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Business Drive

How the Pandemic Saved Carsharing

Photo by Darwin Vegher on Unsplash

‘There’s something happening here / But what it is ain’t exactly clear’
— Buffalo Springfield

Much has been written about the current pandemic’s impact on the travel and transportation industry. From automakers to dealerships to vehicle rental companies, everyone has felt the squeeze in the form of supply chain disruptions, sales slumps and business closures.

But COVID has been kinder to carsharing. In fact, shared mobility companies — particularly peer-to-peer (P2P) carsharing businesses such as Turo and Getaround — are enjoying a bit of resurgence.

Both these companies, which allow individuals to rent out their personal cars or micro-fleets through their platforms, and others have seen their bookings rise significantly in 2021, according to reports from Bloomberg and CNBC.

As people start to travel again, the shortage of rental cars, exacerbated by dearth of new vehicles and pandemic-driven corporate austerity, is forcing people to use carsharing services as alternatives.

Access and availability are the most obvious reasons for using carsharing platforms. But pricing is another factor too. Currently, the cost of using someone else’s car is cheaper than traditional rentals by as much as 50% or more.

It’s hard to gauge the exact growth fundamentals of carsharing because none of these businesses report details around reservation volumes. The above articles rely on anecdotal evidence (e.g. quotes from users, P2P hosts) and quotes from carsharing companies. Turo did turn a profit in the first quarter of 2021, which was most likely achieved through a combination of staff cuts and business growth.

The rental car shortage is real though. When demand disappeared in 2020, the likes of Avis and Enterprise scaled back their operations. Now they can’t replenish their fleets fast enough because the chip shortage has squeezed new car availability.

So it’s not surprising that people are ditching traditional rentals and turning to carsharing. A quick Google search reveals a rash of recent articles on rental alternatives are advising readers to do exactly that.

Back from the dead

Things were a little different last spring.

Back then, carsharing was gasping for breath. Years of losses, regulatory hoops, and the double whammy of Uber / Lyft had drained competitors.

ShareNow (formerly Car2Go), a Daimler-BMW joint mobility venture, shut down its North American operations in February 2020. Carsharing pioneer Zipcar, taken over by rental company Avis in 2013, was struggling as well.

Then the pandemic hit, and the bottom fell out.

General Motors-owned Maven was the first casualty. The four-year-old company, which offered both fleet-based and peer-to-peer (P2P) sharing options, had never quite managed to make things work. The lockdowns were the last straw and it pulled itself out of the business in April.

Others such as the Softbank-backed P2P service Getaround were already undergoing layoffs in January 2020. Post-pandemic, things turned dire enough for them to shop around for buyers.

The first turnaround happened in the summer, when Americans started to emerge from the initial lockdowns. It may seem counter-intuitive that people were seeking out a shared vehicle in the middle of a pandemic, but the option still seemed a lot safer than taking public transportation.

Demand spiked so suddenly that some companies were left scrambling. Zipcar, for one, was caught by surprise as reservations jumped by 70 percent year-over-year in cities such as New York by June 2020. The Boston-based company had trimmed its operations significantly following COVID, so it struggled with the sudden growth. Many Zipcar customers were left with booking mixups and dirty cars, leading to a backlash and social media pain.

P2P companies fared better since they could draw from personal cars that were sitting idle. Their inherent business models ensured consistent supply.

The pandemic has proved to be a boon even for relative newcomers. Avail Car Sharing, a startup established in 2018, got “lucky” this year. Backed by Allstate Insurance, Avail has specifically targeted airports that have faced the worst of the rental car crunch. The company, which relies on personal cars but uses own staff to handle the exchange process (sanitizing, inspecting, etc.), has enjoyed much success as airline travel bounced back this summer.

The going has been great enough for Turo, arguably the leader in P2P carsharing, to consider an IPO. The 10-year-old, Google Ventures-backed company, which has had its fair share of ups and downs, filed for registration with the SEC this month.

Getaround CEO Karim Bousta has also hinted that it may go public soon.

Can carsharing survive?

There are two ways to read the IPO gambit.

Are these companies finally going public because they see a sustained demand for carsharing with a clear path to profitability through even greater scale? Or do their executives see the surprise growth bonanza as their last chance to cash out?

In other words, how does the future of carsharing look? Is the current surge fleeting, gone once new car availability returns to normal? Or has the market finally hit escape velocity?

I think the answer lies somewhere in the middle.

The pandemic lift will surely fade. Both booking volumes and premiums will drop when cost of car rentals return to earth. Down the road, people may get more comfortable about using public transit and Uber in unknown cities. Some may ditch these platforms.

Conversely, customers who were forced to get into someone else’s car because there were no other options, may keep coming back if prices maintain a 15%-20% delta from rentals. Habit and lower costs make for great stickiness.

Those who need infrequent access to vehicles may continue to use these platforms because new / used car ownership costs are marching upward every year. Vehicle ownership may become out of reach for many, leaving them with carsharing as a go-to option.

Oversupply won’t be an issue as well. Going into the pandemic, there were probably too many competitors but the market has weeded out the weakest players.

The problem at the heart of carsharing remains — and has always been — the business model. I think fleet-based carsharing companies such as Zipcar and Enterprise Carsharing will continue to struggle to make money. Maintaining cars in the most expensive real estate zones (downtown, midtown, etc.) of North American cities, with their individual regulatory quirks, is a profit killer. I am not sure how sustainable these businesses will be as ridesharing continues to grow.

But P2P carsharing, at least on paper, has legs. Supply is rarely an issue and it is attractive enough for vehicle owners with low usage. But revenue and profit details of operators have been too slim to make any reasonable estimates of long-term viability.

The question is — just like Uber and Lyft, can they ever make money?

‘The answer my friend is blowing in the wind’ — Bob Dylan

Thanks for reading. If you enjoy fresh perspectives on the future of mobility and transportation, please follow my publication Business Driver.

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