2. Operating and Ownership Options

Americans love their personal automobiles and the independence that they provide. This independence does, however, come with a price. The price of mobility independence includes a wide variety of individual and societal costs. These costs include:

• Individual vehicle costs:
  • Purchase price, taxes, and finance charges.
  • Operating costs (fuel, oil, tires, etc.).
  • Maintenance.
  • License and insurance.
  • Parking.
• Societal costs:
  • Polluting emissions.
  • Depletion of natural resources.
  • Highway construction and maintenance.
  • Traffic congestion.
  • Accident injuries and deaths.

As these costs rise, individuals continually reassess the value of independent vehicle operations. At some point, some operators seek alternative means of commuting to and from work. Options include walking, biking, transit, carpooling, and vanpooling.

This chapter discusses traditional vanpool operations and related cost allocations. These discussions will be preceded by a brief analysis of costs associated with private car ownership and followed by a review of ownership options and operating issues associated with vanpools.

2.1 Cost of Private Car Ownership

According to a 2002 U.S. Labor Department Bureau of Labor Statistics report, personal vehicle purchase and operating costs account for 14.9% of all consumer expenditures (www.bls.gov/cex/csxann02.pdf). The American Automobile Association (AAA) estimates that the cost of owning and operating a new automobile was 56.2 cents per mile in 2004, up from 39.4 cents per mile in 1994. Total 2004 annual vehicle ownership and operating costs were estimated at $8,431 (www.csaa.com/global/articledetail/0,,1008010000%257c4512,00.html).

Commuting to work via vanpool may or may not eliminate the need for one or more of a household's personal automobiles. If the need for a personal vehicle is eliminated, savings could approach the $8,431 amount cited above. If, on the other hand, the need for a vehicle is not eliminated, annual savings would be based on variable cost per mile cost estimates, exclusive of fixed costs such as depreciation, licensing, etc.

AAA estimates that operating a 2005 Chevrolet Cavalier costs 12.1 cents per mile, based on fuel priced at $1.939 per gallon. Per mile operating cost for a 2005 Ford Taurus is estimated at 15 cents per mile (www.ouraaa.com/news/library/drivingcost/driving.html).

Fuel prices rose considerably after AAA developed these cost estimates. Table 2.1 presents revised operating cost estimates for a 2005 Ford Taurus based on a variety of fuel costs. These estimates assume mileage at 25 miles per gallon, 22 working days per month, and a daily round-trip commute of 50 miles.

As indicated earlier, these cost estimates are based on the assumption that commuting via vanpool would not eliminate the commuter's need for a vehicle. Conversely, if vanpooling did eliminate the need for a vehicle, annual savings would range from approximately $8,400 to almost $9,100, depending on the price of fuel.

Americans love the independence that commuting in a personal automobile provides but the cost of this independence is significant. Vanpooling may provide a viable alternative.

2.2 Traditional Vanpool Operations

Generally speaking, a vanpool is a group of people who ride to and from work together in a van that is designed to carry 5 to 15 passengers, including the driver. One of the pool's members is typically responsible for driving, scheduling vehicle maintenance, collecting fees, etc. Pool passengers recruit riders, as necessary, and pay all associated, fully-allocated costs.

Drivers typically ride free in exchange for the services that they provide. Drivers may also have access to the vehicle for personal use up to some prescribed limit (e.g. 20% of total vehicle miles), as long as this use does not interfere with the needs of the pool.

Figure 2.1 presents a fare calculation worksheet that could be used to estimate the cost of operating and riding in a traditional vanpool as described in the preceding paragraphs. This worksheet has been completed to determine monthly ridership costs for a pool involving seven paying riders who commute 50 miles per day in a nicely equipped van. As indicated earlier, these cost calculations are based on an assumed vehicle life of four years. Fuel-related expenses are based on a price of $2 per gallon and a vehicle that averages 12 miles per gallon. Corresponding calculations involving fuel prices ranging from $2 to $3.25 per gallon are presented in Table 2.2.

Figure 2.1 Sample Fare Calculation Worksheet

As the Figure 2.1 worksheet illustrates, total monthly per passenger costs are estimated at $161 or about $7 per month less than the personal vehicle operating costs discussed earlier. As will be discussed in Chapter 3, however, actual vanpool participation costs may be significantly lower because of financial incentives provided by employers and various government agencies. As will be illustrated in Table 2.3, vanpool cost advantages increase significantly as fuel prices rise.

