Car-sharing becoming part of value proposition for auto owners
(Bloomberg) -- The ability to rent his car to strangers for cash convinced Trevor Davis, a high-school teacher in Dallas, to buy a brand-new Honda Civic instead of a used car. “I was going to get something real cheap, an inexpensive second car to drive back to the Fort Hood area,” said the retired Army veteran, who makes the 150-mile trip frequently. “But then I was like, ‘I can get a better car and not really pay for it.’”
This is the logic behind Airbnb-like services for autos that are catching on as new-car prices soar, borrowing costs rise to the highest in a decade and consumers take out longer-term loans to keep payments down. Startups like Turo Inc. and Getaround Inc. are helping car owners lower their transportation costs in ways analogous to how Airbnb Inc. enables real estate owners to defray housing expenses, using peer-to-peer rental transactions.
Car-sharing startups are beginning to look more like sales tools than mortal threats to traditional car ownership that automakers ought to be worried about. Fiat Chrysler Automobiles NV and Volkswagen AG’s Porsche are both experimenting with Turo to see if they can up-sell customers or reach new buyers, while General Motors Co. rolled out a service last summer to let owners of its cars rent them out.
Buying a new car is “no longer this freedom-only, sort of care-free-type of purchase that some people may have enjoyed over the last few decades,” Andre Haddad, Turo’s chief executive officer, said in an interview. “For more and more people, this is a mathematical problem that they need to solve.”
The arithmetic is working out in Davis’ favor. His 2019 Honda Civic costs about $428 a month, including insurance. In the first month he put the car on Turo, Davis said he earned $437 renting it out for about three weeks.
Just 10 to 15 percent of the roughly 350,000 cars listed on Turo are new, Haddad said, and the average vehicle is three to four years old. About 60 percent of owners who put their car on the platform use the proceeds to pay down a car loan, and more than half use it to cover primary expenses or add to their savings, according to an internal survey of 3,900 Turo users last summer.
A 2018 study by Susan Shaheen at the University of California, Berkeley found that most people who joined peer-to-peer car-sharing services were not replacing a vehicle, and nearly half were looking for alternative transportation because they didn’t own a car. Another 20 percent joined to earn money by sharing their wheels.
“We are becoming increasingly convinced that the pool of buyers who can afford new vehicles is shrinking,” said Michelle Krebs, a senior analyst at AutoTrader. “It will be affordability that pushes people to consider mobility services, whether it will be peer-to-peer car sharing, or more Uber or Lyft kinds of things.”
Turo, founded in 2009, has raised $205 million from investors including Daimler AG, the venture capital arm of Liberty Mutual Insurance Co., and venture capital firm Kleiner Perkins. The company was valued at about $760 million at the closing of its last funding round in March 2018, according to the Prime Unicorn Index, which tracks the performance of 116 private U.S. companies valued at $500 million or more.
Getaround, its fellow San Francisco-based rival, counts Japanese internet giant SoftBank Group Corp. and Toyota Motor Corp. among its backers. The company was valued at more than $800 million in its funding round last August, a source familiar with the discussions said at the time.
Turning your car into an extra income stream is coming in handy at a time when affordability is straining new-car sales. The annualized industry sales rate slowed to 16.6 million in February, the slowest pace in 18 months. Auto lenders have been tightening credit, and the number of people delinquent on their loans swelled to a record of more than 7 million last year.
Harley Fox, a 61-year-old who lives in Rockwood, Michigan, said he would have had to sell his cherry red, three-wheeled motorcycle, a Polaris Slingshot, if he hadn’t put it up for rent on Turo. Payments on the vehicle, which he bought new for $27,000 in 2016, are close to $700 a month.
Fox, a military veteran, relies on Social Security disability checks and his Turo rentals to help make ends meet. “I make enough that I can make the payment and still have money left over,” he said, estimating he’s earned about $4,700 in three months on the app.
Car sharing is likely to be a niche activity, said Mark Wakefield, head of the automotive practice at the consultancy AlixPartners, who’s skeptical it will ever become a widespread way for people to stave off defaults on vehicle loans. “If you think of the tide going in and out as the economy goes through boom and recession, this is a toothpick of an oar,” he said. “It’s not going to reverse the tide.”
Still, carmakers are eager to experiment with the services and collect data on how people use them in case it takes off, he said. That’s the idea behind Fiat Chrysler’s three-month pilot with Turo in Boston, in which some Jeep owners are putting their SUVs on the platform to make extra cash. The average price of a new Jeep Wrangler was $42,473 in 2018, up 59 percent from a decade ago, according to market researcher Edmunds.
Matt Ogden, a 25-year-old engineer in Philadelphia, used to pick up Uber and Lyft fares with his Honda Civic after work. When he leased a 2018 Jeep Wrangler, he decided to put it up on Turo, even though he could afford the $389 monthly payments. “I’m able to afford a way nicer car for a lot cheaper,” he said. “I’m just trying to make money from everything I buy.”