The Car Sharing Economy: Interaction of Business Model Choice and Product Line Design

  • Ioannis Bellos, Mark Ferguson, L. Beril Toktay
  • Manufacturing & Service Operations Management, May 2017, INFORMS
  • DOI: 10.1287/msom.2016.0605

How does providing car sharing affect car manufacturers’ incentive to produce efficient vehicles?

What is it about?

Car sharing programs allow members to access a fleet of vehicles that they can use for personal transportation; users are then billed based on the length of time they removed the car from the pool of shared vehicles. The car sharing provider is responsible for gas, maintenance, and insurance. In doing so the fixed costs of car ownership are transformed into variable costs. Although the model of car sharing was initially introduced by third-party providers like Zipcar, OEMs like Daimler and BMW have been particularly active in introducing car sharing programs. Motivated by the OEMs’ growing interest in the car sharing business, we developed a model to determine how introducing a car sharing program affects an OEM’s: (1) profits, (2) environmental impact, (3) incentive to produce vehicles of high fuel efficiency and (4) ability to comply with the Corporate Average Fuel Economy (CAFE) standards. We found that higher-end OEMs (i.e., OEMs typically producing vehicles of higher driving performance but lower fuel efficiency) can benefit more from introducing car sharing programs. Introducing car sharing allows OEMs to also provide vehicles of higher efficiency. Lastly, our model suggests that unless OEMs are granted incentive multipliers so that each shared vehicle counts as more than one in the calculation of their CAFE performance, car-sharing may hinder their ability to meet the enacted CAFE standards.

Why is it important?

There is growing evidence of OEMs undergoing the transformation from strictly selling cars to becoming mobility solution providers. Our paper shows that such a transformation makes economic sense. This can incentivize more OEMs to participate in the car sharing business. Furthermore, the production and operation of vehicles represents a very large environmental impact. Environmental regulations, specifically CAFE standards, are designed to encourage OEMs to increase their overall fleet efficiency by increasing individual fuel efficiency and sales of fuel efficient models. Our study shows that car sharing can reduce the OEM’s environmental impact. However, car-sharing programs do not necessarily improve the OEM’s compliance with the CAFE regulation since they can decrease the overall number of high efficiency vehicles produced. Our study suggests that this issue can be addressed if OEMs offering car sharing are granted incentive multipliers so that each shared car they provide counts as more than one vehicle in the compliance calculation. Environmental regulations need to be adapted for car sharing to realize its full environmental value and for OEMs to embrace it as a viable business model.

Perspectives

Mark Ferguson
University of South Carolina

Moving to a "sharing economy" business model is a more sustainable way to meet increasing demand for products as the world's population becomes larger and wealthier. Some existing policies and incentives may deter this shift, however. We explore such a case in the context of car-sharing services and suggest modifications that could make existing policies more conducive to this exciting new business model.

Ioannis Bellos
George Mason University

One of the most exciting aspects of working on this research is that we got to closely follow and experience the transformation of (part of) the automotive industry. During our research, we observed several manufacturers realize that they are not in the car manufacturing business but rather in the mobility solutions business. When we started considering a possible link between auto manufacturers and the business model of car sharing, the only provider of car sharing services was Zipcar. Only a short time after that, Daimler became the largest car sharing provider in the world through its Car2Go program. Currently, there are three major forces driving change in the automotive industry: i) technological innovation (regarding the production of more efficient cars), ii) business model innovation and iii) environmental regulation. Our research is focused on this intersection.

Read Publication

http://dx.doi.org/10.1287/msom.2016.0605

The following have contributed to this page: Mark Ferguson, Dr L. Beril Toktay, and Ioannis Bellos