Double Blind

The Canucks lost 3-2 in overtime. Really, they shouldn’t have made it to overtime had they not scored a goal in the dying seconds of the 3rd period. They did not deserve to win the series simply because their offense sucked. They didn’t score enough goals, they didn’t pressure Calgary enough, and they were playing a game of hockey which they seemed unaccustomed to all season (i.e. defensive hockey). Now that our only major league sports team is done for the year, we can now get on with the summer!

Making transit ‘free’ would mean that the taxpayer would foot the bill for providing it. Looking at the 2002 Translink Financials, they pulled in $233M in passenger revenues. That represents about $108 per taxpayer in the Greater Vancouver Regional District, assuming a 2.15M population. Such a subsidy would be on top of the $172 per year that Translink already receives from the taxpayer, mainly in form of fuel and property taxes.

A miniture version of making transit “free” is being attempted at the University of British Columbia – beginning in the fall of 2003, they forced all students living in the areas serviced by translink to purchase a U-Pass. The cost is $20/month (for an 8-month term the total cost would be $160) and Translink significantly increased service to the area. This effectively made transit a zero-marginal cost decision for the students – they are unable to liquidate their U-Passes, so it already represents a sunk cost to them.

The results of this experiment, at least in the first term in the fall session, were rather interesting (page 5) – while single-occupancy vehicle (SOV) figures dropped by 3,400 daily trips (7% year/year), carpools dropped by 7,400 daily trips (25% year/year), while transit usage increased 15,700 daily trips (53% year/year). There were 4,300 new commuters to UBC for Fall 2003. I would also like to point out that “alternative” forms of transportation, such as using your bike are a non-factor and that nothing should be done to accomidate these people that just end up clogging the streets. I also have my suspicions on how they collected the data (all the numbers quoted above are people, not cars), but I will assume the numbers are factual.

An aside… One easy example of the bias that UBC has towards cyclists is they have 5 pages of pure drivel on how great it is to cycle to campus, when they’ve got a single page for SOV commuters. Considering that 45,000 people still took their cars to campus each day compared to 2,800 cyclists (the latter which I think is a pure BS number unless if you count people that bike from the on-campus residences!), you really have to wonder who they’re trying to inform. When you come up with lines like: “Don’t let the occasionally soggy weather, which is espeically prevalent from October to March, slow you down. If you are properly equipped, the rain will only be a minor distraction. Even if it is raining, you can cycle year round in Vancouver, as the weather is almost always gentle and moderate, with a mean annual temperature of 11 degrees Celsius.” – it’s pretty obvious the guy who wrote that was smoking some serious crack. There are many factors why you would not want to take a bike to UBC. First of all, if you’re going to arrive for your morning classes, you’ll be biking in the dark and in an average September to March temperature of about 4 degrees in the morning. You’ll be biking at 20-25km/h and this will cause rain to blow into you like you’re in a rainstorm. Secondly, you’d have to bring a fresh change of clothes and find a shower and then face the rain again when you have to walk to your classes. Finally, how much of an opportunity cost is your time? Sleeping should be a priority for most students. By the time you’ve biked from 12th and Alma to campus and changed, you’re giving up 90 minutes of usable time a day for this endeavor, compared to if you just sat on the 99 bus for 10 minutes. You only do this if you love biking and not just want to commute to campus.

Although the TREK UBC report tries to spin this news otherwise, this is not what they were expecting – I would bet that they were expecting SOV rates to decline further than the carpool rate in absolute terms. The analysis that I posted in part 1 would prove otherwise. The reason for this is because people that drive in carpools choose to do so because they are more price sensitive. As a result, they value their time less than the typical person that drives alone. In theory, as gas prices increase, the people most likely to take transit will be the carpools and not the SOVs.

That’s not to say that if you made all of translink free to the population that the SOVs would stop driving – hardly the case. But it would be sufficient to get some people that would normally be driving their vehicle off the streets. What’s happening is that such an action to make transit free would be pushing the threshold of individuals’ values of time to where they deem it better to take free transit than to take their vehicles.

Starting in the beginning of 2004, I track every single expense I make on a spreadsheet. Just after three months of expenses, I have a pretty good idea where my money is going. What is interesting is how much money is going out the window due to gasoline and car expenses. I have spent $327.82 on gasoline at a weighted cost of approximately 73 cents per litre. Since my car has averaged approximately 10 kilometers per litre of gas (in the city it averages about 8.5, while on the freeways it averages 12.5), it has traveled 4500km year-to-date. This also means that my initial estimate of gas expenditures for 2004 of $800 is going to be severely over-budget by approximately 50%. At the rate that I am consuming gasoline, I am spending about $100 per month.

With gas at the highest nominal prices we have ever seen, it makes me ask “how high can prices go before I seriously start considering alternative forms of transportation?”. This is not a very easy question to answer, but my thought processes revolve around this:

• I have a choice whether to dump my vehicle and rely on public transit for all of my needs.
• I have a choice to just keep my vehicle at home and take the bus to get to work and back.
• I have a choice to maintain the status quo (take the vehicle, and only take transit if I go to downtown Vancouver, a mess that nobody should have to endure in daylight hours).
• Should I get a more fuel efficient vehicle?

I will tackle these in reverse order.

