Laura Bliss is CityLab’s west coast bureau chief, covering transportation and technology. She also authors MapLab, a biweekly newsletter about maps (subscribe here). Her work has appeared in the New York Times, The Atlantic, Los Angeles magazine, and beyond.
Peer-to-peer sharing services that let owners rent out their vehicles are a focus of concern from traditional car rental companies, who see disruption ahead.
When the Tesla Model 3 hit the market in 2017, Jason Chan immediately bought two of them. And then Chan, who works as a software engineer in Silicon Valley, turned his mini-fleet of electric sedans into a business. He listed both vehicles on Turo, a peer-to-peer car-sharing platform often called the “Airbnb for cars.” Soon after, Chan bought a new Tesla Model X (that’s the company’s higher-end three-row electric SUV, the one with the “falcon doors”) and listed it, too. He made more than $80,000 in his first year, he estimates.
None of this was a coincidence. “I bought the cars specifically after I found out about Turo, for the purpose of writing them off as business vehicles,” Chan said. “And I found an opportunity to make money renting them out.”
Chan is among the tens of thousands of Turo users who have discovered this lucrative corner of the sharing economy, renting out small fleets of vehicles on the platform. The startup encourages this, marketing itself to young go-getters keen on turning car-sharing into a personal revenue stream. “A 22-year-old microfleet mogul,” reads one post on Turo’s blog from 2017. “24-year-old ex-restaurateur turns Turo entrepreneur,” reads another. Dozens of Reddit threads are devoted to spreading the car-sharing-as-career gospel; in the business press, articles about hosts paying for multiple Teslas with their Turo earnings abound.
Perhaps not surprisingly, then, peer-to-peer car-sharing companies like Turo are facing major resistance from the $30-billion-a-year car rental industry. Like yellow cabs and hotels before them, the rent-a-car titans see digital disruption coming, and they’re doing their best to fight back before it’s too late.
In 34 state legislatures, lawmakers are considering bills that would require companies like Turo and its rival Getaround to play by the rules established for rental car companies, paying the same taxes and following the same safety requirements. The fight is particularly heated in Arizona, Ohio, Illinois, Alaska, New Mexico, Colorado, and Florida. Much of the pushback is coming from Enterprise Rent-a-Car, now the largest player in the traditional car rental industry in the U.S., and the American Car Rental Association (ACRA).
Enterprise characterizes its position as a demand for fair play. “These companies are very sophisticated, technology-savvy companies that have hundreds of millions of dollars invested in each of them,” Ray Wagner, the senior vice president for government relations at Enterprise Holdings, told AP this month. “They should be expected to comply with the same rules as a small, mom and pop rental car company located in rural Arizona.”
In other words, welcome to another battle in the great sharing-economy war between old-school services and digital-era platforms. And though it may look like a sideshow amid the multibillion-dollar drama over the future of the ride-hailing industry, the fate of the peer-to-peer car-sharing model is worth watching: This might be where the rudiments of an autonomous driving future are being built.
“The models of mobility we see introduced now aren’t necessarily the models that will continue to exist into the future,” said Susan Shaheen, the co-director of Sustainable Transportation Research Center at UC Berkeley.
To understand why, think back to the early promises of the “sharing economy.” By maximizing private stuff for public benefit, sharing “platforms” that allowed strangers to rent their property and services to each another could forge community bonds, make society more equitable, and transform the very nature of ownership.
One pre-digital application of this idea was car-sharing, which appeared in Europe in the late 1940s. The model became more popular in the 1990s as companies started to rent out compact cars and vans from designated spots in high-traffic urban neighborhoods. With the arrival of smartphones and frictionless digital transactions, peer-to-peer auto-swapping took off in the 2010s, offering users some advantages over the business-to-consumer model. Cars could be made available in more remote and rural settings, with a range of luxury or special-interest models that might not make sense for traditional car rental companies like Hertz or Avis to rent out themselves.
Plus, the new format featured a powerful new idea: Not only would car-sharing customers save money on rentals, the individual “hosts” would make money, too. This concept—that the people, not just companies, doing the sharing could profit—“has since been capitalized upon by [...] Lyft and Uber, where private individuals often drive their personal vehicle to provide on-demand rides.” Shaheen wrote in 2017.
It helped that the traditional car-rental model can be notoriously unpleasant. An airport shuttle drags renters to a distant parking lot, where long lines and hidden fees often await at the counter. Reporting a fender-bender can be a byzantine nightmare. Forget to return the tank full? Prepare to pay extra.
So the peer-to-peer car-sharing model has expanded mightily in recent years, with companies like Turo and Getaround offering an Airbnb-like platform that allows regular individuals to rent out personal vehicles to other users at whatever price they set. Both companies have picked up serious investment, with $600 million from venture capitalists and auto companies beneath their sales. According to Shaheen’s research, as of 2017, peer-to-peer car-sharing services were used by more than 2.9 million people in North America, who rented more than 131,336 vehicles. That reflects massive growth in a short period of time: Peer-based car-sharing fleets grew by 80 percent, and membership more than doubled from 2016.
