Berkshire Enters Car Dealership Market -- 2nd Update

By Chelsey Dulaney 

Legendary investor Warren Buffett has set his sights on the auto market.

His firm Berkshire Hathaway Inc. unveiled plans Thursday to buy Van Tuyl Group, the largest privately owned auto dealership group in the U.S.

Mr. Buffett, who declined to disclose the deal's value during an interview with CNBC, said he sees long-term value in auto dealerships--a highly fragmented market that he could help to consolidate.

"I fully expect we'll buy a lot more dealerships over time" he said. "We will hear, I predict, from hundreds of dealerships in the next year."

He said the fundamental demand for cars hasn't decreased, despite a shrinking number of auto dealers. He added the average dealership does more business now than 30 to 40 years ago.

"We're buying this business for 100 years," he said.

Shares of auto dealers climbed Thursday in response to Mr. Buffett's comments. AutoNation Inc., Sonic Automotive Inc. and Lithia Motors Inc. were among the top gainers.

After becoming part of the company, Van Tuyl will be known as Berkshire Hathaway Automotive and will continue to be led by Larry Van Tuyl, who will become chairman, and Jeff Rachor, who will assume the role of chief executive.

Van Tuyl has $8 billion in revenue and 78 independently operated dealerships with more than 100 franchises in 10 states.

"It would be on the Fortune 500 all by itself," Mr. Buffett said on CNBC.

The deal is the latest example of a family-owned business turning to Mr. Buffett and Berkshire Hathaway. Mr. Buffett touts his desire to hold his acquisitions "forever" as a reason for closely held companies to seek out Berkshire for deals instead of turning to private-equity firms. Both Mr. Buffett and Mr. Van Tuyl, the firm's chief executive, said it was a major factor for the latest deal.

The acquisition is expected to close in the first quarter of next year and is subject to approval from the major auto manufacturers as well as various regulatory agencies.

Berkshire is a conglomerate with more than 70 operating subsidiaries including insurance, manufacturing, construction and retail businesses. At its core is an insurance business, which includes Geico Corp. and reinsurer General Re, that brings in billions of dollars from premiums paid by customers.

A serial acquirer, Berkshire also owns railroad Burlington Northern Santa Fe, chemical company Lubrizol Corp., paint company Benjamin Moore, Fruit of the Loom and See's Candies.

Meanwhile, during Thursday's interview on CNBC, Mr. Buffett praised Coca-Cola Co.'s recently revamped executive compensation plan, which scales back stock options and shifts to more cash-based performance awards. Mr. Buffett, who is Coke's largest shareholder with a 9% stake, and other investors had called Coke's equity plan excessive.

"I think the new plan makes great, great sense," said Mr. Buffett, who said he had two conversations with Coke Chief Executive Muhtar Kent about the plan. "I feel as good about my Coke investment as I've ever felt."

In August, Berkshire posted a record quarterly profit, a 41% jump tied to gains at its railroad, energy and other businesses as the U.S. economy continued its recovery.

-Erik Holm contributed to this article.

Write to Chelsey Dulaney at [e-mail]

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