In the fleet world, we live and die by the expense each vehicle model generates. We calculate cost elements to the mile, including depreciation, financing, fees and taxes, fuel, insurance, maintenance, repairs, and even opportunity cost. Those numbers affect acquisition and remarketing decisions for thousands of fleet vehicles.
Remember when Uber and Lyft and the ride-hailing model became a business and cultural phenomenon around 2011? Though the term gig economy wasn’t widely circulated, the underemployed in our communities had a new source of extra income overnight. To those drivers, I’d make a point to ask, “The extra take-home pay is great, but do you have a good idea of your expenses, and are you netting those out of your profits?”
I didn’t mean to be a wet blanket, but that comment was often met with a blank stare or a shrug. A study released this week answers my question. The study, from the MIT Center for Energy and Environmental Policy Research, provides one of the first detailed estimates of actual ride-hailing profit. It’s not pretty.
The study found that a driver at the median generates 59 cents per mile, but incurs costs of 30 cents per mile. Per hour worked, that translates to a median profit of $3.37 an hour before taxes — and 74% of drivers earn less than the minimum wage in their state. Some 30% actually lose money once vehicle expenses are included, the study found.
An update of the study found that the average wage for Uber drivers is closer to $8.55 to $10 per hour.
The report goes further to suggest that drivers using the standard mileage deduction at 54 cents a mile (in 2016) far exceeded their 30 cents per mile of expenses — suggesting that about 74% of driver profit is untaxed.
You might quibble with how the study calculates vehicle expenses with estimates from Edmunds, Kelley Blue Book, and the EPA. (Fleet folks could’ve helped in this regard!) Apparently, others have, and the study organizers are collaborating on better data crunching. Assuming the updated average wages, is $8.55 an hour a realistic wage?
That said, Uber and Lyft are still adding drivers to their platforms, and the gig/sharing/peer-to-peer economies show no signs of slowing down. For good reason — the model works wonderfully for consumers, and it’s about time we employ technology to take advantage of underutilized assets.
But in these new economies — especially those involving depreciating, expense-heavy automobiles — it is imperative to perform true cost analyses. Fleet professionals can not only supply these insights six ways to Sunday, they would be willing partners in figuring out real-world operational scenarios that would help translate a good idea into sustainable profitability.
In this scenario, at the very least, awareness is being raised by the fact that more and more drivers are eschewing their own vehicles (if they even own one) in favor of using a rented vehicle to drive on these platforms. In this case less-visible operating expenses are being assumed by the fleet owners, while drivers can compare the very tangible daily rental figure with their daily revenue.
It is continually ironic that as the gig/sharing/peer-to-peer economies grow on the path to autonomous vehicles, the “outside” world is becoming aware of how a fleet functions. New business interests are beginning to understand the benefits of fleets and their importance to the ecosystem. This isn’t the last time I’ll say this: Own the fleet, own the future.
This post was updated at 2 p.m., March 7, 2018 to include updated information on the MIT study.
Originally posted on Business Fleet