📈 economics

When can remanufacturing make Car-as-a-Service financially viable? A life-cycle costing assessment for passenger vehicles

This paper demonstrates that while Car-as-a-Service models offer lower costs for users, they are currently unprofitable for providers due to high manufacturing costs and strong residual values, becoming financially viable only through significant design-led cost reductions or when used-vehicle value retention drops below approximately 47%.

Original authors: Ahmed S. Alghamdi

Published 2026-07-29

📖 4 min read☕ Coffee break read

CC BY 4.0

Original authors: Ahmed S. Alghamdi

Original paper licensed under CC BY 4.0 (https://creativecommons.org/licenses/by/4.0/). ✨ This is an AI-generated explanation of the paper below. It is not written or endorsed by the authors. For technical accuracy, refer to the original paper. Read full disclaimer

Imagine the world of cars as a giant, noisy kitchen where everyone is constantly buying new pots and pans. In the old way of doing things, you buy a pot, use it until it's a bit scratched, and then toss it in the trash to buy a shiny new one. This is the "one-off sales" model: you own the car, you pay for everything, and when you're done, the car is gone. But there's a growing idea called "Product-as-a-Service" (PaaS). Think of this like a library for cars. Instead of buying a book, you pay a monthly fee to borrow it. When you're done, you return it, and the library fixes it up and lends it to someone else. This is "Car-as-a-Service" (CaaS). The big promise here is that by keeping the car in the loop, we stop wasting all the metal and energy inside it. We can fix it up, make it look new again (a process called "remanufacturing"), and keep using it for years. But here's the tricky part: just because it's good for the planet doesn't mean it's good for the bank account. The big question is: Can a car company actually make money renting cars out like this, or is it just a nice idea that loses cash?

This paper dives right into that messy financial kitchen to see if the "Car-as-a-Service" recipe actually works. The author, Ahmed S. Alghamdi, takes a math model that was previously used for heavy construction machines and adapts it for regular passenger cars, specifically looking at Toyota's "KINTO" subscription program. He acts like a financial detective, comparing two scenarios: the traditional way of selling a car once, versus the new way of renting it out, fixing it, and renting it again. He uses public data to build a simulation, checking the "Net Present Value" (how much profit the company makes over time) and the "Total Cost of Ownership" (how much the customer spends).

The results are a bit of a plot twist. The study finds that for the customer, the subscription is actually cheaper! It's like getting a better deal at the library than buying the book. However, for the car company (the provider), the subscription model is currently losing money. The math shows a gap of about EUR 75 per month. This means the company would need to charge the customer EUR 75 more per month just to break even, but if they did that, the customer would say, "No thanks, I'd rather just buy the car myself." The paper explicitly rules out the idea that simply lowering insurance costs or fixing minor maintenance issues will solve this. Those costs affect both the buyer and the renter equally, so they don't change the balance.

So, what does it take to make this work? The paper suggests that the solution isn't just about changing the price tag; it's about changing the car itself and how long we keep it. The "gap" only disappears if two things happen: either the car loses its value much faster than it does now (which sounds bad, but actually helps the math), or the company designs cars that are cheaper to build and much cheaper to fix up for a second life. Specifically, the study calculates that a "win-win" situation only appears if a three-year-old car retains less than about 47% of its original value, or if the company can drastically cut the cost of making and remanufacturing the cars. Until those design changes happen, the paper concludes that while renting a car might be a bargain for you, it's currently a financial trap for the manufacturer, explaining why many car companies have quietly pulled back from these subscription programs.

Technical Summary: When Can Remanufacturing Make Car-as-a-Service Financially Viable?

Problem Statement
Road transport is a major consumer of primary raw materials and a source of significant emissions. Under the dominant "one-off sales" model, manufacturers relinquish ownership at the point of sale, severing the link to high-value cores and leaving value retention to fragmented resale and scrap channels. While Product-as-a-Service (PaaS) models with retained ownership are advocated as a route to enable large-scale remanufacturing and circularity, empirical evidence suggests they are often financially unviable. Most manufacturer-run car subscription programs have been discontinued due to insufficient viability. The core research question is to identify the specific economic conditions under which a remanufacturing-based Car-as-a-Service (CaaS) model can achieve a "win-win"—simultaneously offering lower costs to the user and positive net present value (NPV) to the provider.

