Tag Archives: Berkshire Hathaway Automotive

Credit Ratings Upgraded for Berkshire Hathaway’s Insurance Companies

(BRK.A), (BRK.B)

A.M. Best has upgraded the Financial Strength Rating (FSR) to A++ (Superior) from A- (Excellent) and the Long-Term Issuer Credit Ratings (Long-Term ICR) to aa+ from a- of Mount Vernon Specialty Insurance Company and Radnor Specialty Insurance Company (both domiciled in Omaha, NE), strategic affiliates of United States Liability Insurance Company (USLI) (Wayne, PA) that are branded as Devon Park Specialty.

Concurrently, A.M. Best has affirmed the FSR of A++ (Superior) and the Long-Term ICRs of “aa+” of USLI and its subsidiaries: Mount Vernon Fire Insurance Company (MVF) (Wayne, PA) and U.S. Underwriters Insurance Company (USU) (Bismarck, ND). The outlook of these Credit Ratings (ratings) is stable.

According to A.M. Best, the ratings of the insurance operating companies reflect their superior risk-adjusted capital position, extended trends of underwriting and operating profitability, very strong market presence and conservative reserve positions. Additional favorable factors include a proactive claims management philosophy, exceptional diversification in their book of business as it regards limiting concentrations, commitment to customer service, and extensive employee training and retention programs that translate into a culture of success.

Furthermore, these ratings continue to benefit from implicit and explicit support provided to USLI and its subsidiaries by their ultimate parent, Berkshire Hathaway Inc.

This support, for some of the operating companies, is in the form of significant reinsurance treaties with National Indemnity Company, a Berkshire subsidiary. In addition to this agreement, Berkshire has established an extended track record of supporting its member companies.

These positive rating factors are partially offset by the above average investment leverage recorded by the group. A.M. Best also continues to monitor the organizational structure and market changes implemented at USLI as it regards the Devon Park Specialty branded companies.

© 2016 David Mazor

Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.

Boston Auto Dealership Group Keeps Getting More Attractive to Berkshire Hathaway Automotive

(BRK.A), (BRK.B)

When Berkshire Hathaway jumped into the auto retailing business in March 2015, with its $4.1 billion acquisition of the Van Tuyl Group, it added a whole new line of business to the mega-conglomerate.

The Van Tuyl Group was the largest privately owned auto dealership group in the U.S., and instantly made the newly christened Berkshire Hathaway Automotive Group the fourth largest dealership group in the U.S.

The Van Tuyl acquisition was just the beginning, Warren Buffett noted in his 2015 Berkshire Hathaway Chairman’s Letter, stating, “…if we can buy dealerships at sensible prices – we will build a business that before long will be multiples the size of Van Tuyl’s $9 billion of sales.”

BHA got off to a promising start, as that same month it acquired Frank Kent Honda of Fort Worth, Texas.

“This is the beginning of a journey that will have no end,” Buffett noted upon completion of the acquisition. “Cecil and Larry have given us the ideal platform with which to build an auto dealership business that will be thriving and growing 50 and 100 years from now. The fun has just started.”

Unfortunately for Berkshire, the acquisition of also Van Tuyl set off a dramatic rise in auto dealership valuations that has rippled throughout the industry, and frustrated efforts for Berkshire to add new dealership groups at what it feels are reasonable valuations.

At the 2016 Berkshire Hathaway annual meeting, Buffett acknowledged that they “hadn’t had much luck” in acquiring more dealerships.

BHA finally made some progress in June, acquiring North Park Toyota in San Antonio, Texas. The acquisition includes a 20-year lease of North Park Toyota’s 23.7-acre property that includes an option to buy.

The Problem is Soaring Valuations

The steep rise in valuations has kept Berkshire Hathaway Automotive mostly on the sidelines even as the Kerrigan Advisors’ Blue Sky Report showed that U.S. dealership buy/sell activity soared to record highs in 2015. The Report noted “activity by new entrants outpacing public company acquisitions by over four to one.”

The Blue Sky Report showed that while the competition for auto dealerships was fierce in 2015, it did not favor the public companies, which in addition to Berkshire Automotive also includes CarMax and Penske Automotive Group.

