Car sharing, as I have said before, is an interesting business. Like most rental businesses, success in car sharing is fundamentally about utilization. To make real money, it is important to have your resources out bringing in cash as opposed to sitting idle. But what if you didn’t own the assets? That’s the thought behind two start ups in car sharing, London-based WhipCar and Boston-based RelayRides (Teaming up with the Joneses, Apr 22, The Economist).
Both aim to get car-owners to rent their vehicles to strangers when not using them themselves. At heart, both offerings are online exchanges. Car-owners and drivers register, contact one another through the site and agree to a rental contract. To ensure that both parties are trustworthy, WhipCar asks, among other things, for details of both the rented car’s registration and the renter’s licence, and checks them against official data. It also provides insurance for the duration of the rental and a replacement car if there is an accident. In addition to these measures, RelayRides only accepts cars that have gone through a safety check and installs a device that allows them to be unlocked with a special card. This way, owners and renters do not have to meet, as they do with WhipCar. Both firms allow owners to set the price, taking a 15% cut.
It’s been reported that a car-sharing service (owning its own cars) can bring in $1,500 – $2,000 per month per car. If an individual offers their car on one of these exchanges often enough that it generates, say, half that in monthly revenue, the exchange would be earning between $110 and $150 per month per participant car. That’s not bad when all of the investment is in setting up the web site and the only marginal cost is the insurance per rental. But the questions are whether enough people will offer up their cars and whether there will be enough users that car owners get a decent return.
The Economist notes that, on the one hand, cars are awfully personal and many be reluctant to loan out their baby to a stranger (I would be in that group). On the other, the article presents the following:
Yet cars are expensive, underused assets. On average, a British car is driven for less than an hour a day but costs about £5,500 a year to own—a sum many would love to reduce in these straitened times.
I see two problems for making this work. First, the figure that the article reports arguably underestimates how much the car is used. My drive to the office may be short, but by having my car at work I maintain the option of running out to pick up a sick kid if his school calls. I won’t readily give up that option for a mere $15 per hour. Part of why I own a car is to have flexibility and I will need a significant premium to give it up. The second factor is that car sharing will work best when there is a dense population carless people. That is almost by definition an expensive place to keep a car. We can thus infer that a good number of those who own cars in such areas are not hard up for cash. Why are they going to participate in these exchanges?