Thursday, March 9, 2017

Uber - A Real Job or Just Selling Your Car to Uber?

Is driving for Uber a real job, or just selling your car to Uber in tiny increments?

In an earlier posting, I was analyzing whether delivering pizzas (which I did in college) was a real job or just a way of selling your car to Domino's in nightly chunks.  The reality was, it was a little of both.  You are whoring your car to the pizza company, and also humping to deliver pies.   You get paid for both.

But what about Uber?  Is this the same sort of deal?   At first, I just assumed so, based on how the service works.  When you use your own car for a commercial gig, you incur some expenses - pretty steep ones - by operating the car.

But exactly how much can you make driving for Uber?   Exact information was not easy to come by.  If found a lot of generalizations on the Uber website, but not a lot of concrete data.   Let's crank some numbers and figure out if this is a worthwhile endeavor or not.

Uber does have a ride estimation page that tells you how much a ride may cost.  Using as an example, a trip from the Holiday Inn, downtown historic district of Savannah, Georgia, to the Savannah airport, a trip of about 10-16 miles (depending on route) would cost you about $13-$16 for Uber X, depending on routing.   Figuring out how much the driver's gets, however, is harder to do, as Uber seems to go out of its way to make this information hard to find.

According to this site, you might make $40,000 a year driving for Uber.  The site also outlines the complicated formula for charging the fares (which can be based on mileage and time, not just mileage as with a traditional taxi).  Plus, there is "surge pricing", a booking fee, and then the driver keeps only a portion of the rest.  In their example of an LA fare, a $16.86 fare nets the driver only about $11.81

If we assume this is for our hypothetical trip from Savanna to the airport, we are looking at $10.80 in mileage fees and $3.87 in time fees, assuming a 15-minute trip or $14.67 plus the $1.67 "rider fee" for a total of $16.34.   If we assume the break point is the same as our LA friend, the driver nets a little less than $12 for a 10-mile journey.

Now the particularly dense might argue that he is making $48 an hour, if he can make $12 in fifteen minutes.  Of course, he is not driving for a fare that entire time, though.  And the cost of operating car spoils the whole party.  The cited article assume 10% for gas and 10% for expenses, but these do not address the overall cost of car ownership.

And here it gets tricky.  If you already own the car, I guess you could argue that the incremental cost is the increased wear and tear on the car, the increased maintenance, and the increased depreciation based on having to sell a higher-mileage car down the road.

I did an analysis on this before, and came to two conclusions.  There are fixed costs, like insurance and depreciation (which varies little with mileage, unless you really drive a car a long distance) and there are variable costs like fuel, oil, brakes, repairs and tires, the latter few people think about. 

These variable costs, I estimated to be about 30 cents a mile, so our friend driving Uber for this 12 mile trip (on average) is spending $3.60 on variable car costs, far more than the 10% ($1.20) the fellow is estimating.

If he drives full-time for Uber in a busy city, the fixed costs may increase as well.   Taxis routinely go hundreds of thousands of miles - often going well over 100,000 miles in just a year.  If you really want to make a career of this, you can expect your car to be well worn out after five years or so, which coincidentally is how long Uber lets you drive a car for them - in most markets, your car must be no more than five years old.

The cited article says a driver can expect to make $40,000 a year driving this way, claiming a net income of about $12 for an eight-mile ride (in LA, such a ride takes longer than Savannah!).  That comes out to 3,333 eight-mile fares a year, or about 10 per day, or 26,666 miles overall.

For our friend in Savanna, his miles may be more and surge pricing is not as prevalent.  And since it doesn't take a half-hour to go eight miles, we might be looking at closer to 40,000 miles a year.

This might not sound like much, but 26,666 miles a year is nearly double the national average.   After five years, instead of having 60,000 to 75,000 on a used car, our Uber driver will have a car with 133,330 to 200,000 miles on the odometer.   This is a lot of miles to drive, and such a car will be worth far less than a normally used car.

We figured, in our car cost calculation entry, that a car driven an "average" number of miles would depreciate 50% every five years, and a $20,000 car would cost about 13 cents a mile at an average of 15,000 miles a year.  If we go to the NADA used car guide, we can plug in the mileage into a typical Toyota Camry that is five years old and see the difference in resale value.  For a 2012 Base Camry L, a "clean" trade-in is $9650 which also jibes with Edmund's Private Party sale price.  This is about half the base price of the car when it sold for new.

If we double that mileage to 150,000, NADA drops $3250 off the price.  Edmunds knocks off $3750.   And this is comparing "clean" private party sale or trade-in values, a condition level that a high-mileage car driven as a taxi is not likely to achieve.   So you may lose as much as 2-3 grand more in condition adjustment in addition to the mileage adjustment.

And bear in mind, this is the mileage that you drive as an Uber driver, which would be in addition to your normal mileage of to and from work, the grocery store, and whatnot.   Plus, you also have to drive to get to the fare, most of the times, and that mileage adds up as well.  The latter could equal your fare mileage in many cases.  If you drive to the airport, you have to hope there is a fare returning, or "dead-head" back to the city.

