Carsharing Getting Relatively Easy Regulatory Ride

By: Korey Clark

FOR-PROFIT RIDESHARING, OFFERING PASSENGERS RIDES for money, and carsharing, renting cars for short periods of time, have both been around for decades, really catching on only recently in their smartphone app-based iterations. But while the modern variety of ridesharing has riled a longstanding industry and government regulators alike, the equivalent form of carsharing seems to have encountered relatively little resistance. That may not last, however.

Carsharing appears to have originated in the 1940s with a cooperative in Zurich, Switzerland, called Selbstfahrgemeinschaft, or Sefage for short. According to an article published in Transportation Quarterly in 1998, that “early effort was mainly motivated by economics. Individuals who could not afford to purchase a car instead shared one.” For-hire ridesharing dates back even further, to the “jitney craze” of 1914-1918, when the U.S. economy fell into recession following the start of WWI, and a few enterprising automobile owners began offering rides to streetcar passengers in exchange for a ‘jitney,’ the going nickel rate for a streetcar ride. The two transportation-sharing models proceeded to develop in fits and starts until the 2000s when a convergence of factors, including increasing traffic congestion in urban areas, shifting generational perspectives about car ownership, and the development of social networking technologies, gave impetus to the efforts of ridesharing services like Uber and Lyft, and carsharing operations like Zipcar and Car2Go to take advantage of the underutilized capacity of passenger vehicles.

The rise of ridesharing—and Uber in particular—has been very disruptive to the generally more tightly regulated taxicab industry, spurring strong and occasionally even violent opposition from cab drivers. A number of cities across the country, including Eugene and Portland, Oregon, have also banned ridesharing companies or forced them to suspend operations. And two different California regulatory authorities recently ruled that Uber drivers were employees rather than independent contractors, posing a significant threat to the company’s business model.

Carsharing services haven’t received as hostile a reception from the businesses they most directly threaten, traditional car rental companies. In fact, those companies have introduced their own short-term car rental services, including Hertz 24/7 (which recently ceased operation due to weak demand) and Enterprise CarShare. After launching its own service in 2011, Avis acquired Zipcar in 2013. And in stark contrast to the city bans on ridesharing, states, including California, Oregon, and Washington, have passed laws requiring car owners who rent out their vehicles to be members of carsharing programs to ensure they meet safety, insurance, and financial reporting requirements. The city of Indianapolis is even partnering in the development of a carsharing service there called BlueIndy.

The apparent disparity in the development of the two similar industries begs the question why that would be the case. One reason may simply be the size and growth rate of the leading ridesharing company, Uber. Founded just six years ago, the company was valued at $41 billion last year—making it larger than Delta and American Airlines, which have been around since the 1920s—and it was just revalued at $51 billion this year. That scale of development seems to have put some local governments on the defensive. As The Wall Street Journal reported in January, when Portland, Oregon filed suit against Uber last year seeking to halt the company’s operations in that city, Mayor Charlie Hales said the city should figure out a way for the company to operate legally there.

“But we’re not willing to be rolled,” he added. “And we don’t accept that someone is exempt from our regulations because they’re cool and new.”

Although the major car rental companies and even some car manufacturers, including Daimler AG, BMW, and Ford, have gotten into the carsharing business—joining dedicated carsharing services like Zipcar and Car2Go, as well as peer- to-peer services like Getaround and RelayRides, which allow individuals to rent out their own personal vehicles—Navigant Consulting recently placed the size of the industry worldwide at $1.1 billion and projected it would grow to $6.2 billion by 2024, roughly an eighth of the size of Uber’s current valuation. And as Wilson Wood, who heads the Carsharing Association, put it to The New York Times, the openness of the market means the arrival of companies like Daimler and Avis “isn’t putting anybody out of business.”

Uber’s aggressive expansion tactics, which The Wall Street Journal described in a story earlier this year as charging into new markets, establishing a base of drivers and riders, and then mobilizing that base to counter resistance, don’t appear to have ingratiated ridesharing with regulators either.

