Car Sharing: A Slow-and-Steady Disruptor

easy access to car sharing through app
Car sharing app

With the emergence of the sharing economy, making things that were once personal accessible to complete strangers has become the norm. This “new normal” of renting out everything from our services to our homes is changing the role of private ownership. It not only creates opportunity for both providers and consumers, but disrupts traditional industries. Among these are the auto retailers and car rental companies faced with a surge in car sharing services. Like other disruptors, car sharing not only poses a unique option for the public, but imposes challenges and considerations for both government regulators and automakers.

Our vehicles spend approximately 95 percent of the time parked and car sharing creates a purpose for the often dormant everyday automobile. These programs are akin to renting, but with more flexibility. A car share allows you to borrow an automobile for a short time at a fraction of traditional rental car rates. This low-cost business model is making autos available without the responsibility of car ownership, need of loans or credit checks. Car sharing also provides a form of alternative income for private owners just as ride-hailing and home shares have done.

Like Uber, Lyft and Airbnb, car sharing has stepped into a traditional industry in an untraditional way, which makes many wonder what regulations are on the horizon? And what does this mean for the automotive industry?

The birth of the sharing economy

sharing economy visual

When the recession hit in the 2000s, consumers sought new ways to either make money or pay less for necessities. When Apple created the App store  in 2008, it opened up a whole new way of receiving goods, services and information. Businesses could work together through these smartphone apps as well as everyday people gaining broader access to either products or the ability to offer something for sale or short-term use. This led to the birth of the sharing economy, which is the sharing of goods and services, free or at a lower rate than traditional companies charge, and is more peer-to-peer than corporate.

The app store made it possible for anyone interested in offering and procuring any type of good or service to do so on a broad scale via an on-the-go, open 24/7 mobile device. That same year, companies that offer fee-based “borrowing” or “splitting”—such as Taskrabbit—began cropping up, establishing a foothold in the sharing economy. And so it was only a matter of time before car sharing became one of the many ways of not only making money, but having access to something as vital as an automobile without having to own it yourself or pay exorbitant rental car fees.

Mid-20th Century innovative thinking

Zurich pioneers car sharing in the 1940s
Zurich, Switzerland

While an intrinsic part of the innovative sharing economy, car sharing is not a 21st century invention. The first recorded program started in Zurich, Switzerland in 1948. The Swiss city created Selbstfahrergemeinschaft–known as Sefage–to make vehicles available to residents who couldn’t afford private car ownership. The program was in existence until 1998 and set the stage for Europe to embrace the concept.

Throughout the last half of the 20th century, the idea of sharing a vehicle began taking shape across both Europe and North America. As traffic congestion got worse, economies became more burdened, and cities began to spread, the need for such programs became more appealing. By the late 90s, several systems were in place on the other side of the pond and Carshare Portland in Oregon became the first program in the U.S. in 1998. Zipcar, Flexcar and City Car Club all launched in 2000, with Zipcar ultimately purchasing Flexcar—which had already purchased Carshare Portland—and becoming the most used program in the country. Europe still has the most accepted systems and highest number of members, but car sharing is now available in over 600 cities and countries such as China, Brazil and Canada.These range from peer-to-peer services (P2P) to corporate owned business-to-consumer (B2C) operations.

P2P VS. B2C

Peer-to-peer services or P2P are programs that allow private car owners to “share” their personal vehicles with others. Getaround, which joined with CityShare in November 2016, and Turo (formerly RelayRides) fall into this category. The companies facilitate the connection, but like Uber and Lyft, the proceeds—less a handling fee—belong to the owner.

P2P programs are heavily neighborhood based. Cars are either left in a parking space for pick-up or, in the case of Turo, delivered to a pre-determined meeting area. Vehicles are opened via a smartphone app and the agreement is that they are clean and gas tanks replenished with fuel used.

