Ford's Car-Sharing Experiment and the Future of Auto Finance

The car-sharing culture is growing, and financial institutions are starting to take notice.

Ford Motor Co. recently announced a pilot program with Getaround, a tech company whose mobile app enables city dwellers to rent out their cars by the hour.

Between now and November, Ford plans to market the peer-to-peer car-sharing service to 14,000 of its customers in the San Francisco Bay Area, Chicago, Washington, D.C., and Portland, Ore. Notably, the Detroit automaker is targeting only those car owners who have loans through its financing arm, rather than other buyers of Ford vehicles.

Ford Motor Credit's interest in the so-called sharing economy augurs a future - perhaps not too far off - in which auto lenders take into account the revenue a vehicle's owner can generate by renting the car to strangers.

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Consider the example of a 2015 Ford Explorer. The SUV has a minimum list price of $30,700, a price tag that could easily result in monthly payments of $500 or more. But if the vehicle can generate a couple hundred dollars in monthly revenue, the loan payments suddenly become more affordable.

"I think it's smart for Ford to experiment with this," said Jo Ann Barefoot, a consultant to consumer finance companies. "It's true that most cars are sitting there idle most of the time. And millennials are a sharing generation, generally speaking."

Ford Motor Credit's exploration of car sharing appears to be in its early stages. The pilot program may allow the auto finance company to get an understanding of which automobile models are in highest demand.

"Once we analyze results of the pilot," spokeswoman Margaret Mellott said in an email, "we will make decisions for the future."

Peer-to-peer car sharing is still in its infancy, and the concept will have to overcome significant hurdles in order to achieve mainstream popularity.

Perhaps most fundamentally, car owners worry about crashes. San Francisco-based Getaround is trying to allay those concerns by offering liability insurance of $1 million to vehicle owners.

There is also the fear that renters will return cars that are messy and have empty gas tanks. Getaround is taking steps meant to allay those concerns, too, by allowing car owners to rate their customers' behavior.

Geography poses another obstacle to the widespread adoption of car sharing. The carless lifestyle probably makes sense for many people in dense urban areas where lots of vehicles are available for rent. But not so much in the suburbs and rural parts of the country.

Finally, peer-to-peer car-sharing apps depend on the participation of car owners who are willing to rent their own wheels. That is a different business model than more established services like Zipcar, which maintains its own fleet of vehicles.

Padden Murphy, Getaround's head of business development, sounds undeterred by the challenges. "Our goal is to make car sharing available to everyone everywhere," he said in an interview.

The rise of the sharing economy does seem to be changing Americans' attitudes. Airbnb was just founded seven years ago and now lists more than 27,000 homes and rooms for rent in New York City alone.

In the small number of U.S. cities where Getaround is currently operating, participating car owners are earning an average of $600 per month, according to Murphy.

That steady income stream could eventually affect the auto finance sector in two ways, he argues. First, it should allow consumers with damaged credit, who otherwise would not qualify for an auto loan, to buy a car.

And second, it should enable consumers to buy more expensive vehicles than they could normally afford.

Late last week in San Francisco, a 2005 Honda Civic was available for $7 per hour on Getaround, while a 2007 Porsche Cayman was going for $23 per hour. Murphy said that Tesla owners are generating $2,000 or more a month.

"Basically any vehicle you want, if you're willing to share it, can pay for itself," he said.

Of course, a future in which peer-to-peer car sharing becomes popular also carries a significant downside for car manufacturers and auto lenders: fewer vehicles are on the road.

Ford is not the first company to explore the intersection of car sharing and automotive finance.

In late 2013, Uber announced plans to attract more drivers by defraying the cost of financing a car purchase. The app-based taxi service said at the time that the cheaper loans carried less risk than traditional auto loans, because they came with an income stream.