“It seems a lot of the time they turn up and say: ‘We dare you to stop us,’” Ryan Heath, the spokesman for former European Commission Vice President Neelie Kroes, said of Uber, which had asked the EU to block a French law restricting its operations last year, according to the Journal story.

That story, headlined “How Sharp-Elbowed Uber Is Trying To Make Nice,” chronicled how Uber has been working harder lately to find compromise with government entities. But the car-sharing service Car2Go—launched in Germany in 2008 by Daimler, maker of Mercedes-Benz luxury vehicles and the smart car, and now operating in several U.S. cities including New York, Miami, Portland, and Seattle—appears to employ a “play nice” approach from the outset.

“Car2go was very cooperative with the city,” Laura Hammond, a spokesperson for the City of Eugene, told Eugene Weekly late last year, before Car2Go pulled out of the city after eight months of operation due to limited demand. “They actually came to us before they started operating.”

But carsharing is growing. As The New York Times reported in January, about 800,000 people were members of carsharing services in the United States last year, 44% more than in 2011, according to Susan Shaheen, codirector of the Transportation Sustainability Research Center (TSRC) at the University of California, Berkeley. And the possibly alcohol-related death of a 22-year-old Car2Go passenger in Miami two years ago suggests that it may only be a matter of time before carsharing comes under the same scrutiny ridesharing did after a series of negative incidents widely reported in the media, including an accident involving an Uber driver in San Francisco on New Year’s Eve, 2013, that left a six-year-old girl dead.

And while there don’t appear to be any large groups of individuals like taxi drivers protesting the operation of carsharing companies, that may also change with time. The Los Angeles Times reported in June that according to TSRC’s Shaheen, each vehicle that goes into full-time service for carsharing obviates the sale of four to six new cars and delays the sale of as many as seven more. Thilo Koslowski, a vice president at the information technology research firm Gartner Inc., estimates that by 2025, 20% of all vehicles in urban centers will be used for carsharing.

“Imagine all of a sudden 20% of your vehicles sales in the classic sense—to individuals who will be the only user of that car— go away,” he said.

Automakers like Daimler and Ford have been willing to experiment with ways to tap into the carsharing market, but it remains to be seen how those companies and others will respond to a 20% cut in their conventional auto sales.

Another potential stumbling block for carsharing is one-way rentals, also known as “free-floating” or “point-to-point” rentals, which allow users to pick up and drop off vehicles at any legal parking space within a carsharing service’s coverage area. The rental form was pioneered by Car2Go, and market watchers consider it to be a growth area.

“Point-to-point can quickly attract three to four times the number of members of a traditional round-trip service,” said Dave Brook, managing partner of international transportation consulting firm Team Red U.S., as Auto Rental News reported in its March/April 2015 issue.

To make their one-way services even more attractive to potential users, carsharing companies have been making arrangements for parking for their vehicles. Car2Go, for example, paid the District of Columbia $2,890 for each car it operates in the city to allow users to park in metered spaces for free, according to The New York Times. And the Indianapolis Star reported that Indianapolis is granting access to metered and unmetered spaces for the vehicles in its BlueIndy service, which was “the most prominent” subject of complaints about that initiative, according to WCPO Cincinnati. It’s not too difficult to imagine parking becoming a heated issue in cities where parking is particularly hard to come by.

And although ridesharing and carsharing services are conceivably different enough to peacefully coexist, with the former facing roadblocks in some places while the latter cruises along, companies like Zipcar and Car2Go could encounter strong opposition from Uber down the road.

^* Article courtesy of State Net Capitol Journal News & Views from the 50 States™, www.lexisnexis.com/statenet.

Please direct inquiries to statenet@lexisnexis.com. Copyright © 2015 LexisNexis. State Net is a registered trademark and State Net Capitol Journal News & Views from the 50 States is a trademark of RELX Inc. No part of this document may be copied, photocopied, reproduced, translated or reduced to any electronic medium or machine readable form, in whole or in part, without prior written consent of RELX Inc.