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Baby, You Can Drive My Car

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Back in June we looked at the charms and hazards of home swapping (see “High-Risk Trading—Not of Derivatives, But of Homes,” Investment Advisor, June 2013), and one question that didn’t have a satisfactory answer was whether a home swapper was allowed to drive the car of the person he was swapping with.

The question was problematic, but there appears to be a solution, of sorts, that will not only let you find a car while you’re vacationing, but will also let you satisfy your behind-the-wheel fantasy to drive a Lamborghini or a Tesla—or to, as the car-swapping firms say, make money from your car.

A number of companies have sprung up that offer ways for individuals to rent cars from other individuals instead of rental companies. For renters, it’s a lower-cost option than a conventional car rental company; they gain the ability to rent any kind of car they want; and for those who don’t need a car on a daily basis, it’s a way to eliminate the need to own and maintain a car. For owners, it’s a way to make money from a car that might otherwise spend much of its time sitting in a garage or driveway slowly depreciating.

Sound too good to be true? Well, there are caveats. Still, lots of recent startups have gotten the idea that peer-to-peer car rental is a good enough business that they, and their customers, can make or save money from it. Some firms include RelayRides, Getaround, Sidecar and FlightCar. Business models are similar, but of course there are variations from company to company.

The services aren’t available in all states, but the idea is growing in popularity, particularly among those who like the idea of only having a car when they need one. And, unlike home-swapping, it’s insured.

The insurance issue, however, is what keeps some companies from operating in, say, New York, where Superintendent of Financial Services Benjamin Lawsky slapped car-swapping firm RelayRides with a cease-and-desist order in May and issued a scam alert to consumers. The problem? While RelayRides says motorists are covered to the tune of $1 million in case of accident or injury—coverage for the firm is provided by Hudson Insurance Company—Lawsky says they’re not, and that Hudson’s coverage has not been approved by the state.

According to Lawsky’s scam alert, using a car-sharing company “may violate the terms of your insurance policy, and your coverage could be canceled or not renewed.” He also warned, “You may be personally responsible for any damages and injuries that occur if your car is involved in an accident during the rental period.” Scary thought.

While the company has ceased its operations in New York, RelayRides’ spokesman Steve Webb said in an email, “We are working with the New York Department of Financial Services to resume our marketplace operations in the state. We are confident that we will be able to work something out.”

Sidecar, another car-sharing service, is drawing heat from officials in New York, Philadelphia and Austin. A cautionary tale from Greg Hanscom of Grist magazine mentioned that the insurance commissioner in Washington said RelayRides was using a non-admitted insurer. The commissioner’s office also said, however, that they’d received no complaints about the service and didn’t “foresee enforcement action against them.”

Other problems have surfaced for car-sharing firms that have nothing to do with insurance; the very concept seems to fly in the face of laws and regulations designed for different business models. Sidecar was served with its own cease-and-desist order by the city of Austin, accused of being an illegal taxi ­service, and FlightCar is being sued by San Francisco City Attorney Dennis Herrera, who accused the company of not paying rental car agency fees to San Francisco International Airport. Since FlightCar is neither a conventional rental car agency nor is operational on airport grounds, it is contesting the fees as originally assessed.

Webb said, “RelayRides is an amazing option for people to get a return on investment from an asset that rapidly depreciates and sits idle 92% of the time.” However, advisors whose clients have dollar signs hovering around an idle Ferrari might want to suggest they proceed with caution. Car swapping may be an idea whose time has come, but it’s liable to take a lot of rentals to make that depreciation deductible.