Minnesota Department of Transportation

1. Minnesota Department of Transportation Mileage-Based User Fees DemonstrationStatus 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 arrangement • Income • Location • Annual miles driven • Other • 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 fees • Sales tax • Private • Capital (purchase or lease) • Insurance (though government regulated) • Parking fees (could be considered fixed or variable)

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

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

6. Evolution of an Idea • Issue • Mileage-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? • Background • We 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 products

7. Mn/DOT Business Functions Consulting Functions Cambridge Systematics Management Auto Leasing Partner VehiclesInsuranceBillingCustomer Service Consulting Team and/or Leasing Partner TechnologyImplementation Cambridge Systematics Consulting Team Market ResearchData Collection/Analysis Structure of Project RolesA Public-Private Partnership

8. Other factors • Registration fees in Minnesota were recently cut • Third 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 motives

9. Define Objectives Define Coststo Convert Registration/Sales Taxes Insurance Parking Capital Private Partner – Outreach/Negotiate Address Regulatory/Legal Issues Early Decision Tree

10. Private Partner Outreach/Negotiate ParticipantRecruitmentMethods BusinessTerms Data Harvestingand Distribution ExperimentDesign Technology PartnerSelection Implementation Private Partner Decisions

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

12. How do people view the costof having and using a car? Define the product(s) How can we successfullycommunicate theproposed concepts? Is there a market? If there is, can wemake money? Who is likely to be interestedin mileage based products? How might the conceptsbe strengthened? Concept Exploration Parallel Activities Manufacturer Independently Evaluated Concepts Consultant/Mn/DOT Team Conducted Focus Groups

13. Focus GroupsVital Statistics • 6 sessions on 3 nights • 49 participants – 26 men and 23 women • 25-59 years old • Twin-cities area residents • Leasers and buyers • Commuters and non-commuters • Average annual mileage – 14,000 Note: Results not statistically relevant.

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

15. Focus GroupsFindings • Understanding the concepts • Most 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 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 restrictive • Time of day especially restrictive • “Big brother” reared his head often

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

17. Focus GroupsFindings (continued) • All-In-One • One-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 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” • People like the idea for used cars

18. Manufacturer decides not to pursue • Pay-As-You-Drive • Cannibalizes existing leases • Cost difference from standard leases not significant enough • Only 20 percent of depreciation is mileage based • Customer acceptance issues • All-In-One • 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 Buxbaum Ken Buckeye Cambridge Systematics Minnesota Department of Transportation 617-354-0167 651-296-1606 jbuxbaum@camsys.com kenneth.buckeye@dot.state.mn.us