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Minnesota Department of Transportation Mileage-Based User Fees Demonstration Status Report presented to Value Pricing Conference Washington, D.C. presented.

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Presentation on theme: "Minnesota Department of Transportation Mileage-Based User Fees Demonstration Status Report presented to Value Pricing Conference Washington, D.C. presented."— Presentation transcript:

1 Minnesota Department of Transportation Mileage-Based User Fees Demonstration Status Report presented to Value Pricing Conference Washington, D.C. presented by Jeffrey N. Buxbaum, AICP Cambridge Systematics, Inc. June 4, 2003

2 Project Objective  Simulate replacement of fixed costs of vehicle ownership with variable costs that give drivers explicit price signals  Understand price elasticities and how they vary by Vehicle ownership/lease arrangementVehicle ownership/lease arrangement IncomeIncome LocationLocation Annual miles drivenAnnual miles driven OtherOther  Develop understanding of driver acceptance and price signals needed to change travel behavior  Recommendations to “mainstream”

3 What Are the Fixed Costs?  Government controlled Registration feesRegistration fees Sales taxSales tax  Private Capital (purchase or lease)Capital (purchase or lease) Insurance (though government regulated)Insurance (though government regulated) Parking fees (could be considered fixed or variable)Parking fees (could be considered fixed or variable)

4 Market Size Miles Driven Percent Non-Participants Cut-Off Point(s) Participants

5 Market Size Miles Driven Percent Non-Participants Cut-Off Point(s) Participants

6 Evolution of an Idea  Issue Mileage-based pricing idea will have a greater chance of success if tested as a real productMileage-based pricing idea will have a greater chance of success if tested as a real product  Hypothesis Can the private sector offer a mileage-based product that will increase voluntary participation?Can the private sector offer a mileage-based product that will increase voluntary participation?  Background We know that one major auto manufacturer has explored products that might work with mileage-based pricingWe know that one major auto manufacturer has explored products that might work with mileage-based pricing  Concept Approach this manufacturer to explore interest in mileage- based productsApproach this manufacturer to explore interest in mileage- based products

7 Structure of Project Roles A Public-Private Partnership Business Functions Consulting Functions Cambridge Systematics ManagementMn/DOT Auto Leasing Partner Vehicles Insurance Billing Customer Service Consulting Team and/or Leasing Partner Technology Implementation Cambridge Systematics Consulting Team Market Research Data Collection/Analysis

8 Other factors  Registration fees in Minnesota were recently cut Third year fees very lowThird year fees very low  Converting non-government portion of fixed cost to variable has more leverage Challenge – converting the non-government portion depends on private sector profit motivesChallenge – converting the non-government portion depends on private sector profit motives

9 Early Decision Tree Define Costs to Convert Define Objectives Capital Registration/Sales Taxes InsuranceParking Private Partner – Outreach/Negotiate Address Regulatory/ Legal Issues

10 Private Partner Decisions Private Partner Private PartnerOutreach/Negotiate Business Terms Participant Recruitment Methods Data Harvesting and Distribution Technology Experiment Design Partner Selection Implementation

11 Private Partner Outreach  Major manufacturer’s hypothetical product All-in-one pricing – no hasslesAll-in-one pricing – no hassles -Vehicle -Routine maintenance -Repairs, roadside assistance, accident support -Insurance (optionally) -Safety security system Fixed monthly feeFixed monthly fee  Would they consider mileage-based pricing?

12 Concept Exploration Parallel Activities Manufacturer Independently Evaluated Concepts Define the product(s) Is there a market? If there is, can we make money? Consultant/Mn/DOT Team Conducted Focus Groups How do people view the cost of having and using a car? How can we successfully communicate the proposed concepts? Who is likely to be interested in mileage based products? How might the concepts be strengthened?

13 Focus Groups Vital Statistics  6 sessions on 3 nights  49 participants – 26 men and 23 women  years old  Twin-cities area residents  Leasers and buyers  Commuters and non-commuters  Average annual mileage – 14,000 Note: Results not statistically relevant.

14 Mileage-Based Concepts Gas Tabs, Regular, Sales Tax Insurance Maintenance Repair Vehicle Gas Insurance Maintenance Repair Vehicle Gas Insurance Maintenance Repair Vehicle Pay-As-You-Drive Traditional Lease All-In-One Car

15 Focus Groups Findings  Understanding the concepts Most participants lacked a solid grasp of what it costs to possess and operate a carMost participants lacked a solid grasp of what it costs to possess and operate a car Most participants do not think of the “cost per mile” of their drivingMost participants do not think of the “cost per mile” of their driving -Had difficulty evaluating their cost per mile -Did not believe how high the costs really were  Control and perception of control Many viewed mileage-based pricing as restrictiveMany viewed mileage-based pricing as restrictive Time of day especially restrictiveTime of day especially restrictive “Big brother” reared his head often“Big brother” reared his head often

16 Focus Groups Findings (continued)  Pay-As-You-Drive Appealed to low-mileage driversAppealed to low-mileage drivers -Especially leasers who leave miles “on the table” Appealed to high-mileage driversAppealed to high-mileage drivers -Can’t get normal leases Cost predictability an issueCost predictability an issue -Don’t want surprises -Suggested averaging to avoid big ups and downs

17 Focus Groups Findings (continued)  All-In-One One-check and one-stop shopping appealed to someOne-check and one-stop shopping appealed to some -Busy people -“I just want to turn the key and put in gas” -Safety conscious -“Good for my mom (sister) (daughter)” Buying a package with fewer choices ranked othersBuying a package with fewer choices ranked others -I can get it done cheaper (or do it) myself -“Your service providers won’t be convenient” Concern over “too good to be true”Concern over “too good to be true” People like the idea for used carsPeople like the idea for used cars

18 Manufacturer decides not to pursue  Pay-As-You-Drive Cannibalizes existing leasesCannibalizes existing leases Cost difference from standard leases not significant enoughCost difference from standard leases not significant enough -Only 20 percent of depreciation is mileage based Customer acceptance issuesCustomer acceptance issues  All-In-One All of the above, plus...All of the above, plus... -Maintenance costs for new cars very low now -Individual services readily available  Mileage-based insurance intriguing but not immediately

19 Next Steps  Probe interest of other potential partners  Design a simulation

20 Thank You For further information contact: Jeff BuxbaumKen Buckeye Cambridge SystematicsMinnesota Department of Transportation


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