How do you know when it is time to take away the keys?

My mother-in-law is 79 and lives with us. She is reasonably healthy and doesn't take meds other than cholesterol lowering drugs. She does have some hearing loss that has gotten worse recently (she repeats things at the dinner table that were just discussed, as though she never heard, and doesn't respond when you call her name if her back is turned). She refuses to be fitted for a hearing aid. She has had one cataract removed and will need to have another removed soon, so she does not drive at night. She has a lot of dings and scratches on her car, and a couple of spots in our garage have her car's paint on them from where she's struck them. She always says she has no idea how any of the scratches or dents got there. She is overweight and does no physical activity other than walking from her bedroom to the kitchen and back, and doing the occasional load of laundry, so she is slowing down very rapidly. My two older children flat out refuse to ride in the car with her--in fact, the eldest (16 & driving) is skipping an after-school function to take her younger sister (14) to an appointment so she doesn't have to be driven by her grandmother. She moved here from overseas 5 years ago and sometimes still gets confused about which side of the road she should be on. My mother (67) rode with her recently and said she came within inches of hitting a mother and child in a parking lot. However, she has not had any actual accidents and has basically said we may as well kill her if we take her keys away as her life will no longer be worth living--the only independence she has left is her car. I think she is beginning to catch on to the fact that I no longer ask her to take the kids anywhere and don't take her up on her offers to do so. I will miss work to take them somewhere rather than let her take them. Do we wait until she's had an actual accident, or she has obvious dementia, or something along those lines that is very obvious and extreme? Or do we start talking to her now about the fact that her driving days may be numbered, and try to plan for it? I know her reaction is going to be terrible and she may even move out of our home (although she can't really afford to) in order to try and escape our driving plan for her. Is it easier to pull the band-aid off slowly or rip it off all at once? She is in the process of applying for citizenship, so we can no longer use the 'we are financially responsible for you and your actions' plea. No doctor has told her she shouldn't be driving and she renewed her license a couple of years ago without a problem. I would just like some concrete examples of things that would signify that we should take away her keys, without waiting for her to hurt herself or someone else!