Buffett’s Berkshire buys into auto trade

Purchases group dealership with US$8B revenue Motherlode of opportunity resides in America

Warren Buffett’s Berkshire Hathaway Inc. s ai d on Thursday it would buy the Van Tuyl Group auto dealership, in what the billionaire hinted could be the first of many such purchases as his company extends its longtime bullish view on the U.S. economy.

Berkshire Hathaway did not disclose terms of the agreement, but said in a statement the dealership would be known as Berkshire Hathaway Automotive after completion of the sale.

“It’s reconfirmation of the overarching theme,” said Bill Smead, chief investment officer of Smead Capital Management and a Berkshire investor.

“And that is, he wants to put himself in the way of making a pile of money as the millennials emerge from their extended adolescence into being married parents,” starting families of their own. “Domestic, domestic, domestic,” Mr. Smead said.

“I fully expect we’ll buy a lot more dealerships,” Mr. Buffett told CNBC Thursday. “We’ve gone a long time without getting into automobiles, but Larry’s got an operation that we think could be scaled up a lot from where it is.”

The purchase was an allcash deal, he added.

Mr. Buffett, 84, has been drawn to businesses that have opportunities to expand through acquisitions. Such bolt-on purchases allow his deputies to deploy part of Berkshire’s cash pile, which was more than US$55-billion as of June 30, and free his time for larger deals.

Over the last two decades, the car dealership industry has consolidated as some businesses closed and companies like Auto Nation Inc. and Penske Automotive Group Inc. built their networks. That trend is poised to continue, said Tim Lamb, president of Tim Lamb Group LLC, a dealership brokerage company in Ohio.

Mr. Buffett, ranked as the world’s third-richest person by

Forbes magazine, has long been adamant about seeing opportunities for investment in the U.S. “Though we invest abroad as well, the motherlode of opportunity resides in America,” he wrote earlier this year.

Mr. Buffett has run Berkshire since 1965, and the Omaha, Neb.-based company now has more than 80 businesses in such areas as insurance, railroads, utilities and ice cream. It also owns more than US$117.5-billion of stocks, including a stake in General Motors Co.

The Van Tuyl Group transaction is expected to be completed in the first quarter of 2015, according to the Berkshire statement, which added that the dealership has over US$8billion in revenue. Berkshire Hathaway Automotive will be headquartered in Dallas.