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The True Cost of Driving and Travel Behavior

Over the past few years a variety of documents ranging from contemporary media to more serious research efforts have addressed the cost of auto ownership and use.  These estimates are often used to address two important transportation issues, the household benefits of using transit in lieu of auto ownership and/or the consideration of household location decisions in the context of the total cost of housing and transportation.  Two often referenced sources of research on these issues are the Center for Neighborhood Technology’s (CNT) initiatives in developing a housing and transportatio

Steven Polzin | April 30, 2012, 7pm PDT
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Over the past few years a variety of documents ranging from contemporary media to more serious research efforts have addressed the cost of auto ownership and use.  These estimates are often used to address two important transportation issues, the household benefits of using transit in lieu of auto ownership and/or the consideration of household location decisions in the context of the total cost of housing and transportation.  Two often referenced sources of research on these issues are the Center for Neighborhood Technology's (CNT) initiatives in developing a housing and transportation affordability Index and the AAA updates on auto operating cost estimates[i].  These initiatives are noble efforts in our march toward holistic thinking about transportation and transportation policy.  Transportation costs – both financial and others – are important considerations in both household decisions and infrastructure planning and investment policy decisions. 

While estimating vehicle ownership and use costs can be of value in making decision makers – including individual travelers – aware of transportation costs that might otherwise not be transparent or accurately perceived, there are some risks associated with failing to more carefully explore the various estimates of transportation costs.  Citing something a lot does not automatically make it true or the most appropriate piece of information to use. 

The CNT transportation cost estimates are based on a model that produces household transportation costs for major metro areas in the US with estimated values typically ranging from just over $10,000 to in excess of $15,000 for personal vehicle ownership costs per household per year.   Alternatively, the Bureau of Labor Statistics Consumer Expenditure Survey estimates national average household spending on transportation to be under $8,000 per year.  And as anyone knows from driving down a residential street in America and in talking to their friends and neighbors, the vehicle transportation spending varies dramatically based on travel levels and consumer tastes and priorities as it relates to vehicle investment and use.  The AAA produces their annual "Your Driving Costs"  which produces an annually updated cost of vehicle ownership based on a five year ownership period and 15,000 mile per year travel rate and produces an annual cost of $8,946 or $0.596 per mile for 2012[ii].  The IRS allowed $0.555 per mile for business use of personal vehicles in the second half of 2011.   

Using the newest Consumer Expenditure Survey (CES) data from 2010, the average US household is reported to spend $7,667 per year on all travel of which $7,184 per year is attributed to vehicle travel[iii].  Based on national household travel survey data from 2008 – 2009, the average household had 2.1 vehicles, each of which was driven approximately 9,460 miles annually[iv].  This data produces an estimated per mile vehicle ownership and operating cost of approximately $0.36.  If divided by an average occupancy of 1.67 it results in an approximate $0.22 per passenger mile expenditure. 

Figure 1 shows the spending trend on vehicle travel by income quintile from Consumer Expenditure Survey data.  Costs aren't particularly high and are not growing – actually shrinking if adjusted for inflation - in spite of generally rising fuel and vehicle costs[v]. 

The disparity between various high estimates of auto ownership and operating costs and the measured average captured by the Consumer Expenditure Survey partially lies in the very meaningful differences between new car ownership and the reality that much of America isn't driving new cars with high depreciation levels.  Average vehicle retention has increased to 71 months meaning that households are retaining vehicles nearly 6 years, a trend attributed to both longer financing terms and longer warrantees and improved vehicle reliability.  The average age of autos has reached a record high 10.8 years as of July 2011.[vi]  In the U.S. light vehicles were noted in a 2006 study to be nearly 18 years old with approximately 170,000 miles on them when they were scrapped on average[vii].  Depreciation costs become insignificant at some point. 

It's easy to see how ownership cost get quite high with luxury and near luxury vehicle leases running above $500 per month plus equity investment, insurance, gas, parking, etc. and it's not hard to imagine cost per vehicle at or above the kinds of numbers cited by CNT or AAA.  On the other hand, the young person or low income worker who is driving aunt Martha's hand-me-down 14-year-old Ford or Toyota that they purchased for a few hundred dollars, maintain in their driveway, and drive with minimal insurance if any (various estimates suggest that as many as 30% of vehicles do not have automobile insurance) might be defining the other end of the household vehicle travel expenditure range[viii]. 