The monthly vanpool cost projections presented in Figure 2.1 decline as the number of paying passengers is increased from 7 to 8 or even up to 14. While the pool's total monthly costs would increase to reflect higher vehicle acquisition and operating costs, per passenger costs could decline to between $85 and $150, depending on the number of riders in the pool.

As indicated earlier, fuel prices fluctuated dramatically in 2005. Table 2.2 reflects the impact that varying fuel costs have on the monthly vanpool costs presented in Figure 2.1. As Table 2.2 illustrates, modestly rising fuel prices do not have a dramatic impact on vanpools since the cost of fuel in vanpools is divided among several passengers.

Table 2.3 compares the impacts that rising fuel costs have on commuters who ride alone (Table 2.1) to those who ride in a vanpool (Table 2.2). As Table 2.3 illustrates, based on the assumptions set forth earlier (vehicle purchase prices, miles traveled, fuel costs, miles per gallon, riders per vehicle, etc.), vanpools gain an economic advantage over single-occupant automobiles when fuel prices exceed $1.75 per gallon. As indicated earlier, the vanpool-related savings identified in Table 2.3 do not include potential tax savings that may be realized by vanpooling commuters. These savings, which will be discussed in Chapter 3, are estimated at $35 per month.

One commuting cost component that has not yet been discussed is parking. Given the fact that parking is typically available at no cost for most North Dakota commuters, no related expenses will be factored into these discussions. It is worth noting, however, that these costs are significant in many urban areas of the country. Similarly, parking expenses may be a factor for commuters in some of North Dakota's larger cities. The cost of parking is often a major factor for urban commuters and the cost of providing parking or its mere unavailability plays a major role in the creation of some of the vanpool incentive programs that are in place in other parts of the country.

It should also be noted that even though parking may be free to most North Dakota commuters, the providers of this parking do bear related costs (construction, maintenance, lighting, snow removal, etc.). To the extent that ridesharing reduces the need for parking, costs are avoided by someone.

In addition to potential out-of-pocket cost savings, vanpooling provides a number of other incentives which encourage individuals to commute via vanpool. Primary among these incentives is a more comfortable and relaxing commute – while one person drives, other riders can read, sleep, visit with other riders, etc. Depending on the amenities built into the vehicle, vanpooling may also offer a more comfortable ride.

It should also be noted that not all workers have the option of using their own personal vehicle to commute. For employees who are mobility disadvantaged for financial or physical reasons, ridesharing may be the only way to get to and from work, especially in rural areas where traditional transit services are not available. For these individuals, vanpooling provides significant benefits. Similarly, being able to help these individuals with their commuting needs may be rewarding to employers and other pool members.

Given the societal costs of commuting listed earlier, participating in a vanpool may also help riders achieve a degree of psychological comfort given the lower environmental costs that are associated with ridesharing. Based on the fact that an average commuting vehicle has 1.2 passengers, vanpools remove 0.83 cars from the road for each member of the pool. A pool with seven passengers therefore removes nearly five cars (net) from the road; a pool with 12 passengers eliminates nearly nine other commuting vehicles.

The removal of these vehicles from the roadway conserves energy, reduces polluting emissions, and reduces wear and tear on roadways. It also reduces the need for parking spaces and, in urban areas, it reduces congestion on roadways. Individual pool participants contribute to these efforts via their participation in the pool. In many instances, these and the out-of-pocket cost savings discussed earlier provide all the incentives that some people need to vanpool.

2.3 Ownership Options

Vanpool vehicles are typically owned via one of three models – owner-operator, employer-provided, and third-party programs. These ownership options will be discussed in the following subsections of this chapter. These discussions will be followed by a review of operating issues related to insurance, licensing requirements, driver drug testing, background/credit checks, and Americans with Disabilities Act requirements.

2.3.1 Owner-Operator Vans

In its simplest and probably its original form, vanpooling involves a group of individuals who decide to purchase a van and ride to and from work together. Such pools did not involve government or employer incentives – they exist simply because they save participants money, provide a more relaxing commute, etc.

