A Startup Car-Sharing Service Has Neatly Sidestepped Zipcar's Biggest Problem

In early January, Avis Budget acquired the car-sharing service Zipcar for $500 million, although Zipcar had made just $4.7 million in profits in the past year.

That may prove to be a smart move for Avis, but after testing out a new kind of car share, we're not sure.

The biggest problem for Zipcar, Neal Gorenflo, the co-founder of Shareable Magazine, argued on TriplePundit, is the high cost of maintaining a national fleet of cars, including paying for parking and insurance.

RelayRides, a startup that went live in June 2010, sidesteps that problem.

Rather than provide cars themselves, the startup connects car owners and potential renters, and sets ground rules. Unlike Zipcar, it does not have to buy cars people may not want, and owners themselves set their rates, based on what they think their car is worth.

The marketing pitch is simple: Owners can make money off their cars, and city dwellers who need four wheels from time to time can find them easily and securely.

It facilitates short term rentals, provides insurance, and makes its money off a sizeable commission.

Trying It Out

Monday night, I needed a car to get from Manhattan to the suburbs. A few days in advance, I looked for available cars near the Business Insider office, and found a 2012 Fiat 500 Sport.

Conway Liao, a user experience designer, offers his Fiat for $9.75/hour, $69/day, and $1,200/month. When he first moved to New York from California a few years ago, he signed up for Zipcar, which he used for weekend trips.

But he was unhappy with the cost of the service, he told Business Insider. In September, he bought the Fiat and discovered RelayRides. He was cautious at first about lending out the car, and started with a low price point.

But Liao describes his experiences with handing his keys over to strangers as positive. He met the founder of travel sales website JetSetter. The one time he found marijuana in the Fiat, he was more amused than troubled.

More importantly, the money he makes from RelayRides covers the cost of his car payments. Coupled with a good deal at a parking garage in Chinatown, his car costs him significantly less than it would without RelayRides.

My experience as a renter was similarly positive: Conway told his garage I would be picking up the car. When I got in, I checked for damage and took a photo of the odometer, which I sent to him. Then I drove out of the city.

This morning, I got back in and drove back to the garage, stopping on the way to replace the gas I had used. I took a photo of the odometer for my own records, texted Conway to tell him the car was back, and headed to the office.

Will It Work?

The idea, founder Shelby Clark says, is "inherently viral," because it makes sense. It is easy to use, saves some people money, and makes money for others.

With the insurance question answered, and public ratings of potential renters, car owners should not have to worry too much.

Rather, they can focus on getting the $250/month that founder Shelby Clark says is about average (after paying RelayRides' commission).

Clark adds that one owner of a BMW 6 Series clears about $1,400 a month, and another user makes $1,200 a month renting out his car in Chicago.

An extra bonus is a partnership with General Motors allowing users renting cars equipped with OnStar to access the vehicle by sending a text message, without getting the keys from the owner.

But even if the system of car owners rating renters, and vice versa, assuages concerns about who is driving whose car, legal and liability issues remain.

RelayRides operates nationally, and only a few states have laws that address personal vehicle sharing, according to the New York Times.

The biggest downside to renting out a car through RelayRides is the 40 percent commission the company takes on every transaction.

Most of that goes to paying for insurance, which is especially costly because RelayRides is covering drivers with a wide variety of experience and driving histories (all are screened, and those with major violations in the prior two years are not approved).

For car owners, the lost 40 percent represents a lot of money, but RelayRides can make the argument that without the insurance, renting out cars would be impossible, and the 60 percent the owner does get would not be possible.

The good news for RelayRides is that the sharing economy is booming. Airbnb, the online marketplace for spare rooms, could soon make $1 billion a year in revenues.

With the costs of insurance, RelayRides may never be so flush. But there's no reason it cannot succeed, if drivers want it to.

Full Disclosure: RelayRides gave us a $100 driving credit to test out their service.