Vehicle Subscription Services, Car Sharing by Another Name: Rentals

Make no mistake: Subscription services and car sharing both free-floating and peer-to-peer versions are just new names for good old-fashioned car rental –

with updated procedures and apps.

I feel the need to say this, after talking to a third automotive journalist who quite genuinely was technically reporting on the new world of vehicle retail subscriptions, but really didn’t know why I kept referring to car-sharing programs in my background discussion. 

While every industry to some degree is affected by new Silicon Valley buzz words, our automotive retail industry seems almost afraid to break the spell and say that a rose by any other name still is a rose.

Just because you throw in some new technology, like a dedicated app which allows for self-service, and vary the time duration of the rental (by the minute, hour or in the case of subscription services, week or month), doesn’t change fundamentally the name of what the industry has been doing for over 100 years. 

Sorry Silicon Valley, you didn’t invent subscription services through “fintech,” or car sharing through a useful app. Those are variations or more accurately evolutions of car rental, which itself is a form of leasing.

So here is the irony of ironies. While Silicon Valley likes to think it invented the peer-to-peer industry in general over the last decade or so (Turo for vehicles, AirBnB for housing), the car rental business started as none other than a peer-to-peer offering, way back in 1916. 

It was then that Joe Saunders, an Nebraska resident no less, chose to rent out his Ford Model T to local and visiting businessmen.  Old Joe was even a tech leader in his day, as he affixed a mileage meter to the left front wheel and charged renters 10 cents a mile.

The rest is history. By 1925, his car-rental company had a hockey-stick growth curve. He was operating in 21 states with a “diversified” fleet, including a reported $1 million worth of Chrysler vehicles (quite a lot in those days).

The only conceptual difference between his startup company and today’s startups is that back then venture money wasn’t flowing. Still, Joe showed a substantial profit and grew from primarily internally generated cash flow. Ah, the good old days.

At any rate, let’s make it simple and clear.

Subscription Services: Car rental of new or slightly used vehicles, usually done by app for periods of a week or longer, with the provider handling insurance, vehicle maintenance and repairs, and allowing for the customer to switch vehicles or classes of vehicles, under various rules. 

Car Sharing: Car rental, usually “self-service” provided by an app; in most cases the app is connected to telematics on the vehicle, which can provide keyless entry and has picture/security verification, so that literally the entire rental can be preformed remotely. (Zipcar, below left, among car-sharing services.) 

While this once sounded technologically impressive, these platforms are getting to be commonplace now, with many different variations (not quite “off the shelf” commodities yet, but you can see where it’s going). 

Also, typically car sharing is available for smaller time increments than traditional rental vehicles (and much smaller increments than subscriptions), with rentals available by the minute and hour, as well as by the day or week.

Car Sharing/Free Floating: Car sharing with the addition of a few station-based combination retail/administration/service facilities. Vehicles can also be picked up and dropped off in a wide geography, usually in a city environment, just by using a normal public parking space. 

As with any car sharing, the vehicle is located by app and the rental is done remotely (self-service), but in this variation you just find the most convenient vehicle in a parking spot near you, and off you go. Return it anywhere in a public parking spot, within a designated range (again, usually in a metro city environment).

Car Sharing/Peer to Peer: This one usually isn’t self-service because in its pure form it is neighbors renting vehicles to neighbors, that is, individuals renting their spare vehicle time to other individuals. 

Demand can be from travelers, or local renters (say I need a pickup truck but don’t own one, and a formal rental company might be inconvenient to get to or too expensive), and the “supply” is really from anyone who wants to generate a little income from a vehicle that often is sitting idle. 

Given the small increments of time available in car sharing, some creative folks drive their vehicle to work, put it out on a peer-to-peer sharing network for the duration of their shift for others to use.

Other folks buy a more expensive exotic type vehicle with the intention of renting it out a portion of the month to pay for it (I’ve been told, for instance, that up to a third of the Tesla S vehicles sold in the San Francisco area are listed on peer-to-peer car sharing platforms at some point each month). 

You may be saying to yourself, “Why do I need a network for this, I can rent my car out on Craigslist or some other service?” You probably could, but watch the insurance coverage; peer-to-peer networks usually have a better handle on this.

Car Sharing for Ride-Sharing Drivers: This is simply providing temporary rental vehicles to ride share (Uber or Lyft) drivers, a business that has been created on dual fronts, both by large companies themselves through centrally controlled programs and partnerships (Uber first on their own with Xchange Leasing and now with Fair.com, and Lyft with Hertz), and in a peer-to-peer setting, with platforms like HyreCar and through individual offerings on Craigslist. 

This is a business most suited for car dealers, as it not only provides lucrative rental income but provides a solid showroom lead. Fact is, most ride-share drivers who don’t own their own vehicle aspire to ultimately own one (it’s pure economics; they make more money that way).

So for a car dealership, providing a mostly self-service temporary rental vehicle with a “path to ownership” for these folks feeds front-end sales and fixed operations, all while earning money.

It’s like getting showroom “ups” that pay you for the privilege.  Now, granted a lot of these folks might be credit-challenged, but I know many dealers who now are buying sub-prime leads, so there is obviously value here.

(In full disclosure, I am so enthusiastic about the benefits of this, I recently founded a company, DriveItAway to facilitate a turn-key, low cost way for dealers. I have put my money were my mouth is.)

Ride Sharing or Ride Hailing: This one actually is something a bit different from normal transportation services but again not fundamentally new, when you consider it is nothing more than a taxi service, albeit without government regulation, required “marked” vehicles or medallions or special driver qualifications. 

About six years ago, a service of this kind not following regulatory guidelines was illegal in most places, so I guess in this case it’s better for Silicon Valley types to call this service by a whole new name.

Who would want to be associated with a service that is new because it was formerly an illegal enterprise. Certainly not investors who have funded the leading ride sharing companies and created some of the highest valued start-ups in history.

At any rate, I thought that if some members of the automotive press were confused as to how “new” subscription services and car sharing in all of its variations were related and really represented new terms for old concepts, the journalists (and others) could use a primer. Hope this helps.

John F. Possumato is an attorney, the founder of Automotive Mobile Solutions, a graduate of the University of Pennsylvania’s Wharton School of Business and a mobile marketing expert. He can be reached at [email protected] and 856-577-2763.