The monetary cost of driving

One of the issues that contributes to excessive car use is that it’s not straightforward to calculate the cost of driving.

Once you have the car, the cost of each additional trip you take in it is obscured. Apart from tolls and fuel costs, many might see an already-paid-for car sitting in the driveway as “free”, making it an easy option. This is why good alternatives are not based around park and ride, but instead aiming to replace the entire trip, enabling households to own fewer cars.

I thought I’d have a go at calculating the total cost per kilometre of my car.

Obviously there are a lot of variables, so each person’s result will be a bit different.

Depreciation: The Lancer I bought last year cost me $18,000 new. If I assume it’ll be near-worthless by the time it gets 200,000 kms on the clock (I’m not actually likely to drive it that much while I have it, but later owners might), then that’s depreciation of 11.1 cents per kilometre.

Some of the other costs are annual fees, so the cost per kilometre will vary according to how much I drive. The Australian average is 15,000. We’re well below that in my family, though it’s increasing a bit since one son got his P-plates last month. I’m going to use 8,000 km as an estimate.

Insurance: $708.20. (It’s definitely gone up since having a P-plater behind the wheel!) That’s 8.9 cents per kilometre.

Southland Station - shopping centre car park

Registration: having just bought the car, it was paid for the first year, but ongoing annual cost is $816.50. That works out to 10.2 cents per kilometre.

Servicing: This will vary a lot, and will get more expensive as the vehicle gets older. But for now, because I bought a brand new car, this is capped at $230 for each of the first three years = 2.9 cents per kilometre.

Petrol: The car’s got an information display which can tell you various things. One is how many litres per 100 kilometres it’s burning. From my observation this usually varies between 6 and 10, depending on whether we’re driving on country freeways with little traffic, or start-stopping along a busy city road. (On the bright side it never gets driven in commuter peaks.) The official government number for a 2017 Lancer is 7.4, but let’s be a little pessimistic and use 8.

How much does petrol cost? The Australian Institute of Petroleum reckons in Victoria the average price in 2017-18 was 135.2 cents per litre, which seems roughly right, though I wonder if it’s creeping up.

So every 100 kilometres we’re using $10.816 of fuel, or 10.8 cents per kilometre.

Thankfully this is not my car

What about tolls? We only use tollroads occasionally, perhaps about $50 per year, so I think I’ll exclude this for now.

So the cost for me is: Depreciation 11.1 + insurance 8.9 + rego 10.2 + servicing 2.9 + petrol 10.8 = 43.9 cents per kilometre.

(Contrast: public transport within Melbourne is generally $4.40 for any individual trip of up to 2+ hours, with a cap of $8.80 per day, but it gets a lot cheaper if you buy a Pass and use it regularly.)

Obviously there are a lot of costs that motorists don’t pay for directly. Driving is very heavily subsidised.

But having a number, even if it’s only an estimate, means I can quantify how much it’s costing each time we use the car.

Did I miss anything, or mess it up? What’s the cost in your household? Leave a comment!

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15 Replies to “The monetary cost of driving”

  1. A good summary of the costs (also a little scary, especially if you don’t use the car much).
    Perhaps the cost to the environment (pollutants per km?) can be factored in to.
    What about the opportunity cost of investing the car price, $18,000 at (say) 5% p.a. return (maybe this is covered by depreciation?).
    On the Plus side, there is the cost of missing out on a job by NOT owning a car. For example, a jobseeker may restrict themselves to jobs that they can practically get to using PT. Unfortunately, many trips taking 20 mins by car can take 1 hr 20 mins by PT (or there is no PT at night). The time saved by using a car can be spent working additional hours (e.g. a FT uni student can start work an hour earlier and work an hour later if they have a car, as opposed to PT).

  2. That calculation looks reasonable. The fixed cost of your car is pushed up by the low amount that you drive. I drive even less than you do, but my car is fully depreciated (old).

    I assume you understand the concept of fixed and variable costs. In your case, about 80% of the costs are fixed. The extra annual cost for you, to drive 8100 km in a year , instead of driving 8000 km in a year, is tiny. It is basically the cost of 7 extra litres of fuel. About $10. about 10c per km. Not 43c a km.

    Unless you are in a position to get rid of your car entirely, the variable or incremental cost is the cost which you should be using when considering the cost of a particular trip which you don’t need to make, or could make by an alternate method.

    I’d also point out that if you want to go to the next suburb 4 km away, and don’t have time to walk ( or it is raining ), then the public transport fare is more than $1 a km, which is not cheap, at all.

    And then there is the monetary value of people’s time. People in salaried jobs who can save time travelling usually cannot get any extra money from saving time, but many other people can.

    The economics of driving in Australia are also corrupted by the institutionalised racket of the company car system, in which millions of people get the effective benefit of full tax deductibility for their private recreational car use and for their commuting to work car use, as well as their actual use for business.

  3. I am usually dubious when people assert that “driving is very heavily subsidised”. They are usually idiots or got some kind of ideological axe to grind.

    If you are not on the inside of the tent for the institutionalised rort of the company car/tradie/farmer/accountant tax rackets, and you actually pay for your car with your own after tax income, it’s hard to see where this alleged subsidy is. And you pay GST on your car expenses, and additional fuel and import taxes.