Participants in these pools may jointly purchase vehicles or ownership may be confined to one of the pool's members. Fully allocated purchase and operating costs are paid for via monthly fares collected from riders.

Given vehicle title and insurance requirements, owner-operator vanpool vehicles are typically owned by one individual. This person is responsible for purchasing and maintaining the vehicle, calculating operating costs, assessing and collecting fees, and recruiting riders. Pools are almost always operated on a nonprofit basis.

In owner-operator vanpools, the owner is also typically the driver. In recognition of the services provided by the driver, he or she typically rides free. Vehicle life expectancy is usually estimated at 100,000 miles or four/five years, whichever comes first. At the end of its vanpool life, the vehicle is the owner's to do with as he or she pleases.

It should be noted that owner-operator vanpool vehicles may be purchased or leased via traditional methods. Related finance or lease charges are part of the pool's monthly operating expenses that are recovered from pool participants as illustrated earlier in Figure 2.1. Participants may be eligible for related incentive program savings as will be discussed in Chapter 3.

It should also be noted that this type of pool may entail a long-term commitment by the owner since rider fares may be required to make related purchase payments. If the vanpool ceases to exist, the owner is still responsible for making these payments. Owners in these situations may be expected to be especially active recruiters to keep their pools operable and full.

Owner-operator pools accounted for approximately 10% of the vanpools that were in operation in the United States in the mid-1990s (Evans and Pratt).

2.3.2 Employer Vans

The most aggressive form of employer-promoted vanpools is one where the employer purchases vanpool vehicles and makes them available for commuting purposes. This option permits the greatest degree of employer control over program operations. This approach may also facilitate lower monthly fares since vehicle acquisition costs may be lower and monthly finance costs may be avoided. The employer generally assists with recruiting drivers and riders and may choose to subsidy pool operations.

3M Company is credited with initiating employer-sponsored vanpooling and gained national recognition for its Twin Cities vanpool program in the 1970s and 1980s. It is estimated that the majority of the 15,000 vanpools that were in operation in the United States in 1980 entailed some degree of employer involvement (Evans and Pratt).

This form of corporate ownership has diminished, however, because of related upfront costs, vehicle maintenance requirements, administrative obligations, and potential liability issues and also because of government's willingness, in many cases, to becoming involved with vanpooling. By the mid-1990s, employers were directly involved as sponsors in only about 25% of the 8,500 vanpools that were in operation around the country (Evans and Pratt).

In some cases, however, employer sponsorship may be a necessary tool to help employers recruit and retain employees or to avoid other operating costs such as the construction and maintenance of expensive parking facilities. It is sometimes also used when worksites are relocated and transportation services must be provided to avoid related employee resignations. Upfront costs may be reduced by leasing vehicles rather than purchasing them. This approach does, however, increase monthly fees assessed to riders.

As will be discussed later, some employers choose to subsidize vanpool operations even though they do not specifically own or sponsor the pools. They therefore achieve many of the benefits associated with vanpooling without incurring related long-term costs or liabilities.

2.3.3 Third-Party Vanpool Programs

Rather than purchasing a van or leasing one via traditional means, individual operators or employers may choose to operate vanpools with a vehicle that is acquired via a program that is operated by a third party provider. Typical third parties include state or local transit authorities, metropolitan planning organizations, local transportation management associations, and state departments of transportation. This type arrangement began to evolve in the late 1970s and by the mid-1990s they accounted for approximately 65% of the 8,500 vanpools that were in operation around the country. From 1984 until 2001, the number of transit provider vanpools in the country grew from 447 to 3,932 (Evans and Pratt).

These programs typically acquire vans and lease them to individuals or employers for use in vanpooling. Lease payments usually include insurance coverage and vehicle maintenance; fuel may or may not be included. Passenger fares are often set by the sponsoring entity and may be subsidized to encourage participation.

In some cases, third party programs are run entirely by the sponsoring governmental entity. In other instances, the sponsoring entity may contract with a commercial service provider to perform functions such as vehicle procurement and maintenance, program administration and promotion, etc.

Two of the largest commercial operators in the country are VPSI, Inc. and Enterprise Rent-A-Car's Rideshare subsidiary. VPSI is a for-profit company which has been in operation since 1977. It has over 40 regional service centers and approximately 4,100 vans in operation around the country (Payne, 2005). Enterprise Rent-A-Car's Rideshare program has approximately 1,300 vans in service, primarily in California (Barnes, 2005). Local leasing companies also operate in a number of locations around the county.