Business-to-consumer (B2C) companies offer autos that are part of a corporate maintained fleet. Rental outfits like Enterprise Rent-a-Car, Avis, U-Haul and Hertz have expanded into hourly sharing of their vehicles and have even purchased competitors—Avis bought ZipCar and Enterprise Rent-a-Car bought PhillyCar Share—to boost the fleets that support their local car share program. Many offer electric vehicles—Car2go, for example—which supports decreasing our carbon footprint, a major goal of this program.

The logistics of car sharing

handing keys over for car sharing

Flexibility and accessibility make car sharing different from car rental. In both cases, there are no rental agents. B2C services are at your disposal 24 hours a day, 7 days a week. Because P2P relies on actual vehicle owners, accessibility is a bit more structured, but still more fluid than traditional rental agencies. The majority of these companies require consumers to join and pay a subscription or membership fee to access cars, whether P2P or B2C. This is different than the sharing price and is a fixed amount either per month or year. It allows members to browse different cars in their area, reserve one for whatever time they need and access a smartphone app to manage their subscription. Cars can be picked up in designated areas around the city, whether it’s a specific zone reserved for that sharing service or the last parking space in which the previous user left it.

B2C subscriptions allow you to unlock a car with either a membership card, smartphone app or a fob. Keys are left inside and once that vehicle is opened, the “sharing” time begins. It then ends once the car is returned to the designated parking space and it is locked with the app, fob or membership card. Therefore, if a driver forgets to deactivate the car, rental fees continue to be charged and penalties incurred for using the car beyond the agreed upon borrowing period.

Through the use of location services and base stations, maintaining the fleet of cars and finding them as a consumer are simple. The location services are handled through the mobile devices and each car is geotagged through the interface with the base stations. These are basically the hubs that bring in and send out the information on where to find whatever car is reserved. These work in tandem to help clients of the car sharing services track down a vehicle at any time of the day and for the companies to keep track of their automobiles. This technical collaboration is a vital aspect of the entire industry in order to keep consumer confidence in the business model high.

The system fulfills a growing need for short-term car rental and helping whole communities that are experiencing transportation issues. It’s also become part of the conversation on just how government can manage and work with the sharing economy.

Disrupting industry and regulators

The sharing economy has reimagined some of the most tried-and-true industries—Uber and Lyft with ride-hailing, Airbnb with hospitality and various car sharing companies with automakers and rental agencies. These innovators have shifted the paradigm in their respective categories, creating disruption in a way both established companies and regulators were not prepared. Regulators find themselves addressing this new space by straddling both the requirements of traditional businesses and the new upstarts who are presenting issues not previously considered.

Right now, businesses that sprouted out of the sharing economy are mostly unregulated. Because of this, however, they are dealing with some backlash—in court and various cities/states/countries. They are rogue by nature, operating in a grey area, and growing at an astonishing rate, which has put many on the defensive and made regulating them difficult.

Car sharing appears to be different. The business model that has been around since the late 40s is getting supporters in the digital age. States like California, Washington and Oregon require motor vehicle owners who wish to rent out their personal automobiles to belong to car sharing companies to ensure they meet safety, insurance and financial reporting requirements. Car sharing companies consistently work with cities as well as support some of the lower income residents and local universities with their short-term car rentals. However, they are viewed as traditional rental companies by regulators, which has led to being taxed in the same way.

The taxes on these transactions as well as motor vehicle departmental fees associated with traditional car rentals have created problems for car sharing in some states, because they negate the “lower priced” business model. With a tax that is equivalent to a traditional car rental, that percentage can be 20 percent or more—a charge that needs to be passed on to consumers. The assumption, however, is that the bulk of rental users are out-of-towners, meaning it is a tax that is only collected from those participants when using the cars. Car sharing is different, because local residents are the core users. This is what has regulators reevaluating whether it makes sense to treat car sharing services the same way as rental agencies when the purpose is far different. Car2Go found itself so burdened by the taxes and fees recently, they had to pull out of such cities as San Diego and Miami, and was on the verge of leaving the Twin Cities in Minnesota when local officials decided to take a deeper look at how it is being charged.

