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General Motors Company (GM), Avis Budget Group Inc (CAR): Automakers Invest in Car-Sharing Industry

General Motors (NYSE:GM)Car sharing is part of the growing peer-to-peer rental networks that rose shortly after the global financial crisis began between 2008 and 2010. And the internet has made the process of pairing owners and renters very easy. New ventures include Airbnb, which plays matchmaker to those who want to rent out a vacant room, and RelayRides, which let’s you find individuals willing to rent out their cars for a fee. The arrangement can be a win-win on both sides; the owner gets a chance to earn extra income and the renter can save money by avoiding renting or leasing services offered through more traditional means. Business consulting firm Frost and Sullivan estimates that car-sharing revenues in North America could reach $3.3 billion by 2016. In addition, leading venture capital firms, such as Google Ventures and Sequoia Capital, have provided funding for companies engaged in “sharing” schemes, or as Silicon Valley likes to call it “underused asset utilization.”

Car manufacturers enter playing field

Large automakers and car-rental companies, such as General Motors Company (NYSE:GM) and Avis Budget Group Inc. (NASDAQ:CAR), have entered the game and are starting to pay attention to an industry that could prove to be disruptive. In 2011, GM’s investment arm, GM Ventures, was one of several investors who invested $13 million in RelayRides. In return, RelayRides has been given easy access to GM’s Onstar navigation system and Onstar users also have a faster sign-up process for the rental service. RelayRides’ vehicles equipped with Onstar also have the option of having the vehicles locked or unlocked using an app rather than a key. GM hopes these perks will encourage car owners to sign up for their Onstar service, which could bring additional revenue of $715 a month to the car maker.

According to the Economist, Avis purchased ZipCar in January 2013 for $491 million. ZipCar rents cars by the hour, maintains its own fleet of vehicles and also has a $14 million investment in Wheelz, a peer-to-peer car rental service. With the ZipCar purchase, Avis also gained a stake in the Wheelz rental service.

Across the pond, Fast Company reports that German car maker Daimler AG (USA) (PINK:DDAIF) has a Car2Go, a service very similar to ZipCar’s. The service is currently operating in two pilot cities, Ulm, Germany and Austin, Texas. It allows anyone walking down a street to locate a Smart car via app, access the vehicle via a windshield car reader and PIN, drive it to a local area, and leave it there for the next user. Daimler has also started developing apps for vehicles made by other car manufacturers; for example, its Car2Gether app matches car drivers with riders through social media networks like Facebook and Twitter.

Regulatory pains

Despite its growing popularity, some peer-to-peer sharing networks are facing legal questions regarding who is liable when a transaction does not go as planned. States such as Washington, California, and Oregon have passed laws that make a car-sharing service and its insurers liable for vehicle damages, as if it owned the car during the rental period. Laws also target insurers and prevent them from canceling car owners’ policies. Some large insurers have found a way around the rule, for example, Geico rewrote its auto policies in 2012 to deny coverage to cars rented to others in states that permit it.

Despite meddling by regulators, the expected growth of and entry of major automakers into this sector shows it’s worth watching closely.

I do not own stock or have funds invested in any of the companies mentioned above.

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