Option D: Should I get a new car? According to the US government’s fueleconomy.gov, I can get a cheap new vehicle that is about 20% more fuel efficient than mine (a Pontiac Sunfire). On GM’s site, I can get this car for approximately CDN$16125. This does not include sales taxes or the thousand extra fees that they charge new car owners, but I will exclude these for the sake of argument. I will also assume the car will last 10 years and thus a cost of CDN$1600/year to keep around, excluding any interest. I would need to realize $1600/year worth of fuel savings in order to break even. How much fuel would I need to burn, at 80 cents a litre, in order to break even with the new vehicle? The answer is 10000 litres of gasoline, or enough to take my existing car at least 85,000 kilometers or twice around the Earth!

I’m expecting to drive my car 13,500 kilometers this year. How much would fuel have to cost in order to justify me upgrading to a car that is 20% more fuel efficient? The answer is $6.05/litre. Even gas in Europe does not cost this much. So clearly, buying a more fuel-efficient vehicle is out of the question. Even a Toyota Prius (at CDN$3000/year for 10 years, 13,500km/year) would require a $3/litre gas price. Don’t even get me started on these “hydrogen powered” vehicles that you’ll be hearing about over the next few years.

The conclusion here is that it is not worth it for people to upgrade their vehicles strictly for the purposes of fuel consumption. Gasoline needs to be either 10 times more expensive than it currently is or cars need to be 10 times more fuel efficient for such an upgrade to be economically worthwhile.

Option C, the do-nothing option, currently costs me insurance, fuel and car expenses. Insurance (which I wrote about in a previous article) costs $1080/year, fuel is $1200/year and maintenance (oil changes, changing a blown tire, brakes) I have $500/year allocated. There is also something called the imputed depreciation which I have to factor in, albeit I do not have to pay currently since I own the vehicle outright. In the event that I was driving a new or used vehicle, I would have to add in a depreciation expense of roughly $2000/year (present value is ~$15k on 6% over 10 years). So the total cost of ownership of a vehicle is about $4800/year or $400/month. Getting rid of the imputed cost of ownership makes it about $2800/year or $230/month. Keep these two numbers in mind and realize how much of a fraction of your after-tax income you currently pay for your vehicle.

Option B saves me the fuel costs of driving to and from work, but it adds a time expense and transit expense. As there are 21 business days in an average month, I would be looking at purchasing a bus pass for $63/month, or $756/year. In addition, it takes me 15 minutes to drive to work and back. The bus service would result in a 25 minute drive plus 10 minutes walking time getting to and from the bus stops. Assuming that you give the bus a 5 minute lead time for both trips, we will call that 40 minutes of extra time each day due to the utilization of public transit for work. The gasoline savings on the trip (which is approximately 10 kilometers in each direction) is 50 litres per month. At 80 cents per litre, it only contributes a $40/month cost savings. In other words, if I took public transit to get to work, not only would I be paying more, but I would also be losing time. Gasoline would have to be nearly $1.26/litre in order for this to be a break-even proposition, value of time not included. This is not a viable option.

Leaving your car at home and taking transit to work (or school) is only a viable option when there is a significant penalty to driving. The biggest penalty driving to such locations is typically parking expenses – in downtown Vancouver, they typically charge a minimum of $6/day. A secondary penalty is the stress of driving through traffic each day – if you hate driving in rush hour, you are more apt to consider the bus a benefit given equal driving times.

Option A saves me all the expenses associated with a vehicle, but imposes the burden of me adhering to a transit schedule. This is difficult to quantify, as I would have to add up contributions of time for every destination I wanted to arbitrarily go to. Assuming I have no life whatsoever and do not need a vehicle to go anywhere else other than to my place of employment (i.e. I can pick up groceries on a bike and see my friends in the same manner), I would still have to purchase a bus pass. This reduces my cost savings on non-car ownership to approximately $4000/year using the most conservative cost estimate of a vehicle. My time expense is an extra 40 minutes per business day and thus 168 hours per year. So using the most conservative assumptions available, I’ve computed that the value of my time is approximately $23.81/hour.

Of course, the break-even point of my time is lower than that. The real fact is that I do have a life and a car is very useful to get to anywhere in the suburbs. Pretending I see my friends 3 times a month, based on where they are geographically, I would have to spend 45 minutes on the bus when it would take 20 minutes for me to drive there. Marginal savings per round trip: 50 minutes. This would lower my per-hour cost down to nearly $20/hour. Let’s say it’s pouring rain and I want to go to the library. Let’s say it’s nighttime (when transit only operates with a 30 minute frequency) and I want to head to a place that won’t have any service by the time I get out. On any occasion when I have the urge or need to head somewhere, that will represent a marginal time saving and thus benefits owning a vehicle (as it will reduce the price per hour that I pay to use the vehicle).

This leads to the interesting point that once you’ve bought and insured a vehicle, you have a great incentive to keep using it – every use will decrease your implied ‘hourly rate’ at which your value your own time.

Option B deserves further examination. If transit were to be free (i.e. the only expense involved is sacrificing an extra 40 minutes of my day that I otherwise would have had if I took my car), then the per-hour savings of taking transit would have been the marginal fuel costs or about $2.64/hour given a 75 cent per litre gasoline charge. Right now, this is too small. If gas costs doubled, then my per-hour savings would increase to $5.29/hour – then I’d probably consider taking public transit if I didn’t have any urgent need to use my car after work.

I am forced to conclude that gas prices would have to climb considerably before people stopped using their vehicles. An odd conclusion is that the best way to get the automobiles off the streets would be to make public transportation free, or even to pay people to use transit. I will discuss this in my next article.