Second in a two-part series. In part one, Cox outlines his discovery of the peer-to-peer concept and his first foray into supplying the Turo platform.
By 2015, Turo — the “Airbnb of car rentals” — was lurching forward on shaky legal legs and the industry they were disrupting was struggling to figure out this new medium.
At the same time, thousands of regular people with “extra” vehicles populating their driveways were learning what those of us in the industry already knew — renting an asset could be profitable.
It started small. A few owners, or “hosts,” began buying up cheap cars in their areas. Before long, “Power Hosts” were running fleets of vehicles. As soon as the supply of cars available to the platform increased, so did the number of active application users. Some hosts, already involved in the “sharing economy” with Airbnb, quickly identified the similarities and began managing fleets of cars as they had been managing properties.
As well, Turo found itself in the desirable position of having more customers, or “guests,” than it had cars. Turo began to cultivate these hosts and ask them to assist in creating and developing the architecture, design, and structure of the company’s platform, policies, and best practices.
This golden age of the Turo/host relationship was beneficial for both parties and was instrumental in Turo turning the corner on being able to supply the mass of guests who were clamoring for transportation.
Similarly, the auto rental industry was taking note. Turo’s announcement at the 2016 Auto Rental Summit that they were opening up their platform to independent car rental agencies was received by those in the audience with a moderate level of reproach.
By this point, the long-documented legal issues between various factions in the auto rental industry and Turo had set sail. The industry was on edge and Turo wasn’t looking to give up any ground in accommodating legislators or regulators by identifying as a “rental car company.”
The problem stems from a variety of issues which, for those of us in the industry, are simple. We are loaning to complete strangers high-value assets that operate on the country’s roads and highways in exchange for American currency. We must comply with a variety of rules and regulations set forth by the government and other municipalities that regulate all aspects of our industry. Why shouldn’t they?
On the flip side, the hosts operating these vehicles in the peer-to-peer marketplace feel as if they have paid their dues when they purchased the vehicle. Operating as consumers, they pay sales tax, registration tax, and a variety of other costs associated with a retail vehicle purchase. These make up a good portion of their acquisition expenses.
As they see it, in the sharing economy, the contracts between hosts and guests don’t constitute a rental, but a simple process in which they allow complete strangers the opportunity to borrow their high-value assets in exchange for American currency. (Sound familiar?)
For my rental company, every aspect of vehicle ownership is made easier and cheaper by my existing professional relationships with vendors familiar with the auto industry. From sourcing inventory and purchasing vehicles to regular maintenance and fleet disposal, as a business entity I am more able to affect the service’s pricing by offering volume to the provider.
Wholesale auctions allow licensed businesses to buy and sell as we wish without the threat of the regulatory handcuffs that burden the public. Meanwhile, most states limit the number of vehicles that can be sold by a private individual in an effort to control “curbstoning,” or unlicensed car sales.
These consumers don’t have these avenues that are available to those operating in the industry. However, licensed rental businesses like myself paid our dues to have this luxury. We jumped through hoops for that reseller license. It took years to build our fleets by establishing working relationships with lenders and other vendors. By demonstrating sustainability, we were able to reduce our cost of money, insurance rates, and other costs of doing business.
The effects of these cost factors are even more pronounced when we move the discussion to regulation. The methods for collecting and remitting sales tax are tried and true in the auto rental industry; however, those using any of the sharing platforms are mostly not familiar with solutions to the taxation problem.
Sadly, many of the hosts are not only convinced that the existing regulatory rules don’t apply to them, they haven’t spent the time to investigate the ramifications of not following the rules. Who is monitoring the millions of dollars per day changing hands across these platforms for potential tax violations?
Creativity is Pervasive
Creativity is pervasive within the carsharing sphere. These hosts are only capable of thinking outside the box since the majority of them have never been inside the car rental box that we all know so well.
When their utilization goes down (most don’t know what utilization is, they only know their cars are sitting), they talk to hosts in other geographies where their asset could be profitable. Finding a host in SoCal willing to take on your Colorado convertible when the snow starts to fly can be a plausible solution for extended cold months.
To help manage that process, there is a vast network of hosts nationwide who will “manage” your car for you and make an agreement to collect revenue and share it between owner and host.
The vast majority of vehicles available across Turo’s platform are available as “remote.” Using 1980’s technology, Turo hosts have managed to repurpose window hanger lockboxes as storage units for keys to their rental cars.
