When Uber takes the place of the second car

I remember going from a two car house to a one car house some eight years ago when the Delhi metro station near the home and work place opened doors. This is in the pre-Uber and Ola times, but it still made sense to keep a driver for one car to use for multiple trips and use the metro for the rest of the trips. Now eight years later, the presence of Uber and Ola have tipped the balance against buying a second car in metro India. Anecdotal stories from the neighbourhood speak of the number of private drivers getting reduced since either they became entrepreneurs or people sold their second car. Drive to an airport in Delhi or Mumbai and see the flood of taxis in the next lane to yours that has much fewer private cars.

The switch from owning a second or third car to the public transport plus Uber or Ola has finally begun to reflect in car sales numbers in India. As reported by a newspaper, advance numbers from the auto industry show that Mumbai has seen sales of new cars dip as much as 20.4% in 2017-18. Bengaluru is next with a sales dip of 11.2%, Chennai dipped 4.5% with Delhi being the outlier with a small 1.6% growth. The nationwide numbers though show a different picture with overall sales growing, driven by smaller town India but masking the big change in car ownership decisions in the big Indian metros. A mix of better public transport than before, app-based cabs, congestion on roads and the sheer terror of finding parking on a busy day has led to an outcome that governments and policy makers have tried to nudge for years. Delhi’s misguided BRT and odd-even scheme failed to achieve the outcome of reduction of car demand in traffic-congested cities. Clearly people are doing the math and finding that tapping at the phone to order a cab is better in terms of time, money and personal effort of negotiating traffic and parking.

So what’s the math? The buy versus app-based cabs debate depends on which car you will buy, how much you will run it, if it is taken on a loan or not, which city you live in, whether or not you hire a driver and what the resale value of your car will be. There are too many moving parts in this calculation, but we can work with a simple thumb rule: if you are buying a car on a loan and hiring a personal driver for a second car, there is very little economic logic in buying—the app-based cabs win hands down. A smart calculator put up by blogger Deepak Abbot that does the math for you online can be seen here. The rates are a bit old and you’ll need to plug in new numbers in it. The case for making a shift to a no-car house is still not here yet, but the case to move from a two or three car house to a one car house is very clear.

When should you buy a second car? For a working couple with complicated days with multiple stops and the need to carry papers and gadgets, a second car may be unavoidable. I remember a lawyer friend who runs her own firm complaining during the odd-even fiasco two years back about app-based cabs not working for her because of all the paperwork and files she had to lug for each case to her office, courts and client meetings. In case you are buying a second car, should it be new or second hand? If the car model and version does not define who you are, think about getting a good second hand car since the new car loses 30% of value as you drive it out of the showroom. In their book The Millionaire Next Door, authors Thomas J. Stanley and William D. Danko found that as many as 36.6 % of the American millionaires they surveyed bought used cars only to save on the depreciation costs.

The sharp drop in auto sales in some big India metros is the first sign of changing times. Big changes are coming to urban transportation globally and the shift to app-based cabs is just the beginning. If giving up car ownership for Uber or Ola is the first mental threshold, the second one will be to hail a driverless car. Despite the current setback, autonomous cars will be a reality soon. One report (you can read it here: bit.ly/2gXafrj) estimates the drop in car ownership in New York metro area to be as much as 60% in just 15 years. The number is 44% for Los Angeles and 31% for Dallas.

Changing trends in urban transport will affect us not as just consumers of transport services but also as investors into transport firms and their ancillaries—either directly through stocks or indirectly through mutual funds. As investment guru Peter Lynch wrote in his famous book One Up on Wall Street, the best investment ideas come from everyday personal experiences on things we buy or don’t buy. As we shift the metal gears to give up one car, even more change is just round the bend.

Monika Halan writes on household finance, policy and regulation. She is consulting editor Mint. She can be reached at monika.h@livemint.com.