Warren Buffett Buys Auto Dealer for Berkshire
Berkshire Hathaway (BRK.B) has agreed to buy Van Tuyl Group, the largest privately owned U.S. auto dealership group. On Squawk Box this morning, Mr. Buffett was alongside CEO Larry Van Tuyl and will rename the company to Berkshire Hathaway Automotive.
This is only the third time that Buffett has applied the Berkshire Hathaway name to one of the business it owns; Berkshire Hathaway Home Services, Berkshire Hathaway Energy, and now Berkshire Hathaway Automotive. The auto company will still be run by Larry Van Tuyl who will become Chairman, and Jeff Rachor will assume the role of CEO.
Berkshire Hathaway has a diverse portfolio including businesses ranging from the BNSF railroad to Dairy Queen, Geico Insurance and power providers. The addition of an auto retail company helps add further diversity within the portfolio. Tuyl Group, whose main competitor is AutoNation (AN), should add a strong industry that just reported strong September numbers to Buffett’s portfolio.
"This is just the beginning for Berkshire Hathaway Automotive," Buffett said.
Cecil Van Tuyl, Larry's father, started with a Kansas City Chevrolet dealership in 1955 and Larry joined in the family business by in 1971. The Van Tuyl family founded the group 62 years ago, and it's now No. 5 overall in U.S. auto dealerships with about $9 billion in revenue and 78 independently operated locations in 10 states. Van Tuyl operates in states including California, Florida and Texas. The deal is expected to be completed in the first quarter of next year, according to the statement.
“I fully expect we’ll buy a lot more dealerships over time,” Buffett told CNBC in an interview today.
Recent Auto Sales Data
Auto sales increased about 9% since same period last year and 6% for YTD 2014 compared to last year’s YTD 2013. Auto sales September came in better than expected with Ford (F) claiming the top spot selling a combined 27,161 cars and trucks last month compared to 25,956 a year ago.
Chrysler and General Motors (GM) reported the most significant positive numbers as sales soared 18.8% and 19.4% respectively.
The industry's annualized sales pace for the month cooled off to 16.43 million, according to Autodata, a pullback from the torrid 17.53 million pace in August, but up strongly from the 15.43 million pace a year ago.
"Auto sales remained strong in September and rounded out an excellent third quarter, the best for the industry since 2006," said Bill Fay, Toyota division group vice president and general manager.
Investor Concerns
Some investors are concerned with the long run intuition of Mr. Buffett’s latest acquisition. This is due to a culmination of consumers in our day and age going with the online retail experience rather than the brick and mortar person to person auto shopping. With Millennials being raised in an age of e-commerce and low levels of car ownership, some could say that this investment could be troublesome in the long run which is what Mr. Buffett is known for.
Bottom Line
This was just another acquisition by the massive conglomerate Berkshire Hathaway, and it is one where the industry is not always stable. The Auto sales for September were better than expected and with the Holiday season coming up, we should be seeing an increase in sales, but we’ll have to wait to see if year over year percentages change after holidays.
We currently rank BRK.B as a #3 (hold), a consensus earnings estimate of $1.65 per share and BRK.B has beat earnings estimates by an average of .34%. This acquisition was another win for Berkshire Hathaway and Warren Buffett, and investors should be watching how he improves the company in the long run, and if this marks the first of many moves by the ‘Oracle of Omaha’ into the auto dealer space.
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