“A number of iconic multi-dealership groups came to market in 2015 and were acquired by both established consolidators and new entrants. Faced with this stiffer competition, the publics found it more difficult to compete for larger group transactions, and represented just 7% of the buy/sell market in 2015. Meanwhile new dealership buyers, including family offices, private equity firms, and public conglomerates, acquired 29% of the franchises sold, a stunning accomplishment,” said Erin Kerrigan, Managing Director of Kerrigan Advisors. “We believe new entrants will increasingly shape dealership consolidation and meaningfully impact the future of auto retail.”

The Blue Sky Report went on to note that while the market for auto dealerships is still very active, the market may be peaking.

“In 2015, dealership valuations rose to historically high levels, new entrants made sizable acquisitions, manufacturers approved numerous multi-dealership transactions, and real estate prices returned to pre-recession levels,” continued Kerrigan. “In summary, it was a year that is hard to beat. While the 2016 buy/sell market is expected to be as active as 2015, we anticipate the proportion of sellers completing a successful sale could decline as industry growth plateaus and dealership earnings flatten.”

A Boston Plum Waiting to be Picked

Despite the rise in dealership valuations, or maybe because of them, a plum Boston dealer group looks all the more perfect with its opening of two new dealerships.

Herb Chambers Companies, a privately-held, Boston-based, dealership group with 57 total dealerships, looks to be the perfect fit for Berkshire Hathaway Automotive.

The company already sells more cars than anyone in New England, and in June it opened Herb Chambers Lincoln of Norwood and Herb Chambers Volvo Cars Norwood.

Is it for Sale?

Herb Chambers Companies is owned by Herb Chambers, a former copier salesman who has spent the past thirty years building a first class dealership group that is the 12th largest privately held auto group in the nation.

Herb Chambers has already stated that he would sell if the price is right. He also credits Warren Buffett’s Van Tuyl Group acquisition for boosting his personal net worth to some $1.5 billion, as valuations jumped throughout the whole sector.

Chambers Knows When to Sell

Herb Chambers is certainly not afraid to sell when the time is right. Three decades ago he founded A-Copy America, and after merging it with Ikon Office Solutions, he cashed out with a sale to Ricoh. It was a shrewd move, and Chambers has proved to be a shrewd guy.

With auto sales possibly peaking, now may be the time. Could the perfect exit strategy for Herb Chambers this time involve Berkshire?

© 2016 David Mazor

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Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.

Berkshire Hathaway Automotive Finally Snags Another Dealership

(BRK.A), (BRK.B)

When Berkshire Hathaway completed its $4.1 billion acquisition of the Van Tuyl Group in April 2015, it talked about aggressively adding to its new automotive retailing empire that was rechristened the Berkshire Hathaway Automotive Group.

BHA got off to a promising start, as that same month it acquired Frank Kent Honda of Fort Worth, Texas.

“This is the beginning of a journey that will have no end,” Buffett noted upon completion of the acquisition. “Cecil and Larry have given us the ideal platform with which to build an auto dealership business that will be thriving and growing 50 and 100 years from now. The fun has just started.”

Unfortunately for Berkshire, the acquisition of also Van Tuyl set off a dramatic rise in auto dealership valuations that has rippled throughout the industry, and frustrated efforts for Berkshire to add new dealership groups at what it feels are reasonable valuations.

At the 2016 Berkshire Hathaway annual meeting, Buffett acknowledged that they “hadn’t had much luck” in acquiring more dealerships.

BHA finally made some progress this month, acquiring North Park Toyota in San Antonio, Texas. The acquisition includes a 20-year lease of North Park Toyota’s 23.7-acre property that includes an option to buy.

Soaring Valuations

The steep rise in valuations has kept Berkshire Hathaway Automotive mostly on the sidelines even as the Kerrigan Advisors’ Blue Sky Report showed that U.S. dealership buy/sell activity soared to record highs in 2015. The Report noted “activity by new entrants outpacing public company acquisitions by over four to one.”

