Buffett auto acquisition a sign of the times in auto industry

BuffettWho knew that billionaire investor Warren Buffett (Berkshire Hathaway) was a car guy?

Well, if he wasn’t, he is now, following Berkshire’s acquisition of Phoenix, AZ-based Van Tuyl Group, the largest privately held chain of automotive dealerships in the United States.

“Warren Buffett already had the planes and the trains. Now he’s got automobiles,” opined The Wall Street Journal’s MoneyBeat, referring to BH’s ownership of NetJets and Burlington Northern railway.

Many see the acquisition as just a first step into a fragmented market headed toward consolidation.

“The Van Tuyl Group fits perfectly into Berkshire Hathaway from both a financial and cultural viewpoint,” said Buffett, chairman and chief executive, in a press release about the acquisition. The group will establish a new headquarters in Dallas, TX, as Berkshire Hathaway Automotive in 2015.

The Van Tuyl Group currently has 78 independently operated dealerships and more than 100 franchises spread across 10 states, with more than $8 billion in revenue, according to the company’s website.

Barriers to entry

“Warren Buffett has always said he likes industries that come with moats, so-called barriers to entry that keep competitors at bay,” reported Bloomberg Businessweek. “In buying a chain of car dealerships, Buffett’s Berkshire Hathaway sees plenty of moats and a clear path to consolidation.”

Buffett told CNBC last week that he expects BH will continue to buy automotive dealerships.

“With many of the publicly traded dealers sporting businesses of 60, 70, even 100 stores, it’s not hard to imagine Buffett’s financial engineers finding attractive targets with which to bolster the company’s automotive division,” according to the Bloomberg report.

The BH acquisition is just a sign of the times with dealer consolidation going strong in 2014.

For example, AutoNation Inc. of Fort Lauderdale, FL, is the largest dealership group in the United States, according to annual rankings by WardsAuto and Automotive News, with acquisitions this year adding around 50 dealerships to 228 in 2013. Sales revenue for 2013 was reported at about $17.5 billion.

Other large dealer groups

Meanwhile, No. 9 Lithia Motors completed its acquisition of DCH on Oct. 1, with Medford, OR-based company paying about $364 million for DCH’s 27 units to Lithia’s 101 dealerships. Lithia reported total revenue of more than $4 billion in 2013, according to WardsAuto.

Another top-10 group, Asbury Automotive of Duluth, GA, which already boasted 80 dealerships in 2013 and has climbed to No. 7 since the WardsAuto list was compiled, also has said it is in acquisition mode.

Other dealer groups ranked in the top 10 nationally, according to WardsAuto, with their total 2013 stores, are Penske Automotive Group (194), Carmax (118), Group 1 Automotive (148), Sonic Automotive (102), Hendrick Automotive Group (86) and Larry H. Miller Automotive Group (53).

“The field is highly fragmented, with the 10 largest U.S. dealers accounting for less than 10 percent of new vehicle sales,” Morningstar told Bloomberg in pointing to continued consolidation.

Larissa Padden of Royal Media contributed to this article.

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