San Francisco Tries to Shut Down Teen-Run Car Rental CompanyJune 19th, 2013
Cronyism has destroyed the engine of American capitalism. In decades past, entrepreneurs could easily hit the ground running with big ideas that would later create jobs and prosperity. Now, such initiatives require huge payouts to regulatory compliance firms just to figure out how to navigate the hundreds of thousands of regulations that were typically passed by politicians beholden to the interests of the biggest corporations in the industry in question. As such, these rules often prevent competition and require companies to use a specific business model in order to “remain legal.” New business models often by nature violate these arbitrary regulations, even in the absence of safety issues, making it impossible for an industry to move forward.
Nothing better demonstrates this than the plight of FlightCar, a brilliant new peer-to-peer car rental company that allows airport travelers to rent their cars out to other travelers, rather than leaving them in long term parking. This solves both parking and car rental problems, while also reducing the environmental impact of the car rental industry by reducing its thirst for newly-manufactured cars. However, it also features lower rates than corporate giants like Hertz and Avis, and, as a result, the San Francisco city government is stepping in to investigate, claiming that the company is engaging in “unfair competition.” Why is the City and County of San Francisco harassing an innovative new teen-run business when our nation is in a jobs crisis?
“Undercutting” Isn’t a Crime, It’s a Service to the Consumer
Transportation costs are difficult for some families to afford. Whether it’s mass transit, new and used car prices, taxi fares, or car rental rates, lower income families unquestionably benefit the most from drops in the price to get from point A to point B. The San Francisco city government lost sight of this when it chose to put the regulatory cross-hairs on FlightCar. The city passed excessive regulations on bigger car rental companies, and, as such, competitors like Hertz and Avis can’t afford to compete with FlightCar’s $21 rates.
However, FlightCar’s new business model also alleviates traffic congestion by allowing travelers to rent out their vehicles rather than leaving them in long term parking. Considering the fact that FlightCar is looking to expand into cities like Boston where parking can be a major issue of concern for residents, the benefits to the community extend far beyond just reduced car rental rates. San Francisco’s city government argues that FlightCar must meet the exact same regulations as huge car rental services with their own inventories of vehicles, despite performing a fundamentally different service.
Brand-New Business Models Are Rarely Compliant with Regulations
When regulations drift too far into the minutiae of businesses, a unique type of dissonance occurs. For example, what happens when companies in an industry are required to buy a certain type of industrial component that a new business legitimately doesn’t need to use at all, due to having a different business model?
In the case of FlightCar, the company doesn’t need to buy cars in order to rent them out, as the basic premise is more of a peer-to-peer brokerage than an actual car rental service. However, the city government sees it as a car rental service that must meet the exact same regulations as big corporations with fleets of their own vehicles.
According to Deputy City Attorney Jennifer Choi, FlightCar has until July 1st to resolve the matter (which probably would involve paying huge sums of money to the San Francisco International Airport), after which point the company will face charges that it has violated the Unfair Competition Law if a resolution is not met. However, it is the city government which is trying to snuff out competition by harassing FlightCar on its way into the market. For doing the good work of the hand of Adam Smith in the face of statist tyranny, FlightCar, as a company, is our Rebel of the Week.