Why Automakers are Looking for a Lyft

Automakers are jumping on the ride-sharing bandwagon

By Steve Brown

June 2016

Call it hedging their bets, acknowledging the advent of a new type of economy or simply padding revenue, ride-sharing is very much a financial reality in this country and a bandwagon that major automakers are now jumping onboard.

Why? The short answer is for numerous reasons.

In some respects, this decision is a defensive play. To the extent that the concept of ride-sharing becomes increasingly popular, the automakers want to be involved. For one, it shuts out competitors not as quick to act on this phenomenon and effectively gives automakers a seat at the sharing economy table, so to speak. The automakers will effectively be able to drive the change instead of defending against it. It gives them access to a treasure trove of data on traffic flows, routings and popular destinations which they can use when developing new vehicles or technologies. It will also help to keep that valuable data in their hands and out of the hands of new entrants, like Google, who are trying to disrupt the industry.

The ride-sharing play is also more strategic in nature. Ride-sharing vehicles theoretically have shorter shelf lives. This is because they have significantly more miles put on them on a daily basis than privately owned cars that some studies suggest sit parked over 95% of the time. Widespread use of ride-sharing vehicles could actually help spur some new vehicle sales over time, which would help to offset some of the sales lost when potential owners choose to go the ride-sharing route instead of buying their own car.

For the purposes of this column, the focus will be primarily on the two largest automakers in the United States; General Motors and Ford. A closer look reveals two very different approaches in responding to the ride-sharing phenomenon.

GM jumping in with both feet

GM is taking a more immediate approach to ride-sharing through its $500 million investment in Lyft. It also bought most of the assets of the now-defunct number three ride-share operator, Sidecar Technologies. Why did they do it? In part, GM made the investment to hedge its bets, because of the potential its sees in ride-sharing long term. As the number two ride-sharing operator in the U.S., Lyft already has an established presence in a number of cities, and GM can begin seeing the benefits of the partnership in the near term. The two have already announced that by year-end, electric Chevrolet Bolts with autonomous driving capabilities will be operating in commercial Lyft service in an undisclosed U.S. city.

Another, more practical reason, is that GM vehicles are not especially popular in many U.S. urban areas, particularly on the coasts, which are the very environment that ride-sharing companies like Lyft and Uber are thriving in. So GM sees the partnership as an opportunity to move more vehicles in these markets without cannibalizing its existing sales in suburban and rural areas — place where GM vehicles are popular but ride sharing is not. GM and Lyft have announced a program to that will offer Lyft drivers special rates to rent GM vehicles for use as ride-sharing vehicles.

As a side benefit to GM, getting more of its vehicles into ride-sharing fleets could be a type of marketing play as well, since it will give some urban ride-sharing customers who may be looking for a car of their own some exposure to GM vehicles that are outside their consideration set.

Will Ford follow suit?

Like GM, Ford is looking intently at the future of mobility, including ride sharing, but it has not yet formed any partnerships with existing ride-sharing companies. With other automakers, like Toyota and Volkswagen, having already formed partnerships with existing ride-sharing providers, the number of remaining partnership opportunities available to Ford is slim. If Ford chooses to go the partnership route, it may have to look overseas for an opportunity.

That being said, Ford has thus far largely followed its own path as far as its mobility investments are concerned, focusing primarily on developing its own technologies, augmented by the occasional strategic investment. This could be a riskier strategy, but it means that Ford does not have to deal with a partner that may not be fully aligned with its mobility strategy. It also means it does not have to share its insights, or any strategic wins, with a partner.

Conclusion

Ride sharing is only one many elements of the technology change that is occurring in the global auto sector. Other big areas of potential disruption include the move to autonomous vehicles and improvements in the usability of electric vehicles. Over the long term, all these changes could lead to new transportation business models, with the auto manufacturers moving away from selling cars and instead selling transportation solutions.

In the near term, though, GM’s investments in Lyft and Sidecar, and Ford’s mobility investments, are evidence of both the changing automotive landscape and automakers’ need to drive that change rather than be left behind by newcomers. Regardless of whether Google, Apple, or even Uber, ever builds a car of its own, automakers clearly see a real threat in the change that these tech companies are driving. Ultimately, Silicon Valley is going to disrupt the car industry, either by introducing its own new technologies, or by forcing existing automakers like GM and Ford to disrupt themselves.


Originally published at thewhyforum.com.