The Marginal Cost of Driving a Mile

For car owning Americans, vehicle expenses will almost always take up a significant portion of the monthly budget. Cars cost less than housing, and might cost less than food, healthcare, or childcare depending on specific circumstances, but they cost more than pretty much everything else. Since the great majority of American households (~90%) own cars, it is thus natural that cars are going to be a big topic when it comes to personal finance advice. Some examples of great personal finance advice that has to do with cars:

But most of the advice I’ve found deals with either which car you’re buying (e.g., luxury vs. standard, new vs. used) or whether you should own a car at all. Often the discussion surrounds the per-mile cost of driving and uses that to compare cars to other modes of transport. The IRS even provides an official value for how much you can deduct: $0.58 per mile driven. While this might be a decent estimate for the overall cost of car ownership, it’s not as useful for making day to day decisions of whether to drive someplace or bike/take public transportation.

For the day-to-day decisions, the marginal cost of driving a mile is a much more useful metric. That is: how much more expensive it is to own and operate the car for each additional mile driven. The idea here is that the costs of a car can be separated into a fixed portion (that you pay no matter how much you drive) and a variable portion (that increases proportionally to how much you drive the car). I’m in a one car household: I get by day to day without a car, but my wife has a car that she needs in order to commute. When we go into the city on the weekend, we have to decide whether to drive or take public transportation. For this case, it’s not really fair to include the fixed portion of the car cost in our decision, because we’re going to have pay that whether we drive on the weekends or not.

I think that a simple (but reasonable) treatment would be to say that the car’s principal cost (or depreciation, if you prefer to think about it that way) and insurance costs are fixed, and that the gas and maintenance costs are proportional to distance driven. Here are my justifications:

  • The year the car was made is more important to resale value than the number of miles on the car
  • Unless you use per-mile insurance (like MetroMile), how much you drive has relatively little influence on your bill
  • I don’t think anyone will argue with a model saying that gas burned is proportional to distance driven
  • While you are supposed to have maintenance check ups at regular time intervals even if you haven’t hit the next miles driven checkpoint, the costs of the actual repairs should scale more with distance driven

So regarding the costs that constitute the marginal cost of driving: gas expenses are simple enough to calculate. Your per mile cost is simply the cost of gas divided by the fuel efficiency of your car. E.g., if you drove a car that got 28 mpg, and gas costs $3.19/gallon where you live, then the gas cost per mile would be:

\frac{\$3.19\textrm{/gallon}}{28\textrm{ mile/gallon}} = \sim\$0.11\textrm{/gallon}

The exact gas cost to drive a mile will vary depending on how efficient your car is and how expensive gas is in your region, but for most places in the US, it should be in the ballpark of $0.10/mile. Maintenance isn’t as simple to calculate, and will probably vary over the life of your car, but most estimates put it around $0.10/mile for a standard commuter car.

Using both these numbers, the marginal cost of driving should be around $0.20/mile, rather than the $0.58 figure from the IRS and other numbers higher than $0.30/mile that are typically cited when talking about the overall cost of driving. Using this $0.20/mile figure, it’s definitely cheaper for us to drive in to Boston for a weekend trip – it’s about 20 miles round trip, or $4, which is less than a round trip fare for one person on the subway.

For our use case, if we’re only focusing on the cost of subway fare vs. the marginal cost of driving, we should almost always drive. But that’s not necessarily the only thing to consider. Other factors that could change the math include:

  • The effect on the environment
  • The parking situation
  • The difference in time
  • The difference in comfort
  • Getting some exercise

Going through each of these bullets, in order: one obvious difference between driving and public transportation is that the latter is much better for the environment. If that’s something you care about (and it is for me), it’s probably worth factoring it into the math as well. There are different ways you could calculate the value, but I think adding 5-10 cents/mile to the cost of driving is a reasonable way to quantify this factor. It doesn’t drastically change the math, but it does push us closer to favoring the subway (especially if you were driving one person and not two).

Depending on where in the city we’re going, a huge factor is parking. There are some trips we make where there is ample, free parking, and that doesn’t add any cost/inconvenience, but there are some places in the city where free parking is almost impossible to find, and lots might cost around $25. This is obviously a huge factor, and if we’re going somewhere with expensive lots, we’re much more likely to take the subway. If you’re paying for parking, that cost can be factored in directly. If you’re spending a significant amount of extra time looking for parking, that brings us to the next point.

In practice, the main reason people drive over taking public transportation is probably that it’s faster, and (when it’s true) that’s a good reason. The less time we spend traveling, the more time we can spend doing things that actually matter. A decent starting point would be to value your time at your hourly wage, but there are fair arguments to be made to push that up or down. In any case, driving to Boston on the weekends usually saves us about an hour round trip compared to taking the subway, so that’s a huge factor in favor of driving. For normal commuting hours, driving to Boston might actually take longer, and give an edge towards the subway, so it definitely depends on the specific situation.

It’s also worth factoring in the difference in comfort between the options. If I’m traveling with my wife, the car is slightly nicer: we’ll probably chat and listen to music, whereas when we take the subway together we’re a bit more likely to sit in silence. If I’m traveling alone, the subway is much nicer: I can relax and listen to a podcast, compared to focusing on driving (and probably getting annoyed by other Boston drivers) when I’m in the car. On this point I’d probably just add a mostly arbitrary bonus to the one I prefer: maybe adding a $5/hour discount to driving when I’m with my wife, and adding a $20/hour discount to taking the subway when I’m by myself.

It could also be worthwhile to consider the difference in exercise between options. In the example I’ve been using (driving vs. taking public transportation) it doesn’t matter much, since the only potential exercise would be a short walk to and from the subway stations, but if you’re deciding between driving and biking this will matter more. If you’re someone who would benefit from more exercise (which basically all of us are), then time spent exercising should be valuable to you, and time spent driving should not. A decent starting point would probably be to value time spent exercising at your hourly wage, but again, there are reasonable arguments to be made to shift this up or down.

In general, I try to avoid driving, and I default to thinking it’s the wrong option, but going through this exercise and looking over this list of points does give me some confidence that it’s not the worst decision in the world when we drive into Boston on the weekends. As long as we aren’t paying $25+ for parking, it seems like paying for the marginal cost of driving those extra miles is worth it.

2 thoughts on “The Marginal Cost of Driving a Mile”

  1. I think including some depreciation in the marginal costs is fair and sensible. A 2014 car with 45,000 on it is worth more than a 2014 car with 60,000 miles on it. So not driving increases the ultimate sales value of your car at least some. I generally use a dime a mile, but one could argue a nickel or up to twenty cents IMO. But it’s certainly not zero. If you go with the nickel, then 25 cent marginal cost of driving feels about right to me.

    1. Yes, it would definitely be fair to include some depreciation in the marginal cost, but I felt more confident about the approximation of not including it at all than using a specific number. Following your example of the difference between a 2014 car with 45,000 vs. 60,000 miles, if you think the difference in resale value of about 15,000 miles * $0.05/mile = $750 is reasonable, then your nickel per mile estimate is a good one. That seems like it’s the correct value for a standard sedan, but would need to get pushed up for an SUV or a luxury car.

      In any case, I agree that adding this cost to the calculation would make it more accurate, so that would be a good improvement to the model.

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