General Motors Expands Its Deal With Lyft: What It Means

By Markets Fool.com

GMPresident Dan Ammann, center, with Lyft co-founders Logan Green (left) and John Zimmer (right). GM is a major investor in Lyft, and Ammann is a member of the ride-hailing start-up'sboard of directors. Image source: General Motors.

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General Motors and ride-hailing start-up Lyft announced on Monday that they will soon expand a program that allows Lyft drivers to rent GM vehicles at affordable rates.

What's happening?

GM and Lyft said that their Express Drive program, already available in four U.S. cities, will expand to San Francisco later this summer and to Denver and Los Angeles this fall.

Express Drive allows potential Lyft drivers who don't own a vehicle suitable for the service to rent a GM vehicle at low rates that are subsidized by Lyft for busy drivers. Currently, drivers pay a base rate of $99 per week plus $0.20 a mile to rent a Chevrolet Equinox crossover SUV.

But the key to the program is that the driver's cost drops as he or she does more work for Lyft. The mileage charge is waived if the driver provides 40 or more rides per week, and the $99 fee is also waived if the driver gives at least 65 rides per week.

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In addition to the three new cities, GM and Lyft are also expanding the range of vehicles available to drivers under the program. Drivers in California will be able to choose a Chevrolet Volt and (once it's available late this year) the all-electric Chevrolet Bolt EV.

Express Drive began as a pilot program in Chicago in March. It has since been rolled out in Boston, Washington, D.C., and Baltimore.

What's in it for Lyft?

For Lyft, this is all about attracting more drivers. Lyft said earlier this year that it has had to turn away "tens of thousands" of potential drivers who didn't have a late-model four-door vehicle that met Lyft's standards.

The cost of the program is another big selling point. While larger rival Uber also offers a rental program to potential drivers, Uber's car rental program costs much more -- even if the driver provides lots of rides. The fee structure of Express Drive, and the promise that the fees can be completely waived if the driver works hard for Lyft, is clearly intended to draw drivers away from Uber.

"Expanding Express Drive provides opportunities to hundreds of thousands of new potential Lyft drivers and continues to make car ownership optional for both drivers and passengers," said Lyft president and co-founder John Zimmer in a statement.

The promise of electric vehicles (in California, at least) is another selling point. "We are also excited to be adding electric vehicles to Express Drive, which is an important milestone for Lyft and the industry," Zimmer said.

What's in it for GM?

When GM announced a $500 million investment in January, it appeared that GM's interest in Lyft was partly about wanting a stake in the fast-growing ride-hailing industry and partly about wanting to use Lyft to increase its presence in U.S. cities.

GM has long been the largest-selling automaker in the U.S., but its sales strongholds are primarily rural areas. The deal with Lyft is exposing younger urban folks to GM products, whether as Lyft drivers or as customers. GM hopes they'll form favorable impressions that will stay with them once they have families and buy vehicles of their own.

The Volt and Bolt are an important part of that effort. GM is working hard to shake the image of an old Detroit automaker dependent on gas-guzzling trucks and SUVs. With the Volt and Bolt, GM can reasonably claim that it's an industry leader in electrified vehicles. Showing them off will raise awareness of GM's current level of technological savvy.

What's more, the two are a great fit for ride-hailing duty. "The Chevrolet Bolt EV and Volt are a perfect fit for ride-sharing offering very low operating costs and a wide range of connectivity features for both drivers and passengers," GM President Dan Ammann said in a statement.

The takeaway for GM shareholders

GM's big investment in Lyft gives it a close-up view of the ups and downs of the emerging ride-hailing space. Some analysts predict that ride-hailing could grow to displace traditional car ownership in some areas and markets. For GM, being on top of that trend -- and in a position to make money by providing vehicles to drivers -- is a strong positive.

There's another advantage for GM in this arrangement. All of GM's current vehicles are much improved over what the company was offering even a decade ago. Any program that exposes potential buyers to the cars, especially in areas and demographics in which GM hasn't had much consideration recently, is a good thing for GM's long-term competitive prospects.

Long story short: Lyft and GM are still in the early stages of their relationship. But so far, there's much to like here.

The article General Motors Expands Its Deal With Lyft: What It Means originally appeared on Fool.com.

John Rosevear owns shares of General Motors. The Motley Fool recommends General Motors. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.