So my mileage estimates are, if anything, generous.   After five years, you've made that last loan payment and your $20,000 car is essentially worth nothing - maybe $4000 on a good day.   If you bought a more expensive car, you just lost even more in depreciation.

But oddly enough, since you are driving so many miles, the depreciation ends up being at most, about 10 cents a mile, assuming 150,000 miles every five years.  So our 12-mile trip incurs another $1.20 in costs.   Our friend "makes" $12 for taking me to the airport.  When you deduct the variable costs of $3.60 and fixed costs and $1.20 for depreciation, you end up with only $7.38 for that trip.   Still good money for 15 minutes of work, right?

Well, there are other fixed costs, such as insurance and registration, which over five years could run about $8250 based on my analysis in my earlier posting.   At 150,000 miles that works out to about five-and-a-half cents per mile or another 66 cents off the top, reducing our income to $6.72 - about half the amount "earned" by the driver for the trip.  Car costs are nearly half the overall fare value to the driver.

Now, you might argue that these fixed costs are present if you own a car anyway.  But if you are a full-time Uber driver, no doubt the car is basically a business expense and a write-off to you anyway.   And then there is the issue of insurance.

As I noted in my Pizza Delivery Driver posting, a young man I knew wrecked his car delivering pizzas and the pizza company said, "too bad" and his insurance company said the same thing, once they figured out he was delivering pizzas.   He had only three more years of payments to make on a totaled car.

If you wreck your car while driving for Uber, they have a million dollars of liability protection for you, but likely your insurance company won't cover the accident and will cancel you.   In fact, if you tell them you are using your car for commercial use, they likely will cancel your policy.  You are violating the terms of your insurance policy so don't expect your collision insurance to pay for damages.

Uber is very cryptic on this last point:
Contingent Collision and Comprehensive¹
As long as a rideshare driver has personal collision or comprehensive insurance, this policy covers physical damage that occurs during a trip and is subject to a deductible

What does this exactly mean?  Does Uber provide collision coverage if you have your own policy, or are they implying that your own policy will cover collision damage?   I could not find more direct answers on this point.   In my experience, collision insurance does not cover damages from commercial use of a vehicle (pizza delivery, taxi service, freight delivery, etc.) nor does it cover things like damage that occurs while racing (e.g., on a racetrack) or the like.  Many a weekend racer has found this out the hard way when they plant their grocery-getter into the wall on the track.

So I have to leave the insurance thing as a big question mark.  If your insurance company finds out you are driving for Uber, you might get cancelled and your rates could skyrocket as a result of being cancelled.  Moreover, as you drive double the national average in mileage, the odds of an accident would at least double, particularly since most driving would be in urban areas (which would also accelerate wear on the car as well).  This could also raise your rates.

There are many variables here, I have only addressed a few.

Now to make the fabled $40,000 a year (after car costs), which is less than the median income in America, you'd have to take about 5,952 of these $12 fares (yielding $6.72 to the driver) every year, or about about sixteen per day, which for an eight hour day, means you are making two, fifteen-minute trips per hour, with a 50% down time.   Whether you could get that many fares depends on a number of factors - how populated your local area is, how many other Uber and Lyft drivers you are competing against, what other options people have for transportation, and so on.

Could you make some money driving for Uber?  Sure.   Could you make a lot of money driving for Uber?   Well, assuming you could make that $40,000 a year, that would be the equivalent income of a $20-an-hour job, which is about double the minimum wage.   If you are unemployed, have no marketable skills, and have a car, I guess it is an option.   But that illustrates the type of folks who end up driving for Uber - folks who have few other options in life.

It's a job, which is better than no job.   It ain't a great job.  Most of us would rather have a steady job somewhere paying the same amount, that doesn't involve driving a cab - and possibly getting robbed.

How much would you make?   Well, again, do the math.  I have attempted to do so here, and of course, have to rely on vague and incomplete information, as well as a number of assumptions.   You could make more in a big city if you are busy and have lots of surge pricing customers.   You might make a lot less if you don't get as many fares.   The cost of operating your vehicle, however, looks to take nearly 50% of your revenue, if my calculations are correct.

Crank the numbers, but don't nitpick.   Odds are, the numbers you come up with will be similar to mine.   But figure it out before you sign on the dotted line and start driving people all over the place.

But again, the people taking these jobs are often people with few other choices in life.  And as such, they are the least inclined to "do the math" on the cost of operating car - like the fellow in the link above who naively assumes that the cost of operating his car is about 10% of the fare (how he came up with this number, I do not know).  He also allocates 10% for "taxes" which I am not sure of.  Income tax?  Sales tax?  These are all things you don't figure in, when determining income.

But just as people who are desperate to make money (as I once was myself!) will deliver pizzas to make a few dollars, folks will also drive for Uber to make ends meet.   People do what they think they need to do to get by.   Whether or not they are being exploited by the people who employ them is up for you to decide.   I'm just guessing here, but the people who actually run Uber probably make more than $40,000 a year....