Turo's new $92 million will expand car rental market

Posted by Alex on September 7, 2017

Turo, the peer to peer car rental marketplace, announced it raised a fresh $92 million from Mercedes (and others). This is a great thing for the car rental market. But could also be the end of car rental as we know it.

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Turo brings new customers into the rental car marketplace, broadening the appeal of renting a car in a way that Enterprise stores do in small towns or Uber did for taxis.

The risks to established car rental companies, however, might be easy to overlook–and that would be an existential mistake. 

The threat of P2P car rental pricing

Just as Uber both expanded the market for taxis–and simultaneously ran taxi companies out of business, due to lower pricing–Turo has the potential to do similar damage in the car rental space.

The thing everyone needs to be worried about is pricing. Turo has a mix of prices on its marketplace–some cars are very cheap, while others are not. Price sensitive customers may eschew Expedia entirely, and go straight to Turo to rent a much older car for a substantial discount–instead of getting lured in by low per day rates to be up sold at the counter. Turo includes insurance, free of charge. So do its competitors like Getaround, for example–just as Uber includes the tip, this may become an expectation of consumers.

Variety as a threat

What's more worrying to the luxury and high end marketplace–but also potentially a huge opportunity–is the availability of luxury cars. Turo has hundreds of Teslas for rent on its website, something it's hard to find on your typical airport car rental lot.

As owners participate in the marketplace and price these vehicles effectively, they're bringing new renters into the market. Perhaps some of those owners will then decide to rent from companies specializing in luxury rentals–M Car in Los Angeles, or Gotham Dream Cars in San Francisco–for a more professional experience.

P2P as an opportunity

The only way to capitalize on this new opportunity is to run your business better than ever. Above all else, that means pricing to demand–not limiting yourself to what your neighbors at the airport car rental center are doing.

When a car rental company prices a Tesla S, they think, "I paid $100,000 for this car and I think I'll sell it in 12 months for $60,000. I need to get $500 a day for it, because it's not going to be rented much." And they're right! They bring their own baggage to the pricing calculation.

Your average Tesla owner on Turo, however, is–perhaps by accident–much better at revenue management. They think, "I pay $800 a month for this car. If I can get $800 this month, I make my payment." So they rent it for $200 for 4 days, and cover their costs of ownership. It's gravy to them. And it's a price a lot of people are willing to pay to drive a popular, $100,000 car.

Turo is also changing consumer expectations–when a fleet is just 1 car, there are no free cancellations, and when pick up and drop off have to be coordinated with the owner, returning early or late no longer works as easily. Fleets will retain some advantages over P2P, however, everyone in the industry would love to see a move towards firm bookings and away from free no-show policies.

What you can do

Don't be like a taxi company. The combination of pricing and variety is pulling a lot of new renters into the market. Many are carless people who live in dense cities and want to get away for the weekend, or who own one type of car but want to get away in a different one. This is net new business for the entire market.

The car rental companies that identify this new opportunity and realize that new people are now considering renting cars, and go after that market with effective, demand based pricing, will expand their businesses. Those that hunker down at airports with their standard SIPP codes and outsource their pricing to their neighbors in the consolidated rent-a-car center are going to see business erode–maybe not this quarter, or even next year, but eventually. Just like taxis did.

Topics: Car Rental, Rental car pricing, P2P Marketplaces