American car companies sold more vehicles in 2015 than ever before, with sales boosted by low gas prices and a recovering economy — a remarkable turnaround from the recession years. But at the same time, GM is placing a bet on the industry’s next phase. It has announced an investment of $500 million in Lyft, the No. 2 car-hailing service (after Uber).

This is the first time a car company has directly invested in either Lyft or Uber, both of which foresee moving away from matching private drivers with riders to letting people summon driverless cars with an app. GM’s president, Dan Ammann, said that the focus of the partnership would be on developing a fleet of self-driving cars, and on integrating the technology of GM and Lyft. GM says it will have autonomous Chevrolet Volt plug-in hybrids in operation, at least at its headquarters, sometime this year.

COLLEGE PARK, Md. (Jan. 7, 2015) – General Motors’ $500 million investment in Lyft marks the first time a car company has directly invested in either Lyft or Uber, both of which foresee moving away from matching private drivers with riders to letting people summon driverless cars with an app. GM’s president, Dan Ammann, said that the focus of the partnership would be on developing a fleet of self-driving cars, and on integrating the technology of GM and Lyft. GM says it will have autonomous Chevrolet Volt plug-in hybrids in operation, at least at its headquarters, sometime this year.

Uber > GM

In the funding round, Lyft was valued at $5.5 billion, less than a tenth of Uber’s $64.6 billion valuation. GM, to provide context, is roughly a $53 billion company.

Who needs a network?

What makes the bet interesting, according to Brent Goldfarb and David A. Kirsch, associate professors of management and entrepreneurship at the University of Maryland’s Robert H. Smith School of Business, is the uncertainty involved in the evolution toward a driverless future. Uber is currently trouncing Lyft on market share in most cities where it operates, but that’s partly because the current business model manifests strong “network effects”: Having more riders encourages more drivers to sign up with Uber, and vice versa. “But once we make the transition to the driverless stage, Lyft won’t have to recruit drivers,” Goldfarb says. “Nobody will. So it’s not clear to me that Uber’s greater market penetration will be such a clear advantage once we reach the driverless stage. It’s not clear to me that people won’t try Lyft, too.”

In the long run, it is possible that the driverless revolution will lead to the commodification of vehicles themselves, with profits going to the services that match people with transportation and not the companies that assemble cars. But that, too, is up in the air. “What we don’t know is, Where are the ‘commanding heights’ in the future of mobility?” Kirsch says. “Which players are going to be able to extract value, and which players’ positions are going to be competed away to minimal profits?” It’s even possible that profits will be scant for everybody, and that the industry turns into a low-margin business, like air travel. To hedge against all the uncertainty, GM is essentially making multiple bets — taking a stake in Lyft even as it continues to build its own autonomous-car capabilities.

Getting from here to there

In a driverless future, private-car ownership is likely to plummet. But it appears that the transition to that period will be evolutionary, not revolutionary, and could take two decades — “a lot of time to be selling cars,” notes Goldfarb, the academic director of the Dingman Center for Entrepreneurship. In any case, “GM has given itself a toehold in the transition period.”

The transition could be messier than people think. Rather than give up vehicle ownership abruptly, “Some people might buy cars but agree to rent them out for a while, or rent them and then decide to buy, Goldfarb says, all of which could help GM in the future. GM could sell its stake and walk away, passing along any bonus to shareholders.

At this week’s Consumer Electronics Show, in Las Vegas — where the car-technology nexus has been a major theme — Ford CEO Mark Shields damned GM’s move with faint praise, telling Re/code it was “interesting” and stating that Ford had higher goals than “contract manufacturing” for a ride-hailing service. Ford trumpeted agreements with Amazon to link Ford’s in-car software with Amazon’s smart-home technology, notably the Amazon Echo. Ford is also working with the Chinese company DGI on ways to integrate drones and its vehicles. An F-150 truck used by emergency workers might carry a drone in its bed; it could then take off and explore dangerous terrain.

“The idea that Ford is in a strategically different position than GM is not really tenable,” Kirsch says. “They are both mainstream, incumbent, integrated automobile companies. That’s what they do. Ford can talk about being ‘a mobility company'” — as Shields, the CEO, did — “but that’s aspirational. GM wants to be a mobility company, too.”

So does Volvo: at the electronics show, the Swedish company showed off a driverless concept car with a large video screen and advanced cellular-networking capabilities, developed with Ericsson. The point was to guarantee that riders could seamlessly stream their favorite shows while their car took them to work.

Toyota, meanwhile, has committed $1 billion to an artificial intelligence company. In Las Vegas, the company’s leader, Gill Pratt, announced that he had hired experts away from the Defense Advanced Research Projects Administration, M.I.T. and Stanford.

Photo credit: GM

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