The Blue Sky Report showed that while the competition for auto dealerships was fierce in 2015, it did not favor the public companies, which in addition to Berkshire Automotive also includes CarMax and Penske Automotive Group.

“A number of iconic multi-dealership groups came to market in 2015 and were acquired by both established consolidators and new entrants. Faced with this stiffer competition, the publics found it more difficult to compete for larger group transactions, and represented just 7% of the buy/sell market in 2015.

Meanwhile new dealership buyers, including family offices, private equity firms, and public conglomerates, acquired 29% of the franchises sold, a stunning accomplishment,” said Erin Kerrigan, Managing Director of Kerrigan Advisors. “We believe new entrants will increasingly shape dealership consolidation and meaningfully impact the future of auto retail.”

The Blue Sky Report went on to note that while the market for auto dealerships is still very active, the market may be peaking.

“In 2015, dealership valuations rose to historically high levels, new entrants made sizable acquisitions, manufacturers approved numerous multi-dealership transactions, and real estate prices returned to pre-recession levels,” continued Kerrigan. “In summary, it was a year that is hard to beat.

While the 2016 buy/sell market is expected to be as active as 2015, we anticipate the proportion of sellers completing a successful sale could decline as industry growth plateaus and dealership earnings flatten.”

Buffett Says Please Subtract a Billion

Warren Buffett noted that the $4.1 billion price he paid for Van Tuyl Group also included a billion dollars in securities, as Van Tuyl also has a large float tied to financing and its extended warranty program, which was also acquired by Berkshire.

Buffett said that people should “take a billion off the purchase price,” as the reported price has given other dealership groups an inflated sense of their market value.

Is there still a major auto dealership that’s just ripe for a Berkshire acquisition? There just might be. Read this Mazor’s Edge Special Report.

© 2016 David Mazor

Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.

“Subtract a Billion” Says Buffett, Lamenting Soaring Auto Dealership Valuations

(BRK.A), (BRK.B)

When Berkshire acquired Van Tuyl Group, Warren Buffett trumpeted the growth potential of the newly renamed Berkshire Hathaway Automotive.

“This is the beginning of a journey that will have no end,” Buffett noted upon completion of the acquisition. “Cecil and Larry have given us the ideal platform with which to build an auto dealership business that will be thriving and growing 50 and 100 years from now. The fun has just started.”

Unfortunately for Berkshire, the acquisition of Van Tuyl set off a dramatic rise in auto dealership valuations that has rippled throughout the industry, and frustrated efforts for Berkshire to add new dealership groups at what it feels are reasonable valuations.

At the 2016 Berkshire Hathaway annual meeting, Buffett acknowledged that they “hadn’t had much luck” in acquiring more dealerships.

One of the few acquisitions was the April 2015 purchase of Frank Kent Honda in Fort Worth, Texas.

Soaring Valuations

The steep rise in valuations has kept Berkshire Hathaway Automotive mostly on the sidelines even as the Kerrigan Advisors’ Blue Sky Report showed that U.S. dealership buy/sell activity soared to record highs in 2015. The Report noted “activity by new entrants outpacing public company acquisitions by over four to one.”

The Blue Sky Report showed that while the competition for auto dealerships was fierce in 2015, it did not favor the public companies, which in addition to Berkshire Automotive also includes CarMax and Penske Automotive Group.

“A number of iconic multi-dealership groups came to market in 2015 and were acquired by both established consolidators and new entrants. Faced with this stiffer competition, the publics found it more difficult to compete for larger group transactions, and represented just 7% of the buy/sell market in 2015.

Meanwhile new dealership buyers, including family offices, private equity firms, and public conglomerates, acquired 29% of the franchises sold, a stunning accomplishment,” said Erin Kerrigan, Managing Director of Kerrigan Advisors. “We believe new entrants will increasingly shape dealership consolidation and meaningfully impact the future of auto retail.”

The Blue Sky Report went on to note that while the market for auto dealerships is still very active, the market may be peaking.

“In 2015, dealership valuations rose to historically high levels, new entrants made sizable acquisitions, manufacturers approved numerous multi-dealership transactions, and real estate prices returned to pre-recession levels,” continued Kerrigan. “In summary, it was a year that is hard to beat.

