Profitably Renting Cars on Turo in August 2020

Cover photo by Danylo Bobyk, tailored Suit by Suitablee

Quick definitions (before we dive into the subject):

RAC – Traditional car rental company
Turo – Car sharing platform
Host – Person who is responsible for communication and providing a car to the Guest
Guest – Person who rents a car from a host
RPU – Revenue per Unit (vehicle)
MMR – Manheim Market Report – Wholesale price of any vehicle
Underwater loan – When the asset (car) is worth less than the current amount of the loan

Turo provides a simple way to dive into the world of car rentals through “car sharing”. There are minimal risks on this platform, it is fairly easy to use, and the learning curve is smooth.

To make money with your vehicle(s), you basically just need to fill out a description of your car on the application, post photos and wait for someone to choose your car to “rent out”.

Turo vs. Traditional Rent-a-Car (RAC) operations.

What makes Turo very interesting to run a car rental business compared to traditional RACs? – In a nutshell, it avoids or diminishes plenty of risks and potential problems including:

Confiscated cars for criminal investigation
Insurance claims – accidents or theft
Excessive usage (burned tires, brakes, engine abuse, excess mileage)
Car abandonment
Towing and storage fees due to client’s fault
Tickets and tolls
Parts theft
Client insolvability to pay for any of the above – or extended rentals
Managing bookings and marketing

Turo’s platform solves most of these with an all-in-one solution, and this service is essentially what you pay for as a Host on the platform.

What does this mean for those running businesses on Turo?

Recent changes in the US and Canadian markets have seen mileage allowances increase. In consequence, the platform followed suit and reduced their own fees, which means additional revenue for Turo Hosts from excessive mileage fees was now limited.

As a result, thousands of cars now have negative RPU after costs and many Hosts pulled their cars off the platform due to expected lower revenue projections.

Understanding the Hosts’ Costs

Looking at the Hosts’ Revenue to Costs (which combines maintenance, depreciation and labor) per unit ratio, it is important to first understand the circumstances that influence these numbers.

Revenue: Whether most of the cars’ revenue was made on excessive mileage or on regular rentals?
Maintenance: Was maintenance work done within the Host’s organization or was it outsourced to a third party?
Labor: How much time was spent on managing the vehicles?
Depreciation: Was the vehicle purchased correctly (around MMR) or is there an underwater loan attached to it?

By understanding these costs and how they relate to the cars owned, you can better evaluate your revenue to costs and see of renting them out is indeed worth it.

How Turo’s justifies these changes

“Most guests do not drive the maximum mileage allowance, and only a handful will go over their limit or even max it out.”

With changes and COVID – People are more careful in how they’re spending their money, so Turo calculated that it is able to offer double the minimum mileage without affecting its own costs. On the back-end, prior to the changes, these “over mileage drivers” often weren’t able to pay the fees to Turo, although Turo would still pay their hosts. Now, since the over mileage costs are massively reduced, the company can keep these clients that benefit from the extra mileage allowance. On the downside, Hosts revenues are cut down.

“Cars do not depreciate as much by additional mileage usage compared to their age.”

Indeed, it is not relevant for the higher mileage car, as it means more highway miles. The data is a bit different for cars listed as ‘from a fleet’ – these cars have higher maintenance costs and potential issues as the excessive mileage tends to be due to usage and affect city travel.

Our stance on Turo’s profitability as of August 2020 (Q3)

It is a good venture to undertake if profit expectations do not exclusively rely on rental and associated fees. It is a critical point to look at this further as a business and understand the underlying issues that exist within it. Setting up your dealership, mechanic and/or bodyshop is going to be critical to keep multiple sources of income.