A Buffet of Planes, Trains and now… Cars

When Warren Buffet sneezes, the rest of the world trembles. Buffet’s holding company, Berkshire Hathaway, has announced a deal to purchase the fifth largest car dealership in the States, the Van Tuyl Group, which is also the largest privately held auto dealership in the country. Shares of its public-listed rivals has been jumping as investors began reexamining the sector since the announcement was made last Thursday. This latest acquisition adds to Buffet’s transportation portfolio that includes private jet company, NetJets, and Santa Fe railroad operator, Burlington Northern, and not forgetting BYD, the car and battery manufacturer in China of which Berkshire has a 10% share.

Van Tuyl has remained a family business since its inception in 1955, and it currently has 78 independent dealerships with more than 100 franchises across 10 states. Last year, it sold a total of 130,447 new vehicles. In comparison, the largest US auto retailer, AutoNation has 228 dealerships and sold 292,922 new vehicles in 2013.

This could signal the beginning of consolidation of what is a largely fragmented industry, even though public-listed auto retailers have been in existence for almost 20 years. According to one report, the top ten car retailers in the States account for only 6% of sales in 2013. But as aging owners look to cash out on the business that they had founded, a series of mergers and acquisitions will ensue and gain momentum. The oracle himself, Buffet, has every intention to use his new acquisition as a platform to absorb more dealerships. “I fully expect we’ll buy a lot more dealerships over time,” he told CNBC.

Although more than half the revenue of dealerships come from new vehicle sales, the larger chunk of the profits are generated from sales of secondhand cars, aftermarket services and parts, commissions from helping to secure loans and leases, and finance and insurance products. AutoNation, which is publicly traded, reported a US$17.5 billion revenue last year while Van Tuyl reported a revenue of almost US$8 billion.

Details of the deal between Van Tuyl and Berkshire were not disclosed, but with US$55.5 billion in the latter’s coffers set aside for acquisitions, it is unlikely to make a significant dent. In addition to Van Tuyl’s broad portfolio of auto retail and auctions, and insurance, the Group also owns the property that underlies its various dealerships. 

Son of the founder, Larry Van Tuyl, said that: “(Buffet is) a very charismatic, charming, straight talking super guy…(he) allows you to run the business the way you always have been.” The numerous meetings between them and the eventual agreement was supposedly forged over Buffet’s favourite drink…Coca-Cola.