Uber vs. Car Ownership

by JT McGee

I think Uber is the most incredible business ever made:

Facts about cars:

  • The average car has a utilization rate of 4%, or roughly 1 hour out of a 24 hour day
  • There are 260MM cars registered in the United States.
  • Assuming an average value of just $5,000 per car — truly a WAG — American cars are collectively worth $1.3 trillion. (~50MM cars were sold in the last 3 years, which make up a substantial portion of total car values.)


  • Increasing car utilization to 20% from 4% could theoretically result in 80% fewer cars in the U.S.
  • This would free up approximately $1 trillion of capital currently tied up in mostly dormant vehicles across the United States.

Any large improvement in utilization rates will undoubtedly require something like Uber (car-as-a-service) plus driverless capabilities. But I really do think this the future.

Already, Uber has had a tremendous impact on at least one industry. Guess which one?

After growing at a 9.5% CAGR from 2007-2014, the outsize economic returns earned by the beneficiaries of a government-sponsored monopoly have declined precipitously to 2016. The world is better for it.

Crazy predictions:

  • The Big Three are living on borrowed time. Legacy costs (pensions) will be spread over fewer new cars produced.
  • The glory days of car insurance are behind us, as the combination of safer/fewer cars will result in substantially less risk, and substantially lower car insurance premiums/capita.
  • Car insurance could theoretically be managed via gas tax, as once argued in the book Invisible Bankers, reducing SG&A in car insurance and resulting in lower total premiums.

{ 2 comments… read them below or add one }

Nelson August 15, 2016 at 12:09

I’ve been thinking about this a lot lately.

Having a car sit for 23 hours a day is incredibly inefficient, and needs to change. But this change is going to be very slow because of the prestige surrounding cars. From the 16-year old who just gained their freedom from their oppressive parents to the middle-aged guy buying a hot rod, there’s a correlation between having a nice car and success. It’s the same reason why we all know couples who live in 2,000 square foot houses with no kids.

The wife and I share a car, which is a nice start, and I’ve started to ride my bike a little bit around town. I can also easily walk to work. But even for the two of us, our car still sits 23 hours a day. We still need the car for errands, getting groceries, etc. but technology is making those things easier than ever. I’m in the money lending business and I can get away with going to the bank less than one time a month thanks to electronic transfers and apps that allow me to deposit a cheque by taking a picture.

I dunno. I have no idea to play this, except for the way you’re playing it.


JT McGee August 15, 2016 at 12:55

“Just over three in four people ages 20 to 24 in 2014 possessed a driver’s license, according to the report released Tuesday by the University of Michigan’s Transportation Research Institute.

The exact figure — 76.7% — represented a sharp decline from 79.7% in 2011, 82% in 2008 and 91.8% in 1983, according to the report by Michael Sivak and Brandon Schoettle.”

“Only 24.5% of 16-year-olds had a driver’s license in 2014, down from 27.5% in 2011, 31.1% in 2008 and 46.2% in 1983, according to the University of Michigan report.”


It’s important to consider also that the price of gasoline has dropped significantly, so this decline is even more substantial than it may appear at first glance. Also, you need a license just to drive someone else’s car/a rental car. That’s a pretty big deal.

I agree with the coolness factor, prestige, etc. There is also a built-in buffer as people with working cars are unlikely (IMO) to sell it to go carless for a variety of reasons — negative equity, no incentive to sell functioning and low value car, etc.

Interestingly, the ride sharing apps benefit from network effects, and become better with each additional rider/driver, which creates a positive feedback loop. (My experience is that an Uber driver reaches my door ~6 minutes after requesting one. A relatively insignificant increase in “carlessness” in my area would probably result in a much faster response time.)


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