General Motors invests $500M in Lyft, forms partnership

GM invests $500M in Lyft
GM-Lyft join forces
Where Lyft passengers eat and drink

General Motors and ride-hailing company Lyft are forming an unprecedented partnership that could help them beat their rivals to the self-driving future.

Lyft said Monday that GM invested $500 million in the company as part of a $1 billion round of fundraising.

The deal will let Lyft drivers buy vehicles at a lower price point, by allowing them to rent by the day, by the week or by the month without the long-term commitment or high interest rates that a lease might bring, said Dan Ammann, president of GM and incoming Lyft board member.

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Lyft mustache logo
Source: Lyft

"We have a real advantage obviously in our ability to supply vehicles, our ability to finance them efficiently through the GM financial platform and a huge advantage from a connectivity point of view through OnStar," Ammann told CNBC's "Squawk Alley." "Putting all that together, we think makes a really compelling package for the Lyft driver."

GM gets a seat on Lyft's board and access to the 3-year-old company's software, which matches riders with drivers and automates payments. It also becomes a preferred vehicle provider, with the chance to get many more people behind the wheel of a Chevrolet, Buick, GMC or Cadillac.

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San Francisco-based Lyft gets the expertise of a 108-year-old automaker with decades of experience in making connected and autonomous vehicles. Detroit-based GM also has an enviable global reach; it sells almost 10 million cars each year in more than 100 countries. Lyft operates in 190 U.S. cities, although it recently formed partnerships with ride-sharing services in China and India.

Together, the companies plan to open a network of U.S. hubs where Lyft drivers can rent GM vehicles. That could expand Lyft's business by giving people who don't own cars a way to drive and earn money through Lyft.

"We actually have thousands and thousands of sign-ups from individuals whose car doesn't qualify, whether it's a year requirement or the size of the vehicle," Lyft co-founder and president John Zimmer said on "Squawk Alley." "We can now market to those individuals that have already applied but didn't have the right car. As well as let people know this is a really great income-earning opportunity, whether or not you have a car."

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It will also give GM a leg up on competitors like Daimler and Ford, who are developing their own ride-sharing services.

Longer term, GM and Lyft will work together to develop a fleet of autonomous vehicles that city dwellers could summon using Lyft's mobile app. Partnering with GM could give Lyft a boost over its archrival, Uber, which is working on its own driverless cars.

Zimmer and Ammann told The Associated Press that the two companies began serious discussions about three months ago. Both see big changes coming in the traditional model of car ownership, and they had similar ideas about how to address it.

Ammann said the resulting partnership is unlike any other in the auto and tech industries.

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"It's been really a natural fit right from the outset," Ammann told CNBC. "We're really excited about us bringing our autonomous capabilities, our connected car capabilities, putting that together with the Lyft ride-share platform. And the combination of all those things is something that's really unique."

Following its latest round of fundraising — which also included a $100 million investment from Saudi Arabia's Kingdom Holding Co. — privately held Lyft set its value at $5.5 billion. The company expects revenue of around $1 billion this year. By comparison, GM is valued at $53 billion and had $153 billion in revenue in 2014.

But neither company can afford to rest. Uber's value could soon surpass GM's, and newcomers like Apple and Google are also eager to disrupt the traditional auto industry.

"Obviously our business today, our core business at General Motors, is strongest outside of the urban centers," Ammann said. "We look at this opportunity to really disrupt urban mobility through this strategic alliance with Lyft."

— CNBC staff contributed to this report.