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Lyft Will Subsidize Car Rentals for Drivers Who Do 65 Rides a Week

A Lyft car drives along Powell Street in San Francisco, California.
Getty Images
A Lyft car drives along Powell Street in San Francisco, California.

Lyft and Maven, GM's catchall brand for its car-sharing programs, will be rolling out a short-term rental program for Lyft drivers in Chicago later this month. Called Express Ride, the program is the first of two parts of GM's strategic partnership with and $500 million investment in Lyft and comes just two months after the companies formalized the relationship. The second part — an on-demand network of autonomous GM vehicles on the Lyft platform — is still a few years down the road.

The idea behind the program is simple: People in Chicago (and later in Boston, Washington, D.C., and Baltimore) who don't have vehicles that meet Lyft's qualifications can rent a vehicle on a weekly basis with no commitment. Under Express Ride's three-tier fee system, a driver who completes fewer than 40 rides a week pays a weekly base fee of $99 plus 20 cents per mile; those who complete more than 40 rides only pay the base fee; and those who complete 65 rides a week don't pay rent at all.

In other words, Lyft will be subsidizing the rental fees for drivers who complete 65 rides a week. "On the rides business, Lyft gets all the revenue," Lyft co-founder and CEO John Zimmer told Re/code. "On the rentals business, that's Maven, so we will make sure that GM is getting paid for those rentals, whether it's coming from the drivers or us."

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Given the sheer number of first-time driver applicants who don't have qualifying vehicles in the cities where the companies are first launching the program, Zimmer is confident in the program's viability. According to Zimmer, there have been 60,000 first-time applicants in Chicago alone and 150,000 across all four cities.

"This is geared toward the millions of Americans across the country [who] don't have access to a vehicle that is qualified to drive for the platform," Zimmer said. "This solves a major component of it that probably isn't possible without the type of relationship we have with General Motors, so it becomes a big differentiator."

Uber also began offering a few weekly car rental programs through partnerships with Enterprise and a Cox Automotive company called FlexDrive, though the former costs the driver $210 a week. The company also offers long-term leasing agreements through a program called UberXchange that allows drivers to back out of the contract with two weeks' notice without being penalized.

That wasn't always the case, however. Before the summer of 2015, drivers had few flexible options through Uber. Drivers could rent a car from and pay weekly rent to a fleet partner, finance a vehicle through a partnering bank like Santander, or commit to a long-term lease.

Though Lyft's rental program may be more affordable for drivers than Uber's, this may prove to be an expensive endeavor even with the two companies splitting the cost. On the supply side, GM will provide and maintain a fleet of Chevy Equinoxes for the program, and companies will cover the insurance costs together.

Then there's the cost of subsidizing the rental fees. In Chicago, if even 1 percent of the 60,000 first-time applicants took advantage of the program and completed 65 rides a week to avoid paying the rental fee, the company would have to subsidize close to $60,000 a week — and that's without taking the per-mile rate into account.

Already, Zimmer said, the company has paid out a total of $100 million in both driver fares and "power bonuses" and has completed one million unique rides in the U.S. So the business is certainly growing, but so too are the costs of that growth.

While in the short term the companies hope to increase access to the Lyft platform through the program, ultimately both GM and Lyft hope Express Ride will help build the national infrastructure that will make an on-demand driverless network possible.

By Johana Bhuiyan, Re/code.net.

CNBC's parent NBC Universal is an investor in Re/code's parent Revere Digital, and the companies have a content-sharing arrangement.