Is Peer-to-Peer Car-Sharing the Next Great Startup Idea?

Innovation, the Internet, gadgets, and more.
March 6 2012 5:42 PM

Dude, Here’s My Car

Is peer-to-peer car-sharing the next great startup idea?

Handing off car keys.
RelayRides is making peer-to-peer car-sharing available everywhere in the country

Photography by George Doyle/ThinkStock.

Like eBay and Netflix, RelayRides is one of those startups whose founding idea is so obvious you wonder why nobody thought of it sooner. The company is a car-sharing service that owns no cars. Instead, RelayRides connects private car owners with people looking for wheels. I’ve got a 12-year-old Volkswagen Jetta that I drive, at most, twice a week. You don’t own a car, but you’ve got a clean driving record and live close to my house. There’s an obvious economic opportunity here, a match that will leave us both better off: You pay me to drive my car. And these matches might happen everywhere, all the time. On average, a car in the United States sits parked 23 hours a day, and there are 1.2 registered vehicles for every licensed driver. So we’ve got more cars than drivers, and most of the cars aren’t even being used. Why did it take so long for someone to figure out how to use all this extra capacity?

The problem, of course, is that you could drive my car off a cliff—and that, ultimately, is why peer-to-peer car sharing hasn’t hit it big. A Harvard MBA student named Shelby Clark came up with RelayRides a few years ago as he rode his bike through sleet to get to a car-sharing lot. “I was grumbling the whole way,” he says. “Why am I passing all these parked cars?”

When Clark looked into personal car-sharing, he found that everyone who’d thought of the idea had hit the roadblock: No insurance company wanted to write a policy that covered strangers borrowing one another’s vehicles. Clark found financing, made connections in the car-sharing world, and spent a year and a half trying to find an insurer. Eventually, he arranged a $1 million collision and liability policy that covers drivers using other people’s cars (there’s a $500 deductible). RelayRides launched in Boston early in the summer of 2010, and it opened up a second market in San Francisco later that year. In that time, it’s been a modest success—Clark says the site has signed up 200 car owners and 6,000 drivers in the two cities.

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But this week RelayRides is doing something that could alter the nature of car ownership in the United States: It’s making peer-to-peer sharing available everywhere in the country. Now anyone can list a car for a short-term loan, and anyone over 21 with a clean driving record can apply to become a renter. The company has also improved the logistics of the loan process. Until now, car owners were required to install an electronic keyless entry system to let borrowers access their vehicles. Soon*, through a partnership with General Motors, RelayRides will allow keyless entry into all vehicles that use the carmaker’s OnStar roadside support system. There are 6 million OnStar subscribers in the country, a huge pool of potential cars for RelayRides. If you don’t have OnStar, you can loan your vehicle the old-fashioned way—by meeting the driver and handing him your keys, or by installing a car-key combination lockbox.

To understand what’s potentially revolutionary about RelayRides’ national service, it helps to look at how car-sharing services work now—and how, often, they don’t work. Over the last 20 years, dozens of such services have started up in North America. According to the Transportation Sustainability Research Center at UC-Berkeley, about one-third of them have failed. The most successful service, Zipcar, has 673,000 drivers and 8,900 vehicles in the United States, Canada, and the United Kingdom.

Notice the huge disparity there—there are 75 drivers for every available car. That’s by design: Because a traditional car-sharing service has to buy, maintain, and arrange parking for all of its vehicles, it has an incentive to keep as few cars per user as possible. That works beautifully in some places. Car-sharing thrives in small, dense cities and college campuses, places where there are lots of drivers, the walking and driving distances are short, and owning a car is a hassle. But most places in America aren’t like that. In the suburbs, the exurbs, and sprawling metropolises like Los Angeles, Atlanta, and Houston, traditional car-sharing services only set up shop in the busiest locations. Everyone else is out of luck.

RelayRides’ model, by contrast, has no fixed costs. The company doesn’t pay anything if you offer to loan your car but live in a place where it’s unlikely to get rented very often. (RelayRides only pays for insurance while the cars are in use.) As a result, the company can potentially offer cars everywhere. I live in a Northern California suburb where Zipcar wouldn’t have any incentive to install a car lot. With RelayRides, several of my neighbors could offer their cars for rent on weekday afternoons. Over time, there could be enough cars available within walking distance that I could be sure I’d always have a car and would be able to get rid of my own ride altogether.

Alas, that’s not possible now. RelayRides’ national service is new, and if you look for a car in your neighborhood you’re unlikely to find one. (My nearest vehicle is 15 miles away; on the plus side, it’s a Porsche.) Clark says that it will take time for people to become comfortable with the idea of loaning their cars to strangers, but he’s sure that it will happen. Part of the reason is that we’re all getting more used to sharing stuff—even with the occasional horror stories, house-sharing services like Airbnb are thriving. I suspect that for many people, sharing a car is much easier to stomach than loaning out your house. Yes, it’s possible that someone could total your car—even if you loan it to an honest driver—but if you think about it rationally, that shouldn’t bother you. There’s the same probability that it’ll be totaled when you’re behind the wheel, and at least when a RelayRides user has it, you won’t have to pay for damages. If I total your car, you get a new one!

There’s also the prospect of making good money. When you list your car on the site, you set the hourly rate (as little as $5 an hour). You get to keep 60 percent of that fee, and RelayRide takes the rest. The company says that car owners make an average of $250 a month, and that some make as much as $1,000. Is this enough scratch to convince people to give RelayRide a shot? I asked my followers on Facebook and Twitter if they’d rent their cars out for $5 or $10 an hour. Most people said no, citing a variety of reasons—they worry about wear and tear, they’d be forced to keep their ride clean, and it would just feel weird.

I don’t share these feelings—I’d rent my car out if it weren’t a clunker with broken A/C—but I understand them. Changing these attitudes will take time. It’s taken more than a decade for traditional car-sharing services to take off, and it could take just as long for peer-to-peer sharing to make it big. Still, it’s indisputable that car-sharing is good for society. There’s evidence that, after they join up, car sharers use public transportation less but walk, bike, and carpool more often. Sharing also takes cars off the road, reduces car purchases, and reduces greenhouse gasses. As these benefits become more obvious—and as you start making money from your unused car—we may all see the wisdom in sharing our keys.

Correction, March 6, 2012: This article originally and incorrectly stated that RelayRides’ keyless entry system works with all OnStar vehicles. RelayRides’ partnership with OnStar has been announced but hasn’t yet launched. (Return to the corrected sentence.)

Farhad Manjoo is a technology columnist for the New York Times and the author of True Enough.

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