    The main obvious subsidy, is the amount of money government spend on un-tolled roads. But you are paying for those, through all kinds of taxation, whether you use those roads a lot or not much or not at all. Same as you are paying for parks or for schools or hospitals or national defense whether you use them or not.

    Country people with no public transport are paying a big subsidy for urban public transport, but the government also spends more per capita on country roads, and none of them are toll roads.

    I know you like to point out the cost of providing NEW car parking at stations. That’s a good point, but most car parking at stations is not “new” and the government is not actually shelling out $31k per car space for it. You can then get into circular arguments about “opportunity costs”, and whether it is a good idea for the government to have a bit of “spare” land which could be used later for an extra platform or bus stop, or not.

  4. Vehicle Operating Costs (VOCs) are quite complicated, as you’ve discovered, and the latest work is in the ATAP guidelines ( Start with a base cost in cents/km depending on vehicle type, then modify the final cost according to operating conditions such as speed, grade, curves, road condition and a bunch of coefficients. The base rate for a car varies from 21 to 37 cents per km and then is adjusted by the full equation.

    These VOCs are then added to value-of-time costs to build utility functions for guessing what people might do in certain conditions. And they’re combined with road maintenance and building costs to work out the cost to the state if a certain amount of driving happens. Hours of fun.

  5. But it’s a personal use case calculation. Generalising it doesn’t prove anything really.. until you look at the individual circumstances. For example, in my case I drive to the station.. basically because the buses around my area are close to useless.. unreliable schedule and occasionally don’t even show up. If I do get a bus it almost doubles my commute time. I’m also tall.. and in the current buses my legs jamb up against the back of the seat in front (a bit like a Virgin flight). So for some, a car is used to get to public transport.

  6. Similar comments to other posters:

    – You probably need to flesh out between standing and incremental costs. I.e. in your example you have a figure of 43.9c/km for 8000km, but to drive 1 additional km is only petrol 10.8c/km (at lest near to 8000km where depreciation and servicing remain about the same)
    – Capital costs are missing. You can alternatively use the capital cost of the vehicle to buy a term deposit at a bank for 2.5% sure bet or maybe put it into super, 10%.
    – Another opportunity cost is where to store the darn thing. No car, then use your garage for storage, ping-pong whatever (although you could probably store it on the street for free in some areas) or pay $100-400 less rent a month if you are inner city and can unbundle your carpark.
    – Might want to add another $120 per year for roadside assistance.

    Lastly people only perceive the cost at the pump. Everything else they don’t “see” as it only appears when they sell the vehicle, or have it serviced or pay the registration.

  7. P.S. Cost in my household $1.05 a km for 5000 km a year. The day I upgraded from a $1000 to a $10000 car was the week a share car appeared outside my house. :(

  8. The problem with any cost comparison with car and PT is you either assume car ownership is already there, or that all trips are 100% not car. Even if you only use your car for 10% of all trips, you’re paying 100% of all insurance, rego, servicing (assuming you will be on the half yearly schedule) and the car itself.

    To forgo the costs of having a car, every single trip has to be reasonably doable without owning one, not just the daily commute trips. Easier in the inner suburbs with good cross town public transport and frequent services (and higher uber coverage and carshare locations), but much harder in the outer suburbs.

  9. The subsidy for driving is precisely the stuff Enno has listed. That’s what subsidy means – that we all pay for something, whether we use it or not. Using tax to build roads and run them is precisely the sort of subsidy we mean when we say driving is subsidised.

  10. I hate to further muddy the waters, but what would be the cost of living in a Suburb with good Public Transport as opposed to one that doesn’t. I wonder what that might be.

  11. I live inner city and donโ€™t ever travel far. I save on not owning a vehicle, however my occasional 1-2km public transport trips for an afternoon outing cost me a full fare ticket.

  12. Well you can see the difference in home prices closer to downtown. And the price difference for being close to the station.
    But mostly, only people who work downtown are likely to base their choice on that. For people who don’t work downtown, and don’t expect to work downtown, they are relatively unlikely to be PT commuters. They can live wherever they want.
    Also, once people have decided they are going to be park and ride commuters, then the distance from the station matters less than for people planning to walk there. The difference between driving 2km to the station or 6 km to the station doesn’t matter to them much.

  13. You’re missing a few other fixed costs:

    Opportunity cost – that 20k you might spend on a new car could be invested instead. Another way to consider this is to imagine you needed to borrow the money needed to buy the car, and now you’re paying interest on that money.

    Cost of owning a parking spot – this is pretty easily calculated if you live in an apartment in the city, where owning a parking spot will easily add 50-80k to the price of the apartment. It’s a little harder to calculate this if you live in the suburbs, but the costs are still there, they’re just more hidden and dispersed. Perhaps another way to think about it is that if you didn’t need to have a garage, you could have a second living room in your house instead.

  14. I heard a few years ago that the PT fare only recouped something like 30% of the cost of services being provided. So that means you calc is missing the other 70% of the cost of PT that’s still being paid by us, but coming from other state revenue mechanisms. Interesting and enjoyable exercise.. but reality seems to be much more complicated than the limited approach being taken.

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