Why would the world's largest car company partner with a tiny, little-known startup that could cannibalize its business by promoting car sharing instead of new-car buying?
According to General Motors Vice Chairman Steve Girsky, the reason GM recently led a $3 million round of funding for RelayRides — one of a growing number of so-called peer-to-peer car-sharing services in the U.S. — is that "our business is really mobility, moving people around."
In other words, what matters most is that more people are driving around in GM vehicles, whether they own them or not. And San Francisco-based RelayRides, which encourages people to lend their personal cars to strangers for an hourly fee, has the potential to help in that regard.
Proponents of peer-to-peer car sharing say it could easily outstrip traditional car-sharing services like Zipcar over time. Whereas Zipcar either owns or leases the 9,500 vehicles in its fleet, peer-to-peer car-sharing companies like RelayRides, Getaround and newcomer JustShareIt (which launched this January in San Francisco) let people rent out their own autos to others at rates set by the car owners themselves. With more than 250 million vehicles already on the road today, that's an enormous pool to choose from. A 2010 report from Frost & Sullivan estimated that some 4.4 million people will join car-sharing networks by 2016 in North America.
Even so, RelayRides is likely to get the bigger boost from the partnership. GM is gearing up to begin promoting RelayRides to the five million active users of its OnStar in-vehicle security and navigation service this spring. RelayRides' members will be able to use their smartphones to find OnStar-enabled cars that are available for rent. Considering that RelayRides' network of vehicles currently consists of just 200 cars in San Francisco and Boston, the partnership promises to dramatically increase both the quantity and quality of cars in its network — and help bring peer-to-peer car-sharing into the mainstream.
Quick access to otherwise idle cars is car sharing's main draw. RelayRides founder Shelby Clark, a Harvard Business School graduate, says he came up with the idea for RelayRides on Thanksgiving Day 2008, when he had to bike 2.5 miles in bad weather to the nearest Zipcar, which he then drove to Western Massachusetts to celebrate the holiday with his family. "I was passing all these cars sitting on the side of the road and was thinking that the solution to my problem is not more cars. Cars we have. There are plenty of them." What's more, the average car is idle 92% of the time.
The idea makes business sense, too. Because peer-to-peer car-sharing services don't have to pay for the vehicles they rent out (or their upkeep), they have the potential for much higher profit margins than traditional car-sharing services, and can operate more like an online marketplace such as eBay.
"When you look at traditional car-sharing or rental services, what's interesting is how much of their money is drained out by fleet maintenance," notes Joe Kraus of Google Ventures, which is also a RelayRides investor. For Zipcar, which reported its first pre-tax quarterly profit in late 2011, fleet maintenance accounts for about 65% of its total expenses. And according to a 2011 report from AAA, the annual cost of owning and maintaining a new car for individuals ranges anywhere from $6,758 for a small sedan to $11,382 for a SUV. For many people, says investor Kraus, "their car is the largest depreciating asset that they own."
The big catch, of course, is whether Americans are really comfortable renting their personal cars to strangers. "Some people by nature don't want to share anything," concedes Bob Tiderington, GM's Manager of Business Initiatives, the unit that partnered directly with RelayRides. But the rise of collaborative consumption, in which people rent or lend everything from a hammer (at borrowtools.org) to a cocktail dress (at renttherunway.com), suggests that enough people are comfortable with the idea to make the business model work. "We have moved into an era where access to good services and talent trumps the ownership of them," says Lisa Ganksy, author of The Mesh: Why The Future of Business is Sharing and a RelayRides advisor.
RelayRides does everything it can to make car sharing a little less scary for first timers. It inspects cars for safety before allowing them into its network and doesn't accept drivers with a major driving violation or more than three minor violations in the last three years.
Its insurance policy includes $1 million in liability coverage (for injury to others or their vehicles) plus collision and theft coverage for up to the value of the rented vehicle, minus a $500 deductible paid by the renter. Because RelayRides' policy is separate from the owner's personal coverage, damage incurred by renters doesn't get reported to the owner's personal carrier. Twenty percent of the hourly rental fee goes toward insurance. (The car owner pockets about 65% of the total fee; and RelayRides gets about 15% — from which GM will take a cut for cars rented out via its OnStar system.)
Steve Morris of San Francisco says he has rented out his 2010 Ford Escape 68 times via RelayRides since March 2011, earning $2,860 through January of this year. "It takes a big chunk off the monthly payments," he says, adding that there hasn't been any significant damage to his black SUV, which he rents out for $9 an hour. "Every once in a while, I'll be like, Why is all this crap in the car? Why is my steering wheel sticky?' But that is the exception, not the rule," he says.
To give owners additional peace of mind, RelayRides' cars are equipped with GPS systems that keep tabs on their whereabouts at all times, and the ignition is disabled if someone other than the designated renter tries to start the car. Renters currently unlock the car by holding a card embedded with a RFID chip up to a card reader installed in the car window. (Once the OnStar program launches, cars can be unlocked via a smartphone app.) Both owners and renters can rate each other on the site, eBay style.
Such safety and security measures are essential when bringing a new idea to market that involves sharing what for many people is one of their most valuable possessions. "RelayRides is in the trust business. That is the essence of the business," notes RelayRides advisory board member Rob Chestnut, who is also the former head of trust and security at eBay.
For now, however, the biggest challenge that peer-to-peer car-sharing companies face is letting consumers know they exist. Only 5,000 people have signed up for RelayRides since it launched in June 2010, and the pool of cars to choose from isn't particularly enticing. In late January, offerings in San Francisco ranged from a 2005 Toyota Corolla for $5 an hour to a 2002 Cadillac Escalade for $12 an hour.
But what RelayRides lacks in size, it makes up for in bullish investors. Backed by Google Ventures, August Capital, and now General Motors, the company has amassed some $13 million in venture funding since it launched in June 2010. And an influx of higher-end GM cars tricked out with OnStar could entice more mainstream renters to give car-sharing a try. "If we can get 1 in 1000 cars in the U.S. [into the RelayRides network], we could be a multibillion dollar business," notes investor Howard Hartenbaum of August Capital.
Michael Arrington, the TechCrunch blog founder turned investor, who is backing RelayRides' rival Getaround, says he expects peer-to-peer car-sharing to become a multibillion-dollar industry in the U.S as well. "There are lots of these business models that facilitate seemingly crazy transactions between strangers, like Prosper [where people lend money to strangers] and Airbnb [where people rent out rooms in their homes to strangers]. The real issue isn't will people rent cars?' It's who can control their costs best."
In other words, it's still anyone's guess which upstart will eventually take the lead.