GM Car Rental Service

In the near future, owners of GM vehicles in California will have the opportunity to rent their cars for a short period of time to other individuals. Who will actually post their vehicles to be rented, and what individuals will actually end up renting the vehicles?

As income decreases for a person, the probability that the person will rent a new car (as opposed to purchasing a new car) increases. That being the case, what kind of individuals will actually rent out their new car to someone else? For those people that can afford new cars, why would they want to rent out their cars for a fairly small amount of income as opposed to just keeping the cars to themselves?

This article brings to light the concept of inferior and normal goods. If everyone had enough money to purchase a new car, there would be little to no need for the rental service. So in this case, the rental service would be an "inferior" type of good or service, whereas the new cars would be considered "normal" goods (since the demand for new cars will increase as income increases).

It will be interesting to see how GM's new strategy plays out. The article mentions this plan could provide an opportunity to test drive a Corvette, but who would rent out their new Corvette for $10 an hour? Vice Chairman for Corporate Strategy at GM Stephen Girsky says in a seemingly skeptical manner, "We don't know if it is going to work or not."


Dr. Tufte said...

Is it me, or is GM filled with idiots?

I think the problem here is that a lot of managers (and business people in general) don't understand what they're selling.

They think they're selling a sharp looking mode of transportation.

They're right, but they think the product ends with their definition. It doesn't.

Many people view their car as a moving closet and/or trash can. You know who you are :(

Anyway, let's turn this idea on its head: how would you like to rent my mobile trash can? This is why it won't work.

Stretching further, think of what you get from a rental car company: come rent our trash cans, we empty them once in a while! This idea works a bit better.

I'd have more faith that GM knew what it was doing if it created a cheap, common, and efficient car cleaning service first. If they knew how much a low-ball price for a detail job was, they'd have a better picture of the price point for the idea of P2P car rental.

Aaron said...

This "Rental Car" concept is ridiculous. However, there is something about the market for new and used cars that has always intrigued me. And, I guess this thought could apply to other products like real estate as well. Consider how much money gets invested into one single vehicle from time of initial purchase to retirement of the vehicle (if it ever occurs). For example, a car is purchased for $15,000 and paid on for a couple of years before it is resold to a private party. Say the primary owner has made $300 payments over the past 24 months... that's $7200 of principal and interest payments that have gone back into that vehicle, into the bank, which has been recirculated into the economy. Let's assume that the same vehicle is owned for a couple more years and then sold; owned for a couple more years and then sold again. It's interesting to think about all the money that flows through one single product and the effects it has on other outside markets.

Dr. Tufte said...


A good estimate of that value is how much the IRS will let you claim per mile.

No one, anywhere, at any time, thinks the IRS is giving them a good deal on that mileage rate (currently it is 51 cents per mile). If the typical car travels 150K miles in its lifetime, that works out to $60,000 as a lower bound on the value of the average car. That makes most new cars a pretty good deal.

Mitchell Stone said...

It comes as no suprise that GM needed a government bailout. It looks like things aren't getting any better for them either. I wonder if it would be worth it for an owner of a GM vehicle to rent out their cars? By renting out their vehicles, the owners would probably be required by law to purchase a business auto policy, or at least increase their limits on their current auto policy, which comes with and increased premium. Another cost to consider is the faster depreciation of the value of the vehicle. It seems like those who want to rent out their vehicles will have to do it a relatively higher cost than rental companies, and given the quality of GM vehicles, I am guessing not many individuals will be willing to pay such steep price.

Dr. Tufte said...

-1 on Mitchell Stone for spelling errors.

I have to agree with your thoughts about GM: brainstorming is fine, but I'd be more tolerant of an idea like this if they had a recent track record of brainstorming leading to good products.