Methodology
The study adapts a validated life-cycle costing (LCC) model, originally developed for a construction-machine manufacturer, to the context of high-volume, business-to-consumer passenger internal-combustion engine (ICE) vehicles. The research employs a single-case design using publicly available data to parameterize a Toyota/KINTO subscription program (representative of a European C-segment vehicle).

The model compares two scenarios over multiple use cycles ( $K$ ):

Sales Model: The provider sells a new vehicle per cycle; the user recovers residual value upon resale.
PaaS Model: The provider retains ownership, manufactures the vehicle once, and remanufactures/reconditions the returned core for subsequent cycles. The provider bears all running costs (maintenance, repair, insurance, management) and collects a monthly fee.

The analysis calculates the provider's Net Present Value (NPV) and the user's Total Cost of Ownership (TCO), annualized via Equivalent Annual Annuity (EAA) to ensure comparability across different time horizons. The study derives two critical metrics:

$F_p$ (Provider Break-even Fee): The fee at which the provider is indifferent between the Sales and PaaS models.
$F_u$ (User Maximum Acceptable Fee): The fee at which the user is indifferent between the two models.

A "win-win" is defined as a scenario where $F_p \leq F_u$ , creating a feasible fee window. The study conducts robustness analysis by varying uncertain parameters (manufacturing cost, reconditioning cost, management cost, etc.) by ±25% to test the stability of the conclusions.

Key Contributions

Model Generalization: The paper successfully transfers and adapts a validated LCC model from a low-volume, business-to-business context to a high-volume, business-to-consumer automotive context, testing the method's generalizability.
Transparent Parameterization: Unlike studies relying on proprietary data, this assessment is parameterized entirely from public data (e.g., KINTO terms, Toyota's weighted average cost of capital, public resale benchmarks), ensuring the assessment is transparent and reproducible.
Diagnostic of Viability: The study provides a quantitative diagnosis of why passenger-car subscription has struggled, moving beyond assertion to identify specific design and operational thresholds required for viability.

Results

Base Case Analysis: Over three use cycles (9 years), the PaaS model is cheaper for the user (TCO ~€39,500) compared to the Sales model (TCO ~€51,300). However, it is unprofitable for the provider (NPV ~-€1,400) compared to the Sales model (NPV ~€16,600).
The Fee Gap: There is no overlapping fee window. The provider requires a monthly fee of approximately €699 to break even, while the user will accept a maximum of €624. This results in a gap of roughly €75 per month.
Sensitivity and Robustness:
- Invariant Factors: Maintenance, repair, and insurance costs do not affect the fee gap, as they increase both the provider's required fee and the user's acceptable fee equally.
- Dominant Drivers: The gap is governed primarily by manufacturing cost and used-vehicle residual value.
- Residual Value Threshold: A win-win fee window opens only if the three-year value retention of the vehicle falls below approximately 47% (compared to the base case benchmark of 57%). High residual values make ownership cheap, raising the bar for subscription viability.
- Manufacturing Cost: A reduction in manufacturing cost is the strongest lever within the manufacturer's control.
Systemic Requirements: Marginal adjustments (e.g., reducing management costs alone) are insufficient. A win-win requires systemic changes, such as extending use cycles (e.g., to 48–60 months via design for durability), significantly reducing reconditioning costs, and lowering management costs through automation.

Significance and Claims
The paper claims to provide a transparent, publicly reproducible viability model that diagnoses the economic barriers to automotive CaaS. It argues that the current retreat of manufacturer-run subscription programs is not merely a market failure but a structural consequence of the tension between high manufacturing costs, strong used-car markets (high residual values), and the slow amortization of asset costs in a service model.

The study concludes that for CaaS to be financially viable and deliver circular-resource benefits (such as genuine remanufacturing), the industry must shift focus from pricing strategies to product and process design. Specifically, viability depends on:

Design for Durability: To extend economically useful life cycles.
Design for Remanufacturing: To lower the cost and increase the yield of restoring returned cores.
Systemic Cost Reduction: Addressing the manufacturing and fleet-management cost structures.

The paper modestly notes that its conclusions are illustrative based on a single case and segment, and that future work should extend the model to electrified powertrains and utilize telematics data to relax assumptions regarding failure distributions. It does not claim to solve the viability issue but rather to quantify the specific conditions under which it becomes possible.

Technical Summary: When Can Remanufacturing Make Car-as-a-Service Financially Viable?

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