Warren Buffett's Berkshire Hathaway agreed to buy Van Tuyl Group, the country's fifth biggest auto seller, Thursday, seeking to consolidate a highly fragmented industry.
Berkshire says Van Tuyl Group is the nation's largest privately owned auto dealership group, with 78 independently operated dealerships and more than 100 franchises in 10 states. The company will be renamed Berkshire Hathaway Automotive and be based in Dallas.
So why did Buffet decide to take the plunge into cars?
CBS Moneywatch identified three reasons "the move is classic Buffett":
- "It's a family business. . . . It's also a well-run business. . . . It has strong relationships with car manufacturers, which are crucial to success in the sector." In announcing the deal, Buffett noted, "Larry Van Tuyl along with his father, Cecil, spent decades building outstanding dealerships operated by local partners." Larry Van Tuyl will become chairman of Berkshire Hathaway Automotive.
- "It's ripe for acquisitions." Buffett has Van Tuyl Group looking for more dealerships that Berkshire can snap up. "We continue to believe the opportunity to consolidate the auto dealership sector presents one of the best medium-to-long term growth opportunities across retail," Stifel analyst James Albertine wrote in a commentary obtained by Moneywatch.
- "It's lucrative." Auto sales have strengthened markedly since the recession ended five years ago. Research firm Autodata expects sales of new cars to total 16.4 million this year, CBS Moneywatch reported.
"This is just the beginning for Berkshire Hathaway Automotive," Buffett stated.
Many experts expressed enthusiasm about the deal. "The Van Tuyl business model is to run large, high-volume stores in Sun Belt markets," Alan Haig, president of Haig Partners, a dealership brokerage company, told
Bloomberg.
"That is a very lucrative business model because the return on sales increases with higher volume."
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