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Fruit of the Loom Marmon Group

Fruit of the Loom Finds Synergy with Sister Company Wells Lamont Industrial

(BRK.A), (BRK.B)

The term synergy, the positive results that come when businesses work together, is often promised in the creation of conglomerates, but is rarely achieved. Most often it is promised by investment bankers trying to get companies to merge, only to later prove to be a mirage when the actuality of the needs of separate operating units prove incompatible.

Even Small Synergies Make a Difference

Fortunately, for Berkshire Hathaway’s Fruit of the Loom and Wells Lamont Industrial companies the synergies are real and bring benefits to both units.

Wells Lamont Industrial, which operates as a part of Berkshire Hathaway’s Marmon Group, has struck a deal with Berkshire’s Fruit of the Loom to equip the employees in its production facilities with Wells Lamont gloves starting in 2015.

Wells Lamont Industrial manufactures a comprehensive selection of hand protection including cut resistant, heat resistant, general purpose, liquid/chemical resistant, leather gloves, and other types of gloves.

“As a Berkshire Hathaway company we look to support our sister companies and were thus introduced to Wells Lamont Industrial,” says Wendy Emmitt, Senior Manager of Safety for Fruit of the Loom. “We were so pleased to discover their hand and arm solutions were not only more cost effective, but were of the highest quality in the industry.

Whether cutting fabric, welding balancing beams, stitching footballs or handling logistics, we have thousands of employees that require gloves to keep their hands protected,” says Emmitt. “Having the guidance and support to ensure we use the right product for each job is critical and Wells Lamont Industrial has proven to be the right partner in making those decisions.”

Fruit of the Loom was acquired by Berkshire Hathaway in 2002, and the Marmon Group was acquired by Berkshire Hathaway in 2008.

© 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.

Categories
Acquisitions

Heinz-Kraft Merger Makes Berkshire Major Player at the Kitchen Table

(BRK.A), (BRK.B)

Berkshire Hathaway and 3G Capital have upped their bet on the tastes of American consumers. H.J. Heinz, which is wholly owned by 3G Capital and Berkshire Hathaway, will acquire Kraft Foods Group in a mega-merger that creates a $37 billion food company that will be the number five food and beverage purveyor in the world, and North America’s number three food company.

The combined company will be known as The Kraft Heinz Company.

Kraft Heinz will be 51 percent owned by 3G Capital and Berkshire Hathaway. Kraft shareholders will own the remaining 49 percent. The deal is expected to close in the second half of 2015.

The combined company will have a portfolio of packaged food brands that includes Heinz ketchup, Philadelphia cream cheese, and Oscar Mayer meats.

Kraft has $18 billion in annual sales, employs 22,500 workers, and boasts that 98 percent of U.S. and Canadian households have Kraft products in their kitchens. Nine of Kraft’s brands have more than $500 million in annual sales, and 80 percent of sales are in categories where they hold the #1 or #2 market position.

Kraft Heinz will have $28 billion in sales with eight $1+ billion brands and five brands between $500 million-$1 billion.

Under the terms of the merger, Kraft shareholders will receive one share of the combined company and a special cash dividend of $16.50 per share. The special cash dividend will be funded by 3G Capital and Berkshire Hathaway. While Berkshire is putting in cash, it is not swapping any Berkshire stock, which is Warren Buffett’s preferred method of acquisition.

3G Capital and Berkshire acquired Heinz in 2013 for $23.2 billion. The day to day management of the company has been handled by 3G Capital, with 3G’s managing partner, Alex Behring, serving as Heinz chairman. Behring will assume the reins of the new company as chairman, and current Kraft chief executive John Cahill will be appointed vice chairman.

Kraft has struggled in recent years as its packaged foods such as Velveeta, Miracle Whip, Planters, Jell-O and Kool-Aid have lost ground in the era of natural foods, however Heinz’s strength internationally is seen as a plus for the combined company. Kraft’s current markets are the U.S., Canada and Puerto Rico.

On the investor side, Kraft was a reliable dividend stock for investors as it’s brands brought steady earnings, even amidst lackluster growth. Its goal has been to “deliver steady, reliable growth with a strong focus on cash flow to fund a highly competitive dividend…” At the time of the merger announcement its annual dividend yielded 3.59 percent.

For Berkshire and 3G the deal is already a winner. Barron’s states “By our calculation, 3G and Berkshire have tripled their original $8.5 billion ($4.25 billion for each) equity investment in Heinz in less than two years, which amounts to a private-equity type score on a deal that originally looked like it was fully priced. Heinz was taken private at about 20 times forward earnings. We estimate that Berkshire and 3G are each sitting on more than $10 billion in profits from their investments in Heinz.”

The deal will also raise Heinz’s debt rating. In a press release, Kraft Heinz states that it is “fully committed to maintaining an investment grade rating; Company plans to maintain Kraft’s current dividend per share, which is expected to increase over time.”

Alex Behring’s management of Heinz has brought significant cost cutting, and a similar approach is expected at Kraft Heinz. The company expects to cut $1.5 billion in annual expenses by the end of 2017.

“This is my kind of transaction, uniting two world-class organizations and delivering shareholder value,” Warren Buffett said. “I’m excited by the opportunities for what this new combined organization will achieve.”

3G’s and Berkshire’s focus is on a long term investment. Kraft’s announcement of the merger states “Berkshire Hathaway and 3G Capital have a history of successful partnerships and are committed to long-term ownership of The Kraft Heinz Company as it strengthens its leadership position in the industry.”

The company notes that “As the cash consideration is fully funded by common equity from Berkshire Hathaway and 3G Capital, the merger is not expected to increase the debt levels of The Kraft Heinz Company. The Company is fully committed to deleveraging in a timely manner and to maintaining an investment grade rating going forward.”

Buffett, who drinks five cans of Coke a day, will now have lots of packaged foods