Wall Street analysts say General Motors will have to prove that buying dealerships will result in higher profit margins and increased market share.
Investors already look at the auto industry as overinvested with weak returns, said Gary Lapidus, an auto analyst with Goldman Sachs in New York. 'Any increased investment will raise eyebrows,' Lapidus said.
Lapidus said buying 770 dealerships could cost as much as $4 billion. Other analysts and dealership acquisition experts estimate between $2 billion and $4 billion.
Scott Merlis, an auto analyst at Wasserstein Perella Securities in New York, says the new GM project can gain economies of scale and add new life to underperforming markets.
But the company must buy dealerships at the right price, find the right people to run them, and 'not purge the entrepreneur spirit,' Merlis said.
Philip Fricke of CIBC World Markets in New York said GM must reduce its distribution costs and get custom-ordered vehicles to consumers much faster.
But Fricke said he was not sure how buying dealerships will help GM meet those objectives.