1. Speculate as to why GM invested in Lyft rather than other ride-hailing services such as Uber?

2. Of the risk factors mentioned in the case study, which do you believe is the most likely to prevent the realization of the partnership's vision of achieving a car-hailing network of autonomous driving cars? Explain your answer.

End of chapter case study: general motors hedges its bets with an investment in ride-hailing firm lyft Case Study Objectives: To Illustrate How Business Alliances Can Manage risk Leverage financial and nonfinancial resources In an era in which rapid changes in technologies are reshaping the long-standing business models of most companies, senior managers find themselves having to gaze into the future to anticipate rather than simply react to market changes. The automotive industry is no exception. Those that will survive long term must make educated guesses about what lies ahead in terms of how people will chose private versus public modes of transportation. While the latter has long represented an alternative in areas of high population density, new trends are emerging that represent both a threat and an opportunity to the traditional passenger vehicle. Among the economic and social developments likely to impact the mode of transportation in high-density affluent areas is the advent of autonomous (or self-driving) cars and ride-hailing services (like Uber and Lyft).25 Consequently, both firms within the car manufacturing industry and major technology companies are seeking ways to exploit changes in the giant automotive transportation market. Ride-hailing companies using autonomous driving car technology have the potential to substantially erode consumers' desire to own motor vehicles, particularly in urban areas, and in turn to reduce automakers' sales and profits. Automotive executives are keenly aware of the potential for ride-hailing services to reduce the demand for owning or leasing cars in urban areas. However, opportunities for automakers do exist. Even if the industry's passenger car sales decline, the number of miles driven by cars can actually increase as cars remain the preferred mode of transportation nationwide. Car companies see the potential to offer paid services to take advantage of all the miles driven by the current fleet of cars, which in the United States exceeds 100 million vehicles. Such paid services could provide a significant source of future income in addition to the more traditional sale of cars and replacement parts. The future may consist of company-owned autonomous cars constantly shuttling people back and forth rather than simply cars owned by individuals remaining in garages or parking lots a large percentage of each day. Car companies with paid mobility services see themselves earning money on the number of miles driven rather than simply on the actual sale of cars. In recognition of this emerging trend, Ford announced in 2015 that it was increasingly thinking of itself as a mobility company rather than an automotive company. The growing popularity among consumers of ride-hailing indeed portends a major paradigm shift in the way we travel. But the capital requirements to make it happen are proving to be huge. Uber has been unable to sustain its rapid growth through internal financing. In mid-2016, Uber announced publicly plans to raise billions of dollars from investors and creditors. Smaller competitors such as Lyft acutely aware of the amount of capital required to compete with Uber pursued various options ranging from partnerships to seeking minority investors to sale of the business. After having tried unsuccessfully to sell itself to GM, Apple, Google, Amazon, Uber, and Chinese ride-hailing firm Didi Chuxing, United States-based Lyft Inc. initiated a new round of funding in early 2016 raising more than $1 billion. This included a $500 million investment by GM. Other investors in the equity offering included Saudi Arabia's Kingdom Holding Co., Janus Capital Management LLC, and Japanese e-commerce firm Rakuten. The financing valued Lyft at $5.5 billion, more than double its valuation in its prior financing round in early 2015. The deal marks the first time a major car maker has joined with a ride-hailing company. GM and Ford are among a cadre of car makers interested in developing their own "alternative" autonomous driving capabilities either alone or in partnership with other firms. This comes at a time when large technology firms including Uber, Alphabet (Google's parent), and Apple Inc. are seeking to increase their role in the personal transportation market. Founded in 2012, Lyft helped promote the popularity of the ride-hailing craze in the United States. Lyft users can summon a private car using a mobile phone app. Lyft says it now completes 7 million rides per month across more than 190 cities in the United States. In October, it announced an annual gross run rate (total bookings through the Lyft app, before the driver's commission) of $1 billion. Despite the new round of funding in early 2016, Lyft has only a fraction of the capital available to its larger competitor, Uber, which has raised more than $13 billion, six times more than Lyft. Moreover, Uber, which is also developing its own autonomous-vehicle technology, is valued at $64.6 billion, a figure larger than GM's $53 billion market value. To leverage its relatively limited financial resources, Lyft has been working to catch up to Uber by teaming up with ride-hailing competitors in Asia like Kuaidi, Ola, and GrabTaxi to expand. It has also struck deals with major brands like Starbucks and pop stars like Justin Bieber to broaden its appeal. Lyft also teamed with Hertz to offer rental cars to drivers who do not own vehicles, and it has reached an agreement with Shell Oil that gives gasoline discounts to Lyft drivers in a handful of cities. By investing in Lyft, GM also gets a seat on Lyft's board to gain influence on Lyft's decisions. While it's too early to say whether it will be taking a hands-on role, GM's investment in Lyft is a big step beyond the in-house R&D that many automakers have been pouring into vehicle automation. In the short term, the partnership will look similar to one Lyft already has with Hertz. That is, GM will establish rental hubs around the country that will make vehicles owned by GM available to Lyft drivers on a short-term rental basis. The longer-term vision for the partnership is that the two companies can combine GM's experience in manufacturing and autonomous technology with Lyft's mobile software and infrastructure to create a self-driving car network that might be cheaper and more ubiquitous than any existing ride-hailing business models. Such a network would be similar to the way Uber and Lyft operate today. Each offers a fleet of cars that respond to a request from a consumer's mobile phone request. However, the key difference would be the use of autonomous driving cars to replace drivers and slash labor costs while improving productivity by allowing a company to keep cars in service constantly. In concept, a company owning the proprietary technology from the artificial intelligence to make the network function efficiently to car manufacturing to consumer software and fleet ownership could have a huge advantage over other players. How? Owning all aspects of the network improves the likelihood they are operationally compatible. GM has been developing its own autonomous car technology for several years in anticipation of launching a fleet of self-driving Chevrolet Volt plug-in hybrid cars. The investment in Lyft will provide GM with a practical means of understanding the ride-hailing market and offers an important platform for generating fees for the firm by facilitating a more cost-efficient car sharing network. It also gives GM an extra market for its vehicles. For Lyft, GM's support includes more than financial backing. As part of the investment, GM and Lyft will work on developing an on-demand network of self-driving cars, an area of research that companies like Google, Tesla, and Uber have all devoted enormous resources to in recent years. While the proposed network has considerable conceptual appeal, there are numerous roadblocks that must be overcome: some regulatory, some technical, some human behavior, and some cultural. Regulatory considerations entail concerns about the safety of autonomous driving cars and the potential for liability. In late 2015, California passed legislation requiring a driver to be behind the wheel of a self-driving vehicle at all times. This would preclude the labor cost reduction presumed in the GM-Lyft network concept. Like any new technology, it is likely to take years for consumers to accept the driverless car concept putting the realization of the proposed network years into the future. Finally, the behemoth GM has a large and often ponderous bureaucracy as compared to Lyft's. Lyft's corporate culture is more likely to reflect nimbleness and informality in contrast to GM's more structured and risk- averse way of decision making. GM's $500 million interest in Lyft is the single largest direct investment by an auto manufacturer into a ride- hailing company in the United States. But it is by no means the first attempt to partner with others to tap into the ride-hailing market. In 2011, GM teamed up with RelayRides, a website that lets GM car owners rent out their idle vehicles. Ford reached a similar agreement with Getaround. Daimler has been experimenting with Car2Go, a Zipcar- like service26 that offers Daimler smart car rentals in urban areas like Brooklyn, Berlin, and Toronto. What began as a race to turn driverless cars into a form of mainstream transportation is now moving on to its next stage. This is occurring even before the first stage has been completed. This next stage is a business model based on personal mobility in which consumers have instant access to cars you don't have to own. Will the shift to autonomously driven car networks hurt GM's traditional business? GM argues it will not as it represents a broadening of the choices for consumers not wanting to own their own cars. It is viewed as complementary to its core car manufacturing business: GM can generate a revenue stream by owning a ride-hailing operation as well as by selling cars to those who choose to own them. GM notes that the most profitable part of its business has been for years its truck and SUV business whose sales are made primarily to people living in less densely populated areas. In contrast, ride-hailing/sharing is likely to be mostly an urban phenomenon and offers a new revenue stream for the company