Think Twice Before Renting Your Vehicle to ‘Gig’ Drivers

Sometimes learning what not to do, in the process of learning how to do something correctly, is the most vital part of wisdom. With a few changes, disaster turns into success, or vice versa.

This is what I have learned in “Car Sharing for Ride Sharing,” or, as a dealer, what defines failure or success in renting your vehicle out to “gig” drivers.

While a lot of revenue can be made by renting out used vehicles to folks who drive for a living, so much so that the numbers look very, very enticing, how you do this makes all the difference. 

All that revenue looks great coming in. But without the renter having significant “skin in the game,” that revenue can go out even more quickly and in greater amounts. Want to take back a used taxi?

I asked a dealer recently if he treated a rental car like the vehicle he had at home in his driveway, and he admitted he did not.

Now, multiply that 10x for a person who is using your vehicle as a taxi or delivery truck and is incentivized to over-drive with driving bonuses. 

Now, add in that folks rent a vehicle for gig driving for just two reasons: Either they can’t buy a car for credit and down payment reasons, or he/she is a career driver and knows enough to keep their personal car out of the equation.

Harry Campbell, “The Ride Share Guy,” and others have studied this in detail, and they find the economics work out far better, if you are driving gig part time, to own your vehicle. The vast majority of gig drivers are part time (a Lyft study of drivers pre-pandemic revealed that over 90% drive under 20 hours a week).

For folks who don’t have money or the ability to pay and have bad credit, an insurance deductible isn’t much of a deterrent or concern. Economically rational, they will just walk on any deductible for damage to the car – that’s your damage they are walking on.

Again, you are dealing with a major “adverse selection” issue here, as all gig drivers are incentivized to over-drive. The more you drive, the more chance of an accident.

So, although it may take a little while, you are usually playing Russian roulette here. The damage and accident costs of renting to gig folks usually outweigh the revenue – a net loser.

This is what I have learned about how to unlock the treasure: There are many conscious, enterprising people that use gig driving to supplement their income and want to use that income to own their own vehicle and improve credit.

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When there is “skin in the game,” both with an initial down payment and money accruing toward ownership with every new payment, over-driving and hazardous driving are minimized, and the quality of care for the vehicle goes up exponentially.

Just like a traditional “spot delivery,” the key here is that in the mind of the driver, the car being driven is the car “owned.”

Both the renter and dealer want the actual sale to happen as quickly as possible.  Since every penny of the cost of any damage deducts from down payment build, and pushes the sale farther in the future, the renter is motivated to be extra careful with the vehicle during the rental period.

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The potential loser becomes a big winner on the income statement with increased vehicle sales for dealers, as it enables more folks to buy vehicles, starting in a rental arrangement.

John F. Possumato (pictured above, left) is an attorney and founder and CEO of DriveItAway, which creates platforms and applications enabling automotive retailers to offer new app-enabled mobility options, including remote rental and rent-to-purchase.