Warren Buffett Makes Auto Dealerships Hot Property with Van Tuyl Purchase

Oct 15, 2014 04:30 PM EDT | Tim Healey


When Warren Buffett does something, the world listens. In this case, the well-known financier dubbed the "oracle of Omaha" has purchased a large auto-dealership group, and the business world is taking notice.

Buffett's Berkshire Hathaway firm recently purchased the Van Tuyl Group, which is the fifth-largest dealer group in America with $9 billion in sales, Slate reported via Bloomberg. Once the transaction is final, the group will be renamed Berkshire Hathaway Automotive.

As might be expected, shares of other major dealer groups were trending high--shares of both AutoNation and Penske Automotive Group went up. However, one analyst, Edward Niedermayer from Bloomberg View, is wary.

"Perhaps the biggest reason to think twice before following the Oracle is that the U.S. auto market is returning to its traditionally sustainable sales peak of between 16 million and 17 million units per year. While auto sales have been one of the few bright spots in the retail sector during a slow economic recovery, there's no reason to think that will last. Much of that growth is due to the expansion of auto credit, particularly through subprime lending and longer loan terms, so there may not be much juice left in the tank for further growth," Niedermayer wrote.

Niedermayer likely has a point, but Buffett might not be trying to catch the wave of recent sales growth in the auto industry--he may simply be adding to a portfolio that already includes planes and trains, thanks to Berkshire Hathaway's ownership of NetJets and the Burlington Northern Santa Fe line. And even if the market does level off, Buffett may simply be betting that the industry has stabilized and 16 million units in sales per year is sustainable. 

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