Berkshire Adds $1 Billion in Earning Power With Van Tuyl Group Acquisition

(BRK.A), (BRK.B)

Berkshire Hathaway is getting in the thick of the auto retail business with the acquisition of the Van Tuyl Group. The soon to be rechristened Berkshire Hathaway Automotive will add over a billion dollars in gross profits annually to Berkshire’s bottom line.

Berkshire Hathaway agreed to acquire the auto dealership group for $4.1 billion after company CEO Larry Van Tuyl approached Berkshire and proposed the acquisition.

The Van Tuyl Group is the number one privately-held auto dealership group and is fifth nationally among total dealership groups. The company also serves as a management consulting company that recruits on behalf of a large number of independently owned automotive dealerships.

2013 revenues were nearly $9 billion from 78 independently operated dealerships with over 100 franchises covering Arizona, California, Florida, Georgia, Illinois, Indiana, Missouri, Nebraska, New Mexico and Texas.

The Van Tuyl Group was founded in 1955 by Cecil Van Tuyl with a single Kansas Chevrolet dealership. Joined by his son Larry in 1971, the company is now headed by Larry Van Tuyl, as the current Chief Executive Officer, and Jeff Rachor.

Rachor, who previously headed Fortune 500 auto dealer group Sonic Automotive, and did a stint as the head of auto parts retailer Pep Boys, will take over as Chief Executive Officer for Berkshire Hathaway Automotive. Larry Van Tuyl will continue to manage the company as chairman.

Billions in profit potential

Annual gross profits across the sector in 2013 averaged 15.5%. As a private company, the Van Tuyl Group does not release its annual profits, but they should be around $1.25 billion.

Adding a billion dollars annually to the Berkshire bottom line is only the beginning, as Warren Buffett has already announced that under Berkshire the company will continue to acquire dealerships as it participates in an industry-wide consolidation that has AutoNation and Penske Automotive Group as the sector leaders.

A successful management style

The Van Tuyl Group has incentivized their dealership general managers by making them minority owners of the dealerships. Berkshire is expected to continue this strategy.

One-stop shopping?

Berkshire Hathaway Automotive will likely open up new opportunities for Berkshire to have one-stop shopping for cars, financing and auto insurance.

The acquisition is expected to close in the first quarter of 2015, after clearing regulatory hurdles and gaining approvals from auto manufactures.

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

© 2014 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.