is.
This works out to around Rs 18.3 per km or Rs 33.3 per km.
While these are strictly monetary costs, there are other qualitative factors that work in favour of buying a car, such as not having a cab driver cancel on you, the aspiration quotient that a car offers, or even a personal car coming in handy during times such as a weather disruption when cabs may not be available.
But as for the cold maths, it may be assumed that car ownership works out to roughly the same or marginally cheaper, on a per kilometre basis, if you plan to drive it. Go for a driver, and economics work out clearly in favour of cabs.Note: An earlier version of this article had erroneously added the depreciation cost to the monthly cost instead of deducting it. The error has been rectified. Get access to India's fastest growing financial subscriptions service Moneycontrol Pro for as little as Rs 599 for first year. Use the code "GETPRO". Moneycontrol Pro offers you all the information you need for wealth creation including actionable investment ideas, independent research and insights & analysis For more information, check out the Moneycontrol website or mobile app.