The Turo Test - a rental car imitation game

Updated: Jan 3



My first car-sharing experience and thoughts on car-sharing economics.


I was just in Florida with my wife and children to visit my in-laws. As is our habit, several months ago, we went through a few online sources to book travel. The booking travel process was standard except for the rental car. Even though we were booking well in advance, rental cars were either not available or significantly more expensive than usual.


This motivated me to look for alternatives. I had always believed “AirBnB for cars” (known as “car-sharing”) was the next step in consumer platforming. I did a google search for “AirBnB for cars” and found Turo. It turns out, Turo has been around for about a decade. I was a bit skeptical but decided to give it a try. Next is a brief description of my first-hand experience. My experience also motivated me to consider the car-sharing economic model. Following my experience, I provide some car-sharing economic thoughts.


By the way, I found this Turo marketing strategy presentation. It is very interesting.

My Turo experience


In general, my experience was great. I will certainly do it again.


Booking

I loaded the Turo app on my iPhone and registered. I input my dates and arrival airport. Turo provided a list of cars, sortable in price order. There were many filter options. I needed a car big enough for the 4 of us. Since we were flying, some Turo cars offered an airport delivery option for an extra fee. We found a car not far from the airport, meeting all our needs, and at the price we wanted. Because the Turo car was located close to the airport, I planned to use Lyft to retrieve the car myself. The car prices on Turo were less than half rental cars.


Keep in mind, Turo allows for a much broader range of car models, model years, mileage, etc. than traditional rental car fleets. Because we did not mind having an older, higher-mileage car, we certainly saved compared to a traditional rental car fleet. But even newer Turo cars seemed less expensive.


Also, like AirBnB, the cars have ratings and comments from previous customers. This was very helpful to get comfortable.


Car Pick-up

The night before, I received a text from my host. She seemed excited to rent her car to me. Because she lived in a gated community near the airport, there were a few instructions to access the car. Once there, I did have to show her my driver’s license. This is Turo policy in keeping with “Know Your Customer” federal regulations. This is probably the biggest friction point in the process because we needed to align the pickup time. My plane was a little late. She seemed fine to wait. Like Airbnb, the need to communicate with the host is higher. I did send the host a text when I landed to let her know my ETA. While my family waited for checked bags, I took a Lyft over to get the car.


My suggestion is that Turo provides a self-service, secure, biometrics-enabled key dispenser device that would satisfy KYC requirements. That way the renter doesn’t have to wait for the rentee.


Car Usage

We rented a 2014 Audi A5. It was great! It had plenty of room and was very comfortable. It was perfect for our needs. The host did ask that we fill up with premium gas and bring the car back clean. I did rinse the exterior with a garden hose the night before drop-off and knocked the sand off the floor mats. Basically, I treated the car the way I would treat my own.


Car Drop-off

Pretty much the reverse of pick-up. The host confirmed I just needed to drop it off with gas full and return it as clean as I found it. I dropped off my family at the airport and scheduled a Lyft for pickup at the host’s address. I drove the car to the host’s address and parked it where I found it, leaving the keys in the center console. The Lyft arrived 5 minutes later. I was at the airport in plenty of time to join my family waiting for our flight.


In the end, I gave our host a 5-star rating and positive comments. The host did the same for me. All good!


Unresolved question: My only unresolved Turo question has to do with “holding the reservation.” (Also, the subject of a very funny Jerry Seinfeld show!) That is, what happens if a host backs out? As far as I can tell, Turo has a Cancellation Team that reportedly “negotiates” with the rentee and other hosts to arrange a replacement car. To me, “negotiates” is not a reservation guarantee for a similar car model and at the same price. See my section below on “Transaction Risk” for more thoughts on this.

Be aware, the car-sharing business model is not the same as the traditional rental car business model. A car-sharing marketplace “middle man” has less capacity to provide consumer protections than a traditional car rental company that owns its fleet.

