I’ve just been considering when it’s best to drive and when it’s best to take public transport to save money. My old car (1999 VW Passat) uses 12.8L/100km which at $1.65 per liter means 21.1 cents per km on fuel. A new set of tires costs $900 and assuming that they last 20,000km will cost 4.5 cents per km. A routine service every 10,000Km will cost about $300 so that’s another 3 cents per km. While it’s difficult to estimate the cost per kilometer of replacing parts that wear out, it seems reasonable to assume that over 100,000Km of driving at least $20,000 will be spent on parts and the labor required to install them, this adds another 20 cents per km.
The total then would be 48.6 cents per km. The tax deduction for my car is 70 cents per km of business use, so if my estimates are correct then the tax deductions exceed the marginal costs of running a vehicle (the costs of registration, insurance, and asset depreciation however make the car significantly more expensive than that – see my previous post about the costs of owning a small car for more details ). So for business use the marginal cost after tax deductions are counted is probably about 14 cents per km.
Now a 2 hour ride on Melbourne’s public transport costs $2.76 (if you buy a 10 trip ticket). For business use that’s probably the equivalent cost to 20Km of driving. The route I take when driving to the city center is about 8Km, that gets me to the nearest edge of the CBD (Central Business District) and doesn’t count the amount of driving needed to find a place to park. This means the absolute minimum distance I would drive when going to the CBD would be 16Km. The distance I would drive on a return trip to the furthest part of the CBD would be almost exactly 20km. So on a short visit to the central city area I might save money by using my car if it’s a business trip and I tax-deduct the distance driven. A daily ticket for the public transport is equivalent to two 2 hour tickets (if you have a 10 trip ticket then if you use it outside the two hour period it becomes a daily ticket and uses a second credit). If I could park my car for an out of pocket expense of less than $2.76 (while I can tax-deduct private parking it’s so horribly expensive that it would cost at least $5 after deductions are counted) then I could possibly save money by driving. There were some 4 hour public parking spots that cost $2.
So it seems that for a basic trip to the CBD it’s more expensive to use a car than to take a tram when car expenses are tax deductible. For personal use a 5.7km journey would cost as much as a 2 hour ticket for public transport and a 11.4km journey would cost as much as a daily ticket. The fact that public transport is the economical way to travel for such short distances is quite surprising. In the past I had thought of using a tram ticket as an immediate cost while considering a short car drive as costing almost nothing (probably because the expense comes days later for petrol and years later for servicing the car).
Also while there is a lot of media attention recently about petrol prices, it seems that for me at least petrol is still less than half the marginal cost of running a car. Cars are being advertised on the basis of how little fuel they use to save money, but cars that require less service might actually save more money. There are many cars that use less fuel than a VW Passat, and also many cars that are less expensive to repair. It seems that perhaps the imported turbo-Diesel cars which are becoming popular due to their fuel use may actually be more expensive than locally manufactured small cars which have cheap parts.
Update: Changed “Km” to “km” as suggested by Lars Wirzenius.