It goes without saying within the Turo community that anything that will make the earnings more “passive” is a benefit to both the host and the guest. By removing the requirement to meet each guest at the vehicle, hosts have enabled themselves to increase fleet sizes and manage effectively larger businesses.
Remote rentals allow hosts to avoid costs we traditional operators know so well. In this peer-to-peer world, business locations, staffs, bathrooms, phone systems, complicated software and problematic hardware, credit card processors, and more are a thing of the past.
Initially, I was sure that removal of these “essentials” would be akin to taking the doors, roof, fenders, and trunk lid from a rental vehicle. Yet the public accepted these differences. They called it a Jeep, to continue the metaphor, and moved on with their life.
The TOS Squeeze
Hosts’ ability to solve problems is limited by the Terms of Service (TOS) provided by the platforms they use. The fact that they don’t control their own destiny is completely lost on them. If Turo changes a significant aspect of their TOS, the hosts will rise or fall along with Turo. Should Turo suffer any sort of catastrophic failure and leave the market entirely, so goes their fortunes.
Whether they are looking to gear up for their own IPO or just trying to polish the rough edges, Turo is making some serious modifications to their platform, which is not likely to stop soon.
This model has played itself out time and time again. Create a market; build the market by inviting and rewarding early comers; build your following by rewarding those who use your product, and (most importantly) tell their friends, and then gradually begin to tighten the noose on both ends to maximize profit and reduce costs. The best examples of this are Uber and Facebook.
While the term “disruption” has become commonplace in the sharing economy, there are still plenty of industry professionals who are sternly looking down their noses at the revenue generated by Turo and others.
Car rental operators and Turo hosts are both fighting over the same dollar. The customer/guest is the ultimate goal. As a car rental operator, I personally watched thousands of dollars walk out my door. I waited for my faithful base to come back to me. When my cash rental customers stopped coming to my counter and started showing up on my Turo app, I knew we had to make some changes.
There are too many hosts operating with impunity on Turo. Too many are renting subpar or unsafe vehicles. Too many are under-insured or not insured at all. Too many are working outside of the rules those of us in the industry have been required to spend large percentages of our hard-earned money adhering to.
Something must change. For the most part, recent changes within Turo’s TOS have only worked to increasing bookings yet reduce earnings. Hosts are working outside the lines and making less and less money for it. In the beginning, the Gold Rush mentality was bountiful, and profits were easy, low-hanging fruit. Now, hosts are burdened with multiple car payments, cost overruns and not enough industry education to get through the off-season. They are like banana trees in Denver — interesting but doomed to perish when the weather goes south.
At least half of my current client list is made up of people who either jumped in too big, too quickly or are trying to get out, but can’t get out from underneath the fleet that they got a “good deal” on (usually retail book plus D&H).
Similarly, the local operator is quickly becoming a relic. As we all ride our dinosaurs around looking at one another, chin high and proud, our bank accounts are gradually starting to feel the squeeze put on us by a shrinking local market, aggressive large brand competition and, ultimately, the sharing marketplace.
How to Compete?
Few in this crowd are willing to take a look under the hood and see how to make the relationship between hosts and operators become more than it is currently. But there would be mutual benefits if this were to happen, including an influx of new blood into the traditional rental industry.
Two of my car rental industry contacts have been trying (unsuccessfully) for more than two years to sell their local market businesses. The pool of potential buyers has been fairly shallow for both of them. Yet if we figure out a way to help Turo hosts transition from peer-to-peer to the more traditional rental model, it could bring about a gold rush of new buyers interested in purchasing fully operational rental facilities.
How will you compete? How can you compete? When hosts run out of money, will Turo operate their own fleets? Should Turo ultimately bend their knee to the regulators? What will happen to their hosts who haven’t set aside a penny of their earnings to take care of the past due taxes, fees, and penalties they will undoubtedly owe?
If we ignore it completely, will our dinosaurs find food elsewhere or will we sit astride them, holding high our pride in one hand and our history in the other, weeping for yesterday? If you ask me, which you didn’t, both sides will suffer and Turo will remain strong. You will lose rentals to them and your metrics will suffer. Hosts will see less revenue and their fleets will depreciate faster than their loans and they will suffer.
Right now, Turo has the ear of our almighty — The Public. How will we gain their favor again?
Sean Cox has been involved in the independent auto rental community since 1993. He is a U-Save Car and Truck Rental franchise owner and provides consulting for multiple sharing platforms. The opinions expressed in this article are solely his own.