Why Rental Car Companies Are Probably Getting Nervous

In this month’s issue, I explore the sharing economy and what it means for those of us choosing to make our cars, homes, bikes, and time into commodities bought and sold in a new marketplace. While reporting, I had the chance to talk to Arun Sundararajan, an information sciences professor at NYU’s Stern School of Business, who studies how the sharing economy is playing out in real time. He explained to me that any company whose products can be shared rather than bought has reason to keep close tabs on collaborative consumption. “I think there is the growing realization that some portion of your business, in a number of industries, is going to involve a shared product rather than an owned asset,” he said. “Now companies have to say, well, after I sell my product to my customers, are they using it efficiently? Because if they’re not using it efficiently, can I be sure that some sharing economy marketplace isn’t gonna come along and offer them a more efficient substitute?”

So I was interested to learn about three developments this week may be indicative of where the trend is headed. The first is that RelayRides, the peer-to-peer carsharing service that has roots in Boston, acquired Wheelz, another peer-to-peer service that’s been operating primarily on the West Coast for the past year and a half. The second is that Zipcar, the Cambridge-based carsharing service which was recently acquired by Avis, is now—and this comes as little shock—letting people rent Zipcars at airports. And the third is that a new startup called FlightCar, which lets drivers rent out their cars through an airport based car-sharing service, is launching at Logan Airport this month. What’s interesting here is that each of these business more or less exemplify what Sundararajan spelled out. And they’re all related.

Most analysts felt the Wheelz acquisition was great for RelayRides because Wheelz had a technological edge: their system called DriveBox, which enables people to unlock and share cars without having to physically exchange keys (right now, RelayRides users could only do so if they have the OnStar system in their cars). That no-human-contact model cuts down on the Ick Factor (more on that here) and was the differentiating component that led Wheelz to get major backing from … wait for it … Zipcar. When I was reporting the piece, I spoke with Zipcar CEO Scott Griffith about their willingness to invest in a peer-to-peer sharing business that could potentially eat away at their profits. His argument was that while some peer-to-peer sharing economy models were working (Airbnb!) “… some business models haven’t taken off as fast as others.” (I brought up RelayRides, and yup, that’s what essentially what he meant.) “RelayRides and Getaround are forcing key exchanges [between users]. That doesn’t feel scaleable or mainstream to me,” he said. [Update: Getaround’s team alerted me via Twitter that their Getaround Carkit technology also allows users to share cars without exchanging keys.]

So why would Zipcar invest in Wheelz? Wheelz already had the technology in place. Plus, Griffith sees them not as a competitor to Zipcar, but a potential addition to their fleet. Think of how annoying it is on busy weekends when all the Zipcars in your neighborhood are already booked. Wouldn’t it be nice to borrow a neighbor’s car through Zipcar? (And get the added bonus of their huge corporate infrastructure just in case anything goes wrong?) That’s essentially Griffith’s thinking: “If Wheelz were to succeed as a large scale business, and we could pull them into the Zipcar system, that’s a big idea,” he said, noting that the affiliation with Zipcar would “professionalize and mainstream the experience.” 

Which brings me to Zipcar’s announcement that they’ll now allow users to rent their fleet at the airport. Anyone who has ever rented a car at a terminal knows that the process is designed to be as annoying as humanly possible. (How many different ways can they ask you if you’d like to sign up for added coverage?) Part of the beauty of renting a Zipcar at the airport is that it relieves some of this stress. All I need to do is wave my membership card over the dashboard and then I’m good to go. Lovely, and according to USA Today’s number crunching, a daily rate for a Zipcar is slightly less expensive than a typical Avis rental. Huzzah!

But as it happens, FlightCar has the potential to disrupt the disruptor in this scenario. The company, which was launched in February by three teenage Ivy League dropouts and backed by founders of Airbnb, Reddit, and, strangely enough, Ryan Seacrest, looked at the inefficiencies of the airport parking and rental models and intends to flip them on their heads. Instead of paying to leave your car parked in a concrete lot for a week—at any given moment there are some 360,000 cars parked at airports says FlightCar cofounder Rujul Zaparde—you park it in a FlightCar lot for free, where it’s vacuumed, washed, and then rented out to another airport traveler. A black town car takes you right to the terminal, cutting down on the need for parking lot shuttles and other time sucks. Even better, FlightCar only charges people $17-$20 a day for a rental and doesn’t charge extra for GPS units or carseats. Owners typically receive $10 per day if their car was made after 2008 (or a flat $10 if it’s slightly older). “Nobody likes renting a car at the airport, and nobody likes paying for parking, either, ” says Zaparde, noting that both businesses are “ripe for disruption.”

Zaparde points out that the rental car market makes $11.6 billion in revenue in the U.S. each year, and 95 percent of the market is run by three major companies. My bet is that the rental car companies are already beginning to feel uneasy about all of this shakeup, so it’ll be fun to watch how things shake out in the coming months.