Now, peer-to-peer companies are now being confronted with a strange form of validation: regulatory pushback.
As traditional car-rental companies see it, car-sharing platforms are borrowing the same playbook that Uber used to skirt permits and fees that applied to taxis. According to a recent study by the Tax Foundation, a conservative think tank, 44 states pocket excise taxes on rental cars, in addition to standard sales taxes and airport surcharges. These fees result in millions of dollars of revenue for state governments and local authorities, while also adding on as much as an extra 30 percent on the cost to customers.
Turo is also duking it out in court with airport authorities in Los Angeles and San Francisco. The latter filed a lawsuit in January 2018 over the company’s flouting of fees and regulations at the airport, including a ban on curbside rental pickup. “Turo executives seem to think the rules don’t apply to them,” San Francisco City Attorney Dennis Herrera said in a statement last year. “They seem to think traffic congestion is someone else’s problem, and that their company doesn’t need to pay its fair share for the public facilities it is profiting off of. They couldn’t be more mistaken.”
But Turo’s representatives insist that, much as Uber and Lyft hold that they are not taxi companies (or even transportation companies), they’re not a rental car company. They’re just a “platform,” according to Michelle Peacock, Turo’s vice president of government relations. “It’s a different way of doing business.”
Peacock also points out that Turo’s hosts don’t enjoy the advantages that traditional rental companies get, such as fleet discounts when purchasing their vehicles. And the company claims it provides social and economic benefits to households that need it. A recent study from DePaul University that focused on the use of the service in Chicago found that some 94 percent of Turo trips are profitable to hosts, who make nearly $90 on average per trip. Compared to other segments of the sharing economy, such as dockless bikes or Airbnb, car-sharing benefits flow more evenly across the city, including to lower-income neighborhoods.
“Peer-to-peer car-sharing enables these car owners to earn money when they’re not using it,” said Andre Haddad, the CEO of Turo.
But the hosts running car-sharing rental fleets like business ventures may undermine those payoffs.
When it started life in 2009 under the name RelayRides, Turo offered hourly or daily rentals using personally owned vehicles. (Its closest competitor, Getaround, still does.) Later, it moved to bookings on a 24-hour basis. Over time, the quality of many cars available on the Turo platform moved upwards, as the company distinguished itself by offering higher-end vehicles. (“Rent better cars,” its website declared at one point.) Observers surmise that a large share of the company’s revenue is generated by “power hosts” who rent multiple vehicles on the platform. (Turo takes a 25 percent cut on each transaction.)
In essence, critics say, they’re establishing miniature rental businesses, without paying any of the fees or taxes that such companies must pay. “Is this really a peer-based model anymore?” said Shaheen. “That’s one of the questions that has been raised.”
Steven Webb, Turo’s director of communications, says that 95 percent of the platform’s hosts rent out three or fewer vehicles. “The audience and mission of company is focused on individual hosts rather than on enabling the car rental companies to operate on Turo,” he said. But he wouldn’t say how much revenue the startup derives from the smaller number of hosts who run businesses off of it.
This franchise-like model is compelling to investors backing peer-to-peer players, said Shaheen, especially as they look to a future filled with shared, autonomous vehicles. A dispersed fleet of vehicles for rent could be a huge advantage over the more centralized model of traditional rental cars. If all kinds of vehicles are able to drive themselves to pick up passengers, the difference to consumers between ride-hailing services, rental cars, and car-sharing vehicles may matter less.
If these mobility business models start to blur together—as Shaheen’s research essentially predicts they will—Turo’s platform could really take off. “You can imagine how far a passenger can travel if they know there are hosts who have five automated cars they can rent when they get there,” she said. That longer-term pay-off may be what Enterprise and ACRA are keying in on as they lob legislative attacks.
For now, the traditional rental-car industry isn’t hurting. Analysts predict the global market will double in value by 2022 to more than $120 billion. Demand for transportation options among consumers only seems to be growing. And old-timers are dipping their toes into more innovative services, including partnerships with autonomous vehicle manufacturers and small-scale car-sharing services of their own. But it’s not clear what path the incumbent industry is going to chart into the future.
What does it all mean for consumers? In the short term, where these regulations succeed, it may get a little pricier to rent a Turo in some states. But that wouldn’t eliminate the platform’s fundamental conveniences. And while Uber and Lyft’s IPO might seem like the resolution of a decade of profound transformation in the transportation industry, what’s happening now between car-sharing and rental cars is a signal that a lot more change is still coming. “We’re seeing this field of the peer-to-peer economy evolving,” said Shaheen. “Nothing is staying the same.”