Story URL: http://news.medill.northwestern.edu/chicago/news.aspx?id=227515
Story Retrieval Date: 8/23/2014 4:28:04 AM CST

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Courtesy of Gus Chagares

Gus Chagares made $1,700 renting out his 2001 Toyota Camry last year. Chagares said the service helps him offset the cost of monthly parking in Lincoln Park.


Peer-to-peer car sharing gains momentum within rental car industry

by Catherine Boardman
Feb 5, 2014


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Cat Boardman/MEDILL

 

The car-sharing industry is expected to grow from $937 million in 2013 to nearly $6.2 billion in 2020. Zipcar Chicago manager Charles Stevens said peer-to-peer car sharing complements his company. “We’re big fans of any ideas or approaches that raise awareness of the car-sharing economy,” Stevens said.

When Dan McCance and his girlfriend moved to downtown Chicago in April 2013, they sold their cars and rented cars from Avis for most of their trips. But an 11-day vacation to Michigan would have cost the couple $850 through Avis even with McCance’s work discount.

After thorough consideration of planes, trains, buses and car rentals, the couple selected an unusual alternative: a peer-to-peer car-sharing service called RelayRides.

“The daily rates looked appealing, and we figured we could rent a decent car for around $29 per day,” said McCance. The couple saved $500 even after a snowstorm forced them to extend the trip an extra day.

RelayRides, the nation’s largest peer-to-peer car-sharing company, allows auto owners to rent their idle vehicles to others in the area. The concept benefits both parties. Car owners make extra money with little effort, and renters who don’t have a consistent need for a vehicle can borrow one affordably and conveniently.

Getaround, Hubber and JustShareIt offer similar peer-to-peer sharing services as an alternative to more traditional companies such as Zipcar and Enterprise CarShare.

The process is relatively simple. Owners list their cars, choosing their own rates and availability, and renters can request a vehicle after passing a background check of their driving records. RelayRides and its competitors offer keyless entry and tracking systems. If a renter gets in an accident, the car-sharing companies repair the vehicle, covering up to $1 million in damage. If a car breaks down, renters can call the service provider to find a replacement car.

Some services operate in busy residential and business areas while others like Hubber serve airport traffic, allowing travelers to rent their car out instead of paying hefty airport parking fees.

“We provide the technology, inspections and logistics, and you provide the cars,” said Guarav Kohli, chief technology officer and founder of JustShareIt.

Since its beta launch in January 2012, JustShareIt has grown nationwide to more than 2,000 cars and more than 20,000 memberships.

Worldwide membership in car-sharing programs is projected to grow from 2.3 million in 2013 to more than 12 million in 2020, according to the consulting firm Navigant Research. The firm expects revenues for the industry to jump from $937 million in 2013 to nearly $6.2 billion in 2020.

But there are drawbacks to the services, and insurance coverage is a big concern for both car-sharing companies and their users.

Few insurance agencies are willing to insure peer-to-peer car companies because of their relatively new and unproven business model. The limited market for insurance drives up prices, which are then passed along to renters.

Additionally, many insurance companies aren’t willing to cover people who rent out their personal car to strangers.

“I haven’t had issues with my insurance, but I doubt they know I’m renting it out,” said Gus Chagares, a Chicago resident who rents his 2001 Toyota Camry for $35 a day. Last year Chagares brought in $1,700 renting through RelayRides.

Car-sharing users in California, Oregon and Washington are fortunate; state laws mandate that personal insurance providers can’t deny coverage for participating in car-sharing services.

Illinois, like many other states, doesn’t have that kind of law so Chagares’ insurance company could refuse to renew his coverage if it finds out he rents his car.

RelayRides even had to withdraw from New York after authorities said the service was violating the state’s insurance laws.

In the case of an accident, a more serious issue could arise. Car-sharing services generally cover accidents up to $1 million, but if claims exceed the limit, vehicle owners or their own auto insurance could be liable for the difference. And if an insurance company already dropped their coverage, owners could be personally responsible for coughing up the money.

Chagares said he isn’t worried about the risk.

“The million-dollar max coverage doesn’t really concern me, mainly because I know the odds of that happening are so small,” Chagares said.

Kathryn Broderick, who has made $800 renting her 2009 Ford Focus, agreed. She tries to minimize risk by not renting out her sedan during bad weather.

“I'm sure it's very rare that there's more than $1 million in damage,” Broderick said. “ And if you're not the driver, I can't see how that would affect you besides the cost of your car.”

For companies providing collaborative consumption services like car sharing, that’s a welcome attitude. Hubber founder Paul Davis said companies know if consumers worry that they’ll assume any financial responsibility, they won’t use the service.

“These systems have to be designed so that the party is not responsible, so they have the ability to participate in this sharing economy without risk,” Davis said.

Even with that assurance, some consumers will stick to traditional car sharing companies. Drew McManus, a Chicago resident who uses Enterprise CarShare and Zipcar, is not willing to take the risk.

“I'm not interested in the peer-to-peer service at all. The liability issues and potential problems related to the condition of the vehicle and customer service are enough to turn me off to the idea entirely,” McManus said.

Davis and Kohli said it will take time to raise awareness of and interest in the concept.

“We’re pioneering this new market,” Davis said. “Not everyone is ready for car sharing, that’s definitely for sure. It’s going to take time.”

Both founders said they view other car-sharing companies as allies in expanding the market rather than competitors.

Charles Stephens, general manager of Zipcar Chicago, said peer-to-peer car sharing is complementary to Zipcar.

“We’re big fans of any ideas or approaches that raise awareness of the car-sharing economy,” Stephens said. “There’s value as far as impact goes in raising the tide of awareness of car sharing companies, whether they’re the traditional Zipcar model or peer-to-peer.”

Zipcar, which has more than 10,000 vehicles and 850,000 members, invested in peer-to-peer company Wheelz, which RelayRides acquired in May. Zipcar president Mark Norman serves on the board of directors for RelayRides.

Kohli said a market definitely exists, evidenced by JustShareIt’s rapid growth and expansion during the past year. Though the company never advertised its services in Chicago, people began registering and listing their cars on the JustShareIt website under Chicago addresses.

“That organic growth shows that a market is there in very densely populated areas,” Kohli said.

Transportation analyst David Levinson said although traditional car-rental companies will not fade away, there is a niche for peer-to-peer services that can offer a quicker, easier alternative.

“Apps can erode some of the hassle, and maybe today’s companies are too sclerotic to innovate,” Levinson said.