GM’s Lyft Faces Rocky Road as Cash Rich Uber turns focus on the US
General Motors Co. and Lyft Inc. are going to have a lot harder time wringing benefits from their newly minted partnership now that their biggest ride-sharing rivals just formed an alliance of their own in the world’s largest economy.
Earlier this year, GM poured $500 million into Lyft. Just months before, Lyft had received a $100 million check from Didi Chuxing, China’s biggest ride-hailing business, solidifying an arrangement that would have helped both companies battle their shared global competitor, Uber Technologies Inc.
That all but dissolved this week when Didi and Uber joined forces for a $35 billion alliance in China. With it, Uber got $1 billion in cash that it can now use to focus on the U.S. market, where GM is counting on Lyft’s rapid growth to give it a real presence in the emerging business of ride sharing.
With its 9 percent investment in Lyft, GM is hoping history doesn’t repeat itself. The Detroit automaker has a long track record of investing in companies and then seeing them suffer later.
It invested $420 million in France’s Peugeot SA in 2012, only to write down half of it within the next year. A decade ago, GM lowered the value of investments in Isuzu Motors Ltd. and reduced its stake as the Japanese company restructured. GM also spent $4 billion on a 20 percent stake in then-troubled Fiat Auto. And in 1992, the company bought National Rental Car and took a $744 million writedown the next year. It sold the company in 1995.
Even before Didi changed sides, Lyft faced a tough fight against Uber, which has about 80 percent of the U.S. ride-sharing market. San Francisco-based Uber delivered 62 million rides in the U.S. in July and 54 million in June, the company told Bloomberg. That’s up from 50 million in March. Earlier this year, Lyft told investors that it would keep losses under $50 million a month while buying growth.
GM says it can help Lyft grow even more, said Dave Roman, a spokesman for the automaker. The two companies are still expanding the Express Drive program in which Lyft drivers in several cities are renting new GM cars for $99 a week plus 20 cents a mile. If the drivers give enough rides, they don’t have to pay. GM has rolled the program out in Baltimore, Boston and Washington. It’s growing so fast that GM has plans to introduce it in more cities soon, Roman said.
The two companies are also working on using self-driving cars for Lyft, a project that’s moving forward, Roman said.
Lyft said in the letter its 2015 revenue increased 530 percent over 2014 and that revenue in the first half of 2016 was larger than what the company generated in all of 2015. Last year, Lyft incurred $360 million in losses on $200 million in revenue, according to a person familiar with the results who wasn’t authorised to speak publicly about them. – Bloomberg