As indicated earlier, monthly lease rates typically include all operating and maintenance expenses and an umbrella liability insurance policy. The program may also provide a replacement vehicle in case major maintenance or repairs are needed. Lease agreements typically provide that vanpools may cease operations on 30-days notice. Similarly, individual riders may drop out of pools with only 30-days notice.

As is the case with owner-operator vans, drivers typically ride free in exchange for driving, procuring scheduled maintenance, and performing administrative duties such as collecting monthly fees and submitting operating reports.

Monthly lease fees paid to commercial vanpool vendors are higher than the costs that would be incurred via a traditionally financed purchase as depicted in Figure 2.1 (e.g. $1,200 vs. $700 per month). This higher monthly fee is in recognition of maintenance and insurance that the vendor supplies plus the company also gives participants the ability to terminate the pool on 30-days notice; a profit margin should also be anticipated. As will be discussed in later chapters, the cost differential between traditional vanpools and those involving commercial vendors is sometimes financed with government incentives.

In many cases, the employer sponsorship model discussed earlier has been replaced by one where vanpool vehicles are leased from a commercial vanpool vendor and underwritten, in part, by a public transportation entity. The public entity, in effect, takes the place of the employer in the traditional model. The employer may, however, remain active and work closely with the public entity to promote and facilitate vanpooling within its workforce. Employers may also choose to subsidize a portion of a pool's operating costs.

2.4 Atypical Operating Issues

As discussed at the beginning of this chapter, there are a few atypical operating issues of which new and potential vanpool operators should be aware. These issues are somewhat unique because they involve matters other than normal day-to-day vehicle operations and related cost allocations. Included in this list of issues are supplemental liability insurance, driver's license requirements for high-occupancy vehicles, driver drug testing, background/credit checks, and Americans with Disabilities Act requirements. Each of these issues will be discussed in the following subsections.

2.4.1 Liability Insurance

Motor vehicle insurance requirements are prescribed by state law. In North Dakota, a vanpool vehicle has the same insurance requirements as a personal automobile. This does not necessarily mean, however, that a personal automobile insurance policy provides adequate levels of coverage for vanpools.

Despite the fact that a vanpool may meet the state's vehicle insurance requirements by maintaining insurance levels that are comparable to those required for private automobiles, operators should recognize that more risks are associated with operating high-occupancy vehicles and that supplemental levels of insurance may be advisable. It should also be noted that insurance companies may consider a vanpool to be a commercial operation and may, therefore, refuse to pay related claims that are filed against a personal insurance policy.

Many vanpool operators and commercial vanpool lease companies obtain insurance policies which are especially designed for commuter vanpools and which provide greater levels of protection than the minimums prescribed by state law. The Washington Department of Transportation's "Do It Yourself . . . Vanpool Guide" recommends personal injury liability limits of at least $500,000 to $1 million, property damage liability coverage of at least $250,000 to $500,000, and medical benefits of at least $5,000 to $10,000 (www.wsdot.wa.gov/mobility/tdm/DoVanpool/05-Selecting.pdf). These levels of protection are considerably higher than those required by state law in North Dakota.

Several commercial insurance companies have insurance programs specifically designed for commuter vanpool. Related policy costs vary depending on the driver's accident record, size of the van, passengers involved, trip lengths, etc. It is estimated, however, that a vanpool insurance policy may cost approximately $2,000 per year, approximately twice the cost of a personal policy. Such a policy would, however, provide higher levels of protection and are, therefore, better suited for vanpools.

It may be beneficial for vanpool participants to check with their personal insurance company regarding their participation in a vanpool. Many major insurance companies reportedly offer policy discounts of 10-30% to drivers who designate their cars as recreational vehicles which are used solely for purposes other than driving to work. Related savings would create an additional financial incentive to commute via vanpool.

It should also be noted that North Dakota Century Code (NDCC) Section 26.1-41-13(2)(d) provides that insurance claims involving riders in a ridesharing vehicle must be covered by each individual's personal automobile policy. If a rider does not have personal automobile insurance, the insurance that is in place to cover the ridesharing vehicle must cover the claim, up to the limits of the policy.

