Marginal Cost of Driving

Taking a vanpool to work most days makes we wonder how much money I am saving or losing for the hassle and convenience of the van. Figures from AAA and the IRS put the cost at upwards of $0.50 per mile, but these include ownership costs and insurance, which I am paying whether I drive my car to work or not. (I haven’t noticed significantly lower insurance rates for reduced mileage.) A commuter site even puts the cost at $1.19 per mile by monetizing dubious items like Travel Time and Barrier Effects on Pedestrians and Bicycles. If anything, travel time is a savings for me compared to the vanpool.

I’m looking for the marginal cost for each mile driven, assuming I own the car and pay the same insurance and tax regardless of how much I drive. Below is my own estimate based on three factors: mileage-based depreciation, fuel costs and maintenance costs.

Mileage-based Depreciation
High mileage cars are worth less than low mileage cars, so there is some marginal depreciation cost, assuming I expect to sell the car someday. Depreciation is less for old cars, but I’ll use a constant rate assuming any decrease due to age will be roughly offset by increased maintenance costs. To estimate depreciation I looked at Kelly Blue Book values for a popular car, a 2004 Honda Accord LS, at different mileage amounts from 30,000 to 60,000 miles. For cars in the same condition, the price difference was about $865 per 10,000 miles. If the extra 30,000 miles makes the car drop a notch in condition, which seems reasonable, the price difference goes to about $1200 per 10,000 miles. I’ll guess 30,000 miles causes half a notch drop in car condition and go with $1000 per 10,000 miles. That’s $0.10 per mile for mileage-based depreciation.

Fuel Costs
This one should be easy, but fuel costs are frequently changing (currently about $3.30/gal), and it seems there are hidden costs that we don’t pay for directly in the U.S., such a pollution costs and road wear. Since other Western countries put more of these costs into the fuel taxes directly, I’ll attempt to compensate for that. A quick search suggest gas costs between $6 and $7 per gallon in the UK and France. Not knowing exactly what all those extra taxes are for, I’ll split the difference and say gas costs effectively $5.00 per gallon. I divide that by my car’s average miles per gallon, which is about 45 for my Prius, and I get $0.11 per mile for fuel. (It’d be double that for a “regular” car getting 22 MPG.)

Maintenance Costs
It’s hard to imagine getting more imprecise than my above estimates, but I’m willing to guess on this one, too. For a car only a few years old I’m guessing about $200 per 10,000 miles for things like oil changes and replacing parts such as brakes and tires. I’m not adjusting up for age since I didn’t adjust down for age in depreciation. That’s $0.02 per mile for maintenance.

Total Marginal Costs
The total margin costs is then $0.23 per mile. That’s about $9.20 per day for my commute (20 miles each way beyond the distance to the vanpool lot). Assuming I take the van 15 days a month, that’s $138 saved.

That’s more than I expected. Taking a conservative tack: if the car stays in the same condition regardless of miles driven, that’s $0.09 per mile for depreciation. If gas costs are complete and constant, that’s 0.07 per mile for fuel. If maintenance is low, that $0.01 per mile for maintenance. The conservative total is then $0.17 per mile and $6.80 per commute and $98 for 15 days. And that’s still assuming at 45 MPG car.

For a typical 25 MPG car, my best guess estimate from above becomes $0.32 per mile and my conservative estimate becomes $0.23 per mile.

5 thoughts on “Marginal Cost of Driving”

  1. Very interesting. So for a fuel-efficient car the real big cost is depreciation. I think your 5$/gallon is overboard since the ‘hidden cost’ are there regardless of your behavior.

    How about the time and scheduling? How much longer does the van take and is the schedule convenient?

  2. Thanks, Anli. I should have made the hidden cost an extra line item, but it’s easier to quantifies as a gas tax.

    Scheduling is not a problem since I can always continue work from home if I have to leave in the middle of something. Time is a factor, since the commute grows from 30 to 50 minutes each way when taking the van. But it’s not so bad if you can read or think while on the van.

  3. I realize this is a bit old, but wanted to comment anyway. You miss a marginal risk of a crash, which could have associated medical as well as repair costs, where costs are a combination of out-of-pocket and increased insurance costs. Consider a given driver drives with a risk of serious collision per 200k miles (I made this up, but it obviously varies substantially per individual). If the cost of a collision is $10k (a non-normal distribution, with a long positive tail, as a fatal colliision is obviously much more than this), then this would add 5 cents/mile.

  4. Thanks you xan. This is exactly what I was looking for. Most estimates I could find showed either average cost, not marginal, or didn’t seem to understand the difference.

  5. Maintenance cost for mechanical repairs is not included.
    I’ve read that it is about 10 cents per mile beyond gas and oil.
    One reason the car with more miles is worth less is that all the mechanical parts are more worn out, some will have already been replaced. Of course over time, “depreciation” on the car gets less, but repairs increase to make up the difference. The A/C unit is the biggest long term cost, and it seems once repaired, the replacements never last as long as the original.

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