Warren Buffett Buys Major Dealer Chain

Billionaire investor Warren Buffett has purchased the fifth-largest auto dealer network in the U.S. and plans to push for a consolidation of the retail auto business – a move many automakers are likely to support as it could help curb the profit-cutting incentives that have long been an industry norm.

Buffett’s Berkshire Hathaway investment arm will take over the Van Tuyl Group, which operates showrooms across the U.S. – selling about 240,000 vehicles annually. While a price tag wasn’t disclosed, the company’s operations are believed to generate about $8 billion in annual sales.

But Buffett’s new Berkshire Hathaway Automotive unit is expected to push beyond retailing to also offer financing and other services. And it is indicating it will also look to snap up other family-owned automotive dealerships.

There already has been a substantial consolidation in the retail side of the car business, a trend that accelerated during the recent recession when Detroit’s bankrupt General Motors abandoned four of its brands and both GM and Chrysler used Chapter 11 protection to break their franchise agreements with a number of long-time retailers.

In its early days, the industry believed that having a large network of dealers was a way to dominate the market. That position has reversed itself in recent years, largely due to the success of import makers, such as Toyota and Mercedes-Benz, who have limited their retail networks to bump up both exclusivity and profitability.

The 60-year-old Phoenix dealer chain had been run by Larry Van Tuyl, son of the founder. He will now serve as Berkshire Hathaway Automotive’s chairman.

The move comes at a critical time for the auto industry. Not only has there been a push to reduce the total number of retailers, but also traditional brick-and-mortar stores are facing other challenges. So far, protective state franchise laws have blocked efforts to directly sell cars online, much like shoes, TVs and other consumer goods. But online information services have made it easier for car shoppers to haggle for the best deal.

Meanwhile, industry upstart Tesla Motors has challenged those laws in a number of states – so far to mixed results – hoping to eliminate the middleman by operating factory-owned showrooms.

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