Economics of automobile ownership
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Compared to other popular modes of passenger transportation, especially buses, the automobile has a relatively high cost per person-kilometre traveled[citation needed]. Nevertheless demand for automobiles remains high and inelastic, suggesting that its advantages, such as on-demand and door-to-door travel, are highly prized and not easily substituted by cheaper alternative modes of transport.
There are a number of reasons for the high cost of car transport:
- The typical private car spends most of its lifetime idle and for some vehicles, depreciation is a significant proportion of the total cost.
- Compared to bulk-carrying vehicles such as airplanes, buses and trains, individual vehicles have worse economies of scale.
- Capacity utilisation is low. The average occupancy of automobiles is below 1.5 passengers in most parts of the world. Measures such as High-occupancy vehicle lanes try to address this issue.
According to the RAC[citation needed] the average cost of running a new car in the UK is GBP 5,000 (US$ 9,000) per year, or roughly 1/3 of the average net wage; while the RACV suggests[1] roughly AUD10,000 per year, compared to AUD26,000 median income among all Australian adults or AUD66,000 median income among all Australian households[2]. This situation is reflected in most other Western nations.
The costs of running a car can be broken down as follows (in no particular order):
- Depreciation
- Fuel (including fuel tax)
- Repairs
- Maintenance
- Financing
- Insurance
- Parking
- Vehicle tax
- Roadworthiness Tests
- Registration
- Tire replacement
- Accessories
- Opportunity cost
Despite rising oil prices, the real cost of car travel has dropped steadily over the past five decades, in part due to better manufacturing technologies, and in part due to engines becoming more fuel-efficient.
Of the annual running costs of an automobile for the average person, 70–75%[3] are fixed costs (with respect to distance travelled): a 10% increase or decrease in usage should result in a 2.5–3% increase or decrease in annual running costs.
(Sharing one or more cars between many people reduces the fixed costs per person: see carsharing, fleet vehicles.)
Since automobiles demand a high land use, they become increasingly uneconomic with higher population densities. This can either manifest itself in higher costs of driving in densely populated areas (parking fees and road pricing), or, in the absence of a price mechanism, in an shortage in the form of traffic jams. Public transport, by comparison, becomes increasingly uneconomic with lower population densities. Hence cars tend to dominate in rural and suburban environments, while only fulfilling a secondary role in city center transport.
[edit] References
- ^ http://www.racv.com.au/wps/wcm/connect/Internet/Primary/my+car/advice+%26+information/car+operating+costs/, accessed 2006-12-01
- ^ The Household, Income and Labour Dynamics in Australia (HILDA) Survey
- ^ Based on the breakdown of costs given in the abovementioned RACV study