2.4.2 Driver's License Requirements

North Dakota's driver licensing laws are set forth in Title 39 of the NDCC. Chapter 39-06 contains specific provisions concerning operator licenses. Section 39-06-14 provides that a person with a Class D license may operate a motor vehicle having a gross vehicle weight of 26,000 pounds or less, a weight category that governs both passenger automobiles and vans with a passenger rating of 15 or less.

State law also provides that certain drivers are required to have a commercial driver's license. Corresponding provisions in NDCC Section 39-06.2-02 state, however, that a commercial motor vehicle is a motor vehicle that is designed to transport 16 or more passengers. Vanpool vehicles are not, therefore, considered a commercial vehicle and no special driver's license is required to operate one. This provision mirrors a Federal Highway Administration ruling which found that an individual who owns or leases a van for traditional vanpool purposes is not doing so for compensation and that the operations should not, therefore, be regulated by rules which govern commercial vehicles (1999. Federal Register Vol. 64, No. 171. September 3: p. 48514).

While there may not be any special licensing requirements for vanpool operators, many employers and public entities that provide start-up and operating incentives conduct driver's license background checks on potential drivers and backup drivers. Drivers with less than a good driving record may be precluded from operating vanpools. Some vanpool programs also require that operators attend driver training classes.

2.4.3 Drug Testing

The U.S. Department of Transportation has rules in place which require that certain transit drivers be required to take routine drug and alcohol tests (49 CFR 382). Questions have therefore been raised concerning the need to expose vanpool drivers to routine drug testing, especially in instances where the vehicle involved was acquired with assistance from a federal program.

In addressing this question, the Federal Transit Administration (FTA) has determined that vanpool operators do not typically function as employees of the federal agency involved and that vanpool vehicles are not involved with a local transit service's "revenue service" activities. This being the case, the FTA has determined that a vanpool operator who is driving a vehicle that is a part of a program operated by an FTA recipient is not subject to the FTA's drug and alcohol testing rules. It is assumed that a comparable rationale applies to other vanpools, both private and government-supported (Winters and Cleland).

It should also be noted, however, that a vanpool vehicle with a capacity of more than 15 passengers would be considered a commercial vehicle and its drivers would need a commercial driver's license. This requirement could also potentially expose these drivers to drug and alcohol testing.

2.4.4 Background/Credit Checks

As indicated earlier, owner-operators who are applying for government assistance to initiate a vanpool may be subjected to motor vehicle background check to determine whether or not they have a good driving record. The same type check may be expected for individuals who plan to drive employer or third-party vanpools.

It is also common to conduct financial credit checks on vanpool drivers. Even though these drivers may not be borrowing funds in a manner that typically requires a credit check, these checks may reflect on the moral character of the individual involved. A positive check is potentially indicative of a responsible person who will do a good job of administering a vanpool (Arnold, 2005).

Vanpool drivers are also responsible for handling financial transactions involving the pool's operations (monthly remittances by riders, paying associated costs, preparing monthly operating and financial reports, etc.). Again, a positive financial check is believed to be indicative of a person who is trustworthy and capable of handling these obligations.

2.4.5 ADA Requirements

The Americans with Disabilities Act (ADA) prohibits discrimination and ensures equal opportunity for persons with disabilities in employment, state and local government services, public accommodations, commercial facilities, and transportation. This 1991 enactment applies not only to government but also to employers with 15 or more employees. It has been determined that the ADA does apply to FTA-supported vanpool programs (49 CFR 37.31); this and other forms of federal support will be discussed in Chapter 3.

Given a $10,000 cost estimate to make a van fully accessible, it was originally feared that requiring that all vanpool vehicles be accessible would, in effect, put an end to many vanpools. It was ultimately determined, however, that vehicles need to be handicapped-accessible only on an as-needed basis. VPSI has committed to having accessible vehicles available but the demand has been very light. VPSI also indicates that the costs of creating accessibility will not normally be spread among a single pool's participants because doing so would make the monthly cost per rider uncompetitive with other modal choices. Rather, VPSI suggests that support for creating such accessibility be sought from other government programs such as Vocational Rehabilitation, Veteran's Affairs, etc. Successfully doing so would keep the costs associated with accessible pools approximately the same as other, nonaccessible pools (Arnold, 2005).