Unless one chooses not to believe the Consumer Expenditure Survey data, Middle America has managed to control personal vehicle expenditure costs making personal mobility surprisingly inexpensive.  While this ignores the indirect costs and perhaps understates other costs (arguably we are under investing in transportation infrastructure and recent evidence suggests we've been depreciating our vehicle fleet asset as well) and there seems to be an increasing trend to use general revenue streams such as impact fees and property taxes to support transportation infrastructure, thus leaving some costs out of vehicle ownership and use cost estimates.  But  consumers are likely to make economic decisions based on the direct costs that they bear. 

So what does this all mean in terms of transportation policy and planning?  Clearly, many American consumers of travel are not basing their travel decisions on vehicle ownership and use costs that are nearly as high as those referenced in various resources and research reports- several of which reflect an advocacy perspective.  Take for example somebody seriously thinking about using transit and perhaps giving up a household vehicle.  In all probability they would be giving up a lower cost/value vehicle – perhaps one that was fully depreciated or needed to be replaced.  There would be some savings in operating cost but a significant share of the household mileage would likely be shifted to the remaining household vehicles with increases in their operating costs and depreciation rate.  Persons sensitive to travel costs who might be considering this decision are likely to be individuals in low to moderate income categories where their household spending on vehicle travel might be below or well below the mean levels of the total population.  Interestingly, consumer expenditure data also show that even zero-vehicle households have significant spending on vehicle travel.  Giving up or not purchasing a household vehicle is more likely to result in the use of rental and/or borrowed vehicles or providing gas money to friends and family for providing trips.  Thus, presumptions about total savings from relinquishing a vehicle need to reflect the full reality of how travelers are behaving.  

Data indicate that consumers have made decisions to reduce auto ownership – or the economy has made it for them.  Auto ownership levels have declined.  While stories about home foreclosures are regular headlines, less noticed is the reduction in personal vehicle ownership from approximately 236 to 230 million registered vehicles nationally between 2008 and 2010[ix].

Assumptions about travel cost savings associated with various residential location choices also require review relative to other sources of household spending on travel.  Again, there can be large variations in context.  For example, 27.2% of US households have no workers in them – thus, their household travel costs can be more controlled by their own choice decisions regarding trip destinations for their travel.  Another few percent (and growing) have work-at-home members of the labor force.  Unfortunately, fixed costs associated with relocating a household particularly for home owning households, make optimization of household location with respect to employment or travel generally an unpromising proposition in an era of job mobility, multi-worker households, upside down home-equity, and significant home purchase/sale transactions costs.  However, recent data suggest a decline in homeownership – while a consequence of the economic conditions, this perhaps provides an opportunity to enable more households to more easily minimize commuting costs[x]. 

While pointing out potential auto operating savings might be an appropriate strategy for an advocacy entity, serious policy deliberations are misinformed if they don't use a far more nuanced and empirically based set of data on household travel expenditures and travel behavior as well as recognizing the full costs of accommodating the changes in behavior, be they increased transit demand and the corresponding costs or changes in population and employment location preferences.    

Consumers are generally rational creatures making what in their eyes are sound decisions on spending. It is important that planners and policy makers appreciate the revealed behavior of various segments of the population when they make their location, vehicle ownership, and mode choice decisions.   Travel costs are a factor in vehicle ownership, mode choice and household location decision-making, but perhaps these costs are not well represented by the savings potential that some analyses are implying or contending.     


[iv]CUTR analysis of NHTS data.

[v]CUTR processing of CES data – a sample size of approximately 7500 households in recent years.

[vii]Vehicle Survivability and Travel Mileage Schedules, DOT HS 809 952, January 2006. 

[viii] LOWER-INCOME HOUSEHOLDS AND THE AUTO INSURANCE MARKETPLACE: CHALLENGES AND OPPORTUNITIES, Stephen Brobeck and J. Robert Hunter,  January 30, 2012,  http://www.consumerfed.org/news/450

[ix]Highway Statistics Series, Table VM-1, Light Vehicles excluding motorcycles.

[x]  Home ownership dropped from 68 to 62 percent from 2011 to 2012, according to an April 2012 Gallup Survey.  http://www.gallup.com/poll/154124/U.S.-Homeownership-Hits-Decade-Low.aspx

 

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