Thoughts on Car-Sharing Economics

The following are my best guesses for car-sharing key business drivers. In no particular order, I discuss markets, revenue, supply, risk, and the pandemic as business catalysts. Also, in the table, I provide my best guess for economic impact incentives. That is, for each of the three economic actors, (Supply, Demand, and Marketplace) I suggest whether the key driver has:

  • a positive economic impact (smiley face),

  • a negative economic impact (frowny face), or

  • a neutral economic impact (neutral face).

Deeper Markets

I’m guessing Turo car supply is very market-specific. For example, in Florida, the car-sharing supply may be higher than average. This may occur as a result of:

  • The number of retirees,

  • Those on a fixed income, and

  • Potentially having cars they rarely use;

If possible, I would certainly be interested in “putting my car to work” instead of just letting it bake in the driveway all day. Since a retiree has time, perhaps they would not care so much about waiting for a rentee pick-up. A little extra income may be helpful for folks on a fixed income. Also, given the tourist economy, Florida should have steady transportation demand from people visiting. I would think a significant enabler for car-sharing supply is educating the potential hosts. Potential retired car-sharing hosts may not be as comfortable with the non-traditional car-sharing process.

Lost revenue

I’m guessing a significant challenge on the supply side is car damage. If a rentee damages the car, the rentee is responsible for paying and the rentee's insurance covers the claim. The problem is time. The renter will forego rental revenue while their car is getting fixed. That is the advantage of rental car companies. Their rental fleet economic model allows them to manage damaged cars in a way that minimizes revenue impact. In a single car-sharing model, if 100% of the fleet goes offline for maintenance, they lose 100% of their revenue. Perhaps, this makes renters more selective about the rentees.

Alternative Supply

I could see where used car auto dealers could utilize Turo as an additional revenue stream. Especially those near an airport. Their cars typically sit on lots waiting for purchase customers. Perhaps a portion of the used car dealer inventory could be enrolled in car-sharing. Since used car auto dealers often have an auto repair shop, managing car damage may be more tenable.


Transaction Risk

Upon comparing the AirBnB and Turo marketplaces, a difference between homes and cars is transaction speed. Homes do not turn over nearly as quickly as cars. Thus, transaction risk is higher for the Turo marketplace than the AirBnB marketplace. If a rentee makes a reservation for a car several months in advance, who owns the risk for keeping the reservation? What happens if the car rented becomes unavailable during the reservation period? The car could become unavailable because it was sold or it was getting fixed. Turo could try to “put” the risk on the renter or rentee, but that could hurt the marketplace. In particular, this could create a marketplace legal challenge if this risk is 1) put on the rentee and 2) there are cancellations causing the rentee to not realize the transportation as originally committed. In this case, a legal “bait advertising” challenge could be issued. An enterprising defense attorney could organize a class and certainly Turo’s reputation could be sullied.


Turo could keep the risk by guaranteeing a like model and price in the event the renter’s car is unavailable. As a way to offset the guarantee cost, Turo may be able to devise some kind of hedge that puts the transaction risk on a third party (Sell the put option). I’m thinking an auto lender may have interest in a financial product that rises in value when sales demand decreases. (Buy the put option) Presumably, Turo may like this trade because lower sales demand increases the likelihood of rental availability. It is not a perfectly correlated hedge, but potentially helpful to decrease revenue volatility. I’m guessing the degree of transaction risk is negatively correlated to the depth of renter supply. In Turo markets with deep supply, it is probably easier to replace rental commitments that become unavailable. Thus, in deeper markets, Turo may not need to bother with hedging transaction risk.


The pandemic as a car rental market disruptor catalyst

I’m guessing the pandemic has been a plus for Turo. I’m not sure I would have found them had the traditional rental car industry not been disrupted by the pandemic. The lower supply and higher prices during the pandemic have motivated people to seek substitutes.

Now, the questions become … Will the car-sharing model persist in the future, pandemic-impacted world? Will business travelers be willing to use car-sharing? Do business travelers even want any rental car v just using ride-sharing or public transport? Has a sort of “tipping-point” momentum been created, providing car-sharing a place in our transportation consideration set? Now that I’ve tried it, I will certainly consider it again, especially if rental cars remain higher priced.

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