This collaboration between lawmakers and car sharing companies has led to a smoother transition and implementation of this solution. The fact that established automakers and rental car companies have seamlessly entered the fray puts car sharing in a different regulatory light than ride-hailing/sharing and hospitality disruptors.

Automakers and the disruptors

Per Boston Consulting Group (BCG), car sharing will account for the loss of just over one percent of total automobile purchases worldwide by 2021—or 792,000 vehicles. This is actually a negligible amount, because as autonomous cars and fleet sharing become more appealing to consumers, OEMs see this as a chance to engage in a new market and boost sales in other areas. Rental car giants and automakers are already getting ahead of this by starting their own or purchasing existing companies.

Enterprise Carshare came about thanks to the rental company’s purchase of the highly successful, community friendly PhillyCarShare. The Philadelphia based nonprofit program began back in 2002 to serve the local citizens with underutilized fleet vehicles. PhillyCarShare also encouraged the use of low emissions cars. In its first year, it saved Philadelphia approximately $8 million. When PhillyCarShare was purchased by Enterprise in 2011, it was renamed Enterprise CarShare and while no longer a nonprofit venture, it has since expanded to offer the lower-priced, highly-accessible cars across the nation.

Daimler recently launched CROOVE, an app that “lets private vehicle owners share their car, too.” Unlike other companies that have attempted to enter this space, the German auto manufacturer has created a program that allows you to choose any available car, not just the ones they make. Per Daimler CEO Dieter Zetsche, the goal is to offer a sort of “AirBnB on wheels” experience.

Daimler already owns car share service, Car2go—known for its electric vehicles—and provides a bulk of the cars for taxi fleets throughout Europe. GM, meanwhile, has expanded its partnership focus beyond that of Lyft and has come to an agreement with Uber to provide vehicles to its San Francisco drivers. The company does this through its Maven car-sharing app. Maven allows Uber drivers to rent a GM vehicle on a weekly basis, similar to that offered to Lyft whose drivers can choose from the Hertz fleet of cars or GMs via the GM Express Drive program.

A program for the masses

stylized visual of people on the streets

The benefits using sedentary fleet vehicles as well as the ability to provide affordable transportation to those in need make car sharing of interest to organizations throughout the world. Federal and local government agencies, cities, and universities/colleges find this a helpful solution to get more cars off the road and fill the need of those who often require the short-term use of a private vehicle.

The General Services Administration (GSA) provides a plethora of services to the federal government from offering up API’s for mobility services to maintaining its role in managing the facility needs of the various agencies. Recently, the agency implemented a car sharing pilot program awarding a Blanket Purchase Agreement (BPA) to Zipcar, Carpingo, Hertz, and Enterprise CarShare. New York, Chicago, Washington, D.C., and Boston have been chosen as the test cities, and the service is made available to individual employees as well as entire offices. The project, which started as a 1-year pilot in 2014 and has been extended year-over-year ever since, will allow GSA to track the accessibility, sustainability and efficiency of car shares versus vehicle purchase. The hope is to make a case for implementing more eco-friendly, congestion-saving government fleet solutions around the country.

Universities and colleges are naturally gravitating toward this model as well due to the limited space for cars on campuses. It has alleviated gridlock and parking problems along with allowing students to focus on putting their money toward what really matters—education, food and savings—instead of the high cost of owning, operating and housing a car at school.

A vintage solution expanding its reach

unique car being picked up

Car sharing may not be new, but it’s proving to be even more viable in today’s automobile saturated, digitally enabled world. While all eyes are on the horizon awaiting self-driving cars, these services are making use of what already exists in a way that addresses the many issues facing automobile use today—many companies offer vehicles with alternative fuels to lower emissions. Whether this will take off the same way as ride-hailing and hospitality alternatives remains to be seen—the entire industry is currently worth $1.1 billion compared to the $30 billion of Airbnb and $68 billion of Uber alone. But car sharing bears watching as it gains a steady following that may very well be instrumental in changing the face of the automotive industry in a way carmakers