New Yorkers, Don't Bother to Buy a Covid Car

(Bloomberg Opinion) -- After loading up on sourdough starters this spring and garden supplies over the summer, this fall Americans may be itching to buy a car. This might especially be true for city-dwellers who've previously avoided car ownership, but who now balk at the prospect of relying on public transportation to get around in a pandemic. I love the Lex, the green train, the most crowded train in the City — it zips me from home to work and back. Before the pandemic, we packed in like sardines. So much for that.

Adding to the auto's appeal, many American households have cash to spend right now — savings rates are sky high, over 17% in July. Although 20 million people are jobless, those still working might see a car as a prudent purchase for avoiding infection.

Think twice. Cars are an expensive long-term commitment and source of emotion. Plus, the timing might be terrible.

People reportedly love their cars, and when people love things I begin to worry about expense. I am not an ascetic. I like things. But loving them can be pricey.

That emotional bond most likely results from the car's role as a status good. Like all status goods — handbags, clothes, watches — they are visible, and because they are visible, help locate us in a social hierarchy. That means we tend to overspend on them. To be sure, status goods also have use value. The use value of owning a car is the value of a car trip and the convenience of having a car parked at your door. That is much more limited than most people realize.

Used cars are a better value for money than new ones, but because supply is limited, the prices for used cars are going up. The average value of a three-year-old car pre-Covid was $19,270; in August 2020, a three-year-old car was worth $20,245.

An owned car sits idle most of the time. On average, Americans use their cars an equivalent of 18 days out of 365. For the status and convenience of having your own two-ton travel machine, you take on the carrying charges of fuel, depreciation, insurance, maintenance and tires. If we look at how far the average driver goes every year (13,476 miles), and the IRS's standard business mileage rate (57.5 cents per mile), which takes into account these carrying costs, then the annual cost of owning a car is $7,749.

But the IRS does not include tolls and parking. Parking alone can cost thousands of dollars a year (about $7,200 in New York City, according to Parkopedia, which is America's most expensive city to park in). Those two items alone can double the costs to own a car in a major city. Your carrying costs are now up to about $10,000 a year, or almost $15,000 for New Yorkers. That doesn't include the risk of a serious accident, the time needed to arrange for repair and maintenance, or indeed, even the price of the car itself.

And averages don't tell the whole story. Many people drive less than average. Women tend to drive less than men, especially men between the ages of 20 and 54. City dwellers often drive less than others; the average per-capita driver-miles in Washington, D.C. (10,045) is barely half the annual average in Wyoming (21,821). The annual cost of a car does not go down significantly if you use the car less; your carrying costs are mostly fixed costs of purchasing, parking, and insurance, though your variable costs of gas and maintenance are less. The cost-per-mile for drivers who don't drive as much is actually higher because of the large fixed costs.

Therefore, for most people — women, men under 20 and over 54, people living in cities — walking, cycling, or even buying Uber rides would be more economical. Consider that an hour ride to the airport in an Uber is about $45. If you Ubered as much as the average driver drives, the annual UBER cost would be about $19,440 per year. (13,824 miles per year works out to about 432 hours, figuring 32 miles per hour.) That is about the same as owning and parking a car. No wonder many — especially Millennials — are skipping the car and using ride-hailing services.

Should you buy a car in a pandemic? I say no. I am wary of a double-dip recession. Unemployment claims ticked up last week. The possibility of another round of layoffs should be the ultimate cold shower. And if Covid-19 rebounds this fall, prompting new shutdowns, you won't have anywhere to go anyway.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Teresa Ghilarducci is the Schwartz Professor of Economics at the New School for Social Research. She's the co-author of "Rescuing Retirement" and a member of the board of directors of the Economic Policy Institute.

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