While the 2016 buy/sell market is expected to be as active as 2015, we anticipate the proportion of sellers completing a successful sale could decline as industry growth plateaus and dealership earnings flatten.

Buffett Says Subtract a Billion

Warren Buffett noted that the $4.1 billion price he paid for Van Tuyl Group also included a billion dollars in securities, as Van Tuyl also has a large float tied to financing and its extended warranty program, which was also acquired by Berkshire.

Buffett said that people should “take a billion off the purchase price,” as the reported price has given other dealership groups an inflated sense of their market value.

Is there still a major auto dealership that’s just ripe for a Berkshire acquisition? There just might be. Read this Mazor’s Edge Special Report.

© 2016 David Mazor

Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.

Special Report: Berkshire’s Acquisition of Auto Group Sparks Soaring Dealership Valuations

(BRK.A), (BRK.B)

In March of 2015, Berkshire Hathaway acquired the 80-dealership The Van Tuyl Group for $4.1 billion, moving the conglomerate into the auto retailing market. The move also set off a dramatic rise in auto dealership valuations that has rippled throughout the industry.

According to the Kerrigan Advisors’ Blue Sky Report, U.S. dealership buy/sell activity soared to record highs in 2015. The Report also identifies the types of players involved with “activity by new entrants outpacing public company acquisitions by over four to one.”

Kerrigan Advisors is a national dealership buy/sell advisory firm that publishes a quarterly report that tracks the multiples and analysis for each franchise in the luxury and non-luxury segments.

When Berkshire acquired Van Tuyl, Warren Buffett trumpeted the growth potential of the newly renamed Berkshire Hathaway Automotive.

“This is the beginning of a journey that will have no end,” Buffett noted upon completion of the acquisition of The Van Tuyl Group. “Cecil and Larry have given us the ideal platform with which to build an auto dealership business that will be thriving and growing 50 and 100 years from now. The fun has just started.”

The fun may have just started, but since then Berkshire has been relatively quiet in the acquisition market, with the April 2015 purchase of Frank Kent Honda in Fort Worth, Texas, one of the few additions.

The Blue Sky Report reveals that while the competition for auto dealerships was fierce in 2015, it did not favor the public companies, which in addition to Berkshire also includes CarMax and Penske Automotive Group.

“A number of iconic multi-dealership groups came to market in 2015 and were acquired by both established consolidators and new entrants. Faced with this stiffer competition, the publics found it more difficult to compete for larger group transactions, and represented just 7% of the buy/sell market in 2015. Meanwhile new dealership buyers, including family offices, private equity firms, and public conglomerates, acquired 29% of the franchises sold, a stunning accomplishment,” said Erin Kerrigan, Managing Director of Kerrigan Advisors. “We believe new entrants will increasingly shape dealership consolidation and meaningfully impact the future of auto retail.”

The Blue Sky Report goes on to note that while the market for auto dealerships is still very active, the market may be peaking.

“In 2015, dealership valuations rose to historically high levels, new entrants made sizable acquisitions, manufacturers approved numerous multi-dealership transactions, and real estate prices returned to pre-recession levels,” continued Kerrigan. “In summary, it was a year that is hard to beat. While the 2016 buy/sell market is expected to be as active as 2015, we anticipate the proportion of sellers completing a successful sale could decline as industry growth plateaus and dealership earnings come under pressure.”

Buffett Says Subtract a Billion

At Berkshire Hathaway’s 2016 annual meeting, Warren Buffett noted that the price for his Van Tuyl Group acquisition also included a billion dollars in securities. Van Tuyl also had a large extended warranty program that was acquired by Berkshire.

Buffett noted that people should “take a billion off the purchase price,” as the reported price has given other dealership groups an inflated sense of their market value.

Is there still a major auto dealership that’s just ripe for a Berkshire acquisition? Read this Mazor’s Edge Special Report.

(This article has been updated since it was first published.)

© 2016 David Mazor

Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.

Commentary: A Christmas Wish List for Under Warren Buffett’s Tree

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Here’s a Christmas wish list for presents under Warren Buffett’s tree. The items are big, so we’ll fit them under Charlie Munger’s tree as well.

1. Precision Castparts: There’s nothing like getting the present you bought for yourself. The pending acquisition the aerospace manufacturer looks like the gift that will keep on giving.  Demand for new airplanes will double over the next 15 years, as aging fleets are retired and millions more people start to fly regularly in India and China.

2. Duracell: Because everyone likes to get cash for Christmas! With the Duracell acquisition set to close in February 2016, Berkshire will gain not only the leading alkaline battery manufacturer, but will also get a company recapitalized by P&G with $1.7 billion in cash, and will get huge tax savings as it trades in its appreciated P&G stock for the battery maker.

3. More German Companies: Warren Buffett’s admiration for the German economy was on full display at the Berkshire Hathaway annual meeting in May 2015. This past February, Berkshire Hathaway struck a deal to acquire Devlet Louis Motorradvertriebs, a mail-order and retail chain selling motorbike clothing and accessories. The move, according to Buffett, was just the first small acquisition in a country with a strong economy and work ethic. And, with a rising dollar and a shaky euro, will more German companies fit under Berkshire’s tree?

4. Lots of Natural Gas: As the world dumps coal and moves to cheaper and cleaner forms of energy, Berkshire’s on the verge of striking it rich in Australia’s gas fields. Natural gas prices may be cratering now, but it never hurts to have a majority share of four trillion cubic feet of gas-in-place (yes, trillion) in Australia’s Whicher Range and Wonnerup gas fields. A new test well hopefully will bring good news in the new year.

5. More Auto Dealers: When Berkshire Hathaway jumped into the auto retailing business in March 2015, with its acquisition of the Van Tuyl Group, it added a whole new line of business to the mega-conglomerate. The Van Tuyl Group was the largest privately owned auto dealership group in the U.S., and Buffett promised that this was just the start of building a major auto-retailing empire. So, will Herb Chambers Companies, a privately-held, Boston-based dealership group with 55 total dealerships, be the perfect fit for Berkshire Hathaway Automotive? Its owner looks ready to sell. Time to wrap this one up and put a bow on it.

6. Happy Pilots at NetJets: Forget your crazy uncle, there’s nothing like having a happy family at Christmas. This holiday, NetJets’ pilots and its flight attendants will be celebrating their new contracts that bring substantial raises. Hopefully, they’ll use it to buy some of Berkshire’s fine products. How about some jewelry from Borsheims? It’s been a good year. Go for it!

7. More Solar & Wind! Berkshire’s quickly becoming the leading energy producer and distributor of solar and wind energy. This year saw major wind farm projects, including a new wind farm site in Adams County, Iowa, which will produce 162 megawatts of additional wind generation capacity in Iowa. Berkshire’s aggressive expansion of it solar power farms saw its Topaz Solar Farm in San Luis Obispo County, California, become one of the largest photovoltaic solar farms in the world. And, there’s plenty of room under the tree for more such projects, which not only bring cheap energy, but also lower environmental costs as they are emissions free. With the cost of solar energy dropping fast, Berkshire’s been signing amazing deals that are a Christmas present now and for decades to come. In Nevada, it has contracted to buy electricity from First Solar’s soon to be built Playa Solar 2 at the astoundingly low rate of only 3.87 cents a kilowatt-hour, and the deal is a fixed rate contract for twenty years.

8. More Deals with 3G Capital: Because everyone likes surprises. 3G’s aggressive acquisition strategy has been the perfect partner for Berkshire’s cash. 3G brings not only the aggressive cost-cutting (aggressive is an understatement) that is bringing legacy companies such as Kraft-Heinz into the 21st century, but also gives excellent financing and equity opportunities. 3G’s merger of Burger King with Tim Hortons brought Berkshire fat interest payments and made Berkshire a minority owner of the newly formed Restaurant Brands International. Surely, there are more deals to be done.

Hard to fit this all under the Christmas tree? Berkshire’s a big company. There’s room for all this and more.

Merry Christmas everybody!

–David Mazor

© 2015 David Mazor

Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.

Commentary: Is a Boston Dealership Group a Likely Acquisition for Berkshire Hathaway Automotive?

(BRK.A), (BRK.B)

When Berkshire Hathaway jumped into the auto retailing business in March 2015, with its $4.1 billion acquisition of the Van Tuyl Group, it added a whole new line of business to the mega-conglomerate.

The Van Tuyl Group was the largest privately owned auto dealership group in the U.S., and instantly made the newly christened Berkshire Hathaway Automotive Group the fourth largest dealership group in the U.S.

The Van Tuyl acquisition was just the beginning, Warren Buffett noted in his 2015 Berkshire Hathaway Chairman’s Letter, stating, “…if we can buy dealerships at sensible prices – we will build a business that before long will be multiples the size of Van Tuyl’s $9 billion of sales.”

A Plum Waiting to be Picked

Now, a plum dealer group looks ready to sell and Berkshire Hathaway Automotive could be the perfect buyer.

Herb Chambers Companies, a privately-held, Boston-based dealership group with 55 total dealerships, looks to be the perfect fit for Berkshire Hathaway Automotive, and its owner looks ready to sell.

Herb Chambers, a former copier salesman who has spent the past thirty years building a first class dealership group that is the 12th largest privately held auto group in the nation, has already stated that he would sell if the price is right.

He also credits Warren Buffett’s Van Tuyl Group acquisition for boosting his personal net worth to some $1.5 billion, as valuations jumped throughout the whole sector, and private equity money, including financier George Soros, began looking to get in.

In the past, Chambers has turned down offers from AutoNation Inc. and Penske Automotive Group, but with valuations high for auto groups, there could no better time to cash out.

Berkshire Hathaway never likes to get into bidding wars, so what would make Chamber choose Berkshire?

With Berkshire Hathaway Automotive he could still remain in charge of his baby, just like Larry Van Tuyl, who became chairman of Berkshire Hathaway Automotive.

Unlike most private equity investors that quickly replace the existing leadership, Berkshire Hathaway looks as much as possible to keep talented managers at the helm. It was that arrangement that attracted Larry Van Tuyl to Berkshire. As Warren Buffet explained:

“Larry Van Tuyl, the company’s owner, and I met some years ago. He then decided that if he were ever to sell his company, its home should be Berkshire.”

Chambers Knows When to Sell

Herb Chambers is certainly not afraid to sell when the time is right. Three decades ago he founded A-Copy America, and after merging it with Ikon Office Solutions, he cashed out with a sale to Ricoh. It was a shrewd move, and Chambers has proved to be a shrewd guy who currently sells more cars than anyone else in New England.

Could the perfect exit strategy for Herb Chambers this time involve Berkshire?

Could be. After all, Chambers does have a photo of him and Buffett on the wall of his office.

© 2015 David Mazor

Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.

The Hidden Float Within Van Tuyl Group

(BRK.A), (BRK.B)

There’s nothing Warren Buffet loves more than float! The huge float from Berkshire Hathaway’s insurance businesses has helped the company build an equity portfolio of over $100 billion.

Here Comes More Float!

With the completion of Berkshire Hathaway’s $4.1 billion acquisition of the Van Tuyl Group (the largest privately owned auto dealership group in the U.S.), Berkshire gets an added kicker, more float.

The float comes because Van Tuyl Group (rechristened Berkshire Hathaway Automotive) owns Old United Casualty Company, which provides extended warranty services and other automotive protection plans to 1.6 million customers. And Van Tuyl also has a life insurance company, Old United Life Insurance Company.

Both companies are now owned by Berkshire Hathaway and will be split off from Berkshire Hathaway Automotive to become part of Berkshire’s wholly-owned National Indemnity Company.

While Van Tuyl has been based in Texas, Old United Casualty Company and Old United Life Insurance Company are both based in Shawnee Mission, Kansas.

Financial Strength Anybody?

There’s nothing like being owned by Berkshire to add to your financial strength, and A.M. Best Company, which issues insurance ratings, has just affirmed the financial strength ratings of A (Excellent) and the issuer credit ratings of “a+” for Old United Casualty Company and Old United Life Insurance Company. It notes that “the outlook for all ratings is stable.”

A.M. Best also noted that it “believes OUL is well-positioned at its current rating level, positive rating action could occur if potential synergies or expansion of its business profile are realized through its affiliation with Berkshire.”

How Much Float?

With 1.6 million cars protected under the extended warranty plans, and additional customers having life insurance, it’s not unreasonable to assume that the Berkshire’s $4.1 billion acquisition actually came with around a billion in insurance float.

Not a bad kicker!

© 2015 David Mazor

Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.

Berkshire Hathaway Automotive Starts Hunt for More Dealerships

(BRK.A), (BRK.B)

With the completion of Berkshire Hathaway’s $4.1 billion acquisition of the Van Tuyl Group, the largest privately owned auto dealership group in the U.S., the newly rechristened Berkshire Hathaway Automotive has already begun its acquisition of additional auto dealers.

Frank Kent Honda of Fort Worth, Texas, is the first to be purchased by BHA.

The business will be renamed Honda of Fort Worth.

The dealership, which was one of the oldest family-owned dealerships in Texas, features an $18 million new Honda showroom that was built in 2010.

Frank Kent Honda had been owned since 2005 by Will Churchill and Corrie Watson, who are great-grandchildren of dealership founder Frank Kent.

In making its first acquisition, BHA is competing in a red hot market that is quickly consolidating.

Investor George Soros, through his Soros Fund Management, has stated that the he is actively looking to purchase a large auto dealership group.

As for Warren Buffett, this is just a beginning that will surely see Berkshire moving up in market share from its current starting point in fifth place.

“This is the beginning of a journey that will have no end,” Buffett noted upon completion of the acquisition of the Van Tuyl Group. “Cecil and Larry have given us the ideal platform with which to build an auto dealership business that will be thriving and growing 50 and 100 years from now. The fun has just started.”

© 2015 David Mazor

Disclosure: David Mazor is a freelance writer focusing on Berkshire
Hathaway. The author is long in Berkshire Hathaway, and this article
is not a recommendation on whether to buy or sell the stock. The
information contained in this article should not be construed as
personalized or individualized investment advice. Past performance is
no guarantee of future results.

Soros Follows Buffett’s Lead in Acquiring Auto Dealerships

(BRK.A), (BRK.B)

Automotive News is reporting that investor George Soros is following Warren Buffett’s lead in acquiring multiple auto dealership groups.

Soros Fund Management is reportedly ready to invest up to $1 billion to get into the slowly consolidating retail auto sales business.

The news of Soros’s interest in acquiring auto dealerships broke at the NADA’s 98th annual convention in San Francisco, which was held January 23-26, 2015.

In October 2014, Berkshire Hathaway announced the purchase of the Van Tuyl Group, a family-owned dealership network which has 78 stores throughout the Sunbelt states. The auto group will be rebranded as Berkshire Hathaway Automotive. The sale was for $4.1 billion, wh0ch is roughly 4 times annual sales.

Auto sales continue to heat up as middle and lower income consumers rebound from the recession. The combination of lower gas prices and pent-up consumer demand are predicted to push new car and light truck sales to roughly 16.94 million for 2015.

Ripe for Consolidation

Like the grocery retailing sector, auto retailing is a slim-profit business, with an average profit margin of 2.2 percent. The slim profit margin makes consolidation attractive for economies of scale. Counterbalancing the tight profit margins are the exclusive territory that dealers gain to represent automotive brands.

There is still plenty of room for consolidation in the retail auto sales sector, which has 17,665 auto dealerships in the U.S., according to NADA. The largest dealership group is currently AutoNation, which has 228 outlets. Recently, AutoNation has been actively buying back its own stock, which is a further indicator that this sector is undervalued.

Penske Automotive Group, which is second in size behind AutoNation, has also been expanding with a doubling of its North American commercial truck dealerships among its top priorities.

(Portions of this article have been updated with new information.)

© 2015 David Mazor

Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.