Warren Buffett is getting into the automobile sales business.
The billionaire’s Berkshire Hathaway, owner of businesses ranging from the BNSF railroad to Dairy Queen, Geico insurance and power providers, is buying the privately owned auto dealership company Van Tuyl Group.
Financial terms were not disclosed.
Van Tuyl Group says it is the biggest privately owned auto dealership group in the US. It has 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.
Buffett, in an interview on CNBC on Thursday, said that there are huge opportunities for market consolidation in the fragmented auto dealership business.
This deal is one of a handful of times Buffett has applied his conglomerate’s name to one of the businesses it owns.
Originally, Berkshire Hathaway was the name of the struggling New England textile company that Buffett took control of in the 1960s. Buffett later closed the textile mills, but he has built Berkshire Hathaway into a conglomerate known for its financial strength.
Van Tuyl Group’s current chief executive officer, Larry Van Tuyl, will become chairman of the auto unit and Jeff Rachor will take over his role once Larry Van Tuyl transitions to the chairman position.
Buffett said that Van Tuyl’s job will be to scout out dealerships for potential acquisitions and determine which ones to pursue.
Buffett will provide the funding for any possible transactions.
“We’ve got the capital, so we’re off to the races,” he said.
Berkshire investor and biographer Andy Kilpatrick said this deal looks like it represents another long-term move into a new business for the company.
Also, it puts some of Berkshire’s roughly US$55 billion cash to work.
“I think it’s a major operating business,” said Kilpatrick, who wrote Of Permanent Value: The Story of Warren Buffett.
Stifel analyst James Albertine said the deal puts Omaha, Nebraska-based Berkshire in a good position to take advantage of trends in the industry and acquire dealers who either need to plan for succession or need capital to invest.
“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,” Albertine said in a research note.
The deal is expected to close in next year’s first quarter.
It still needs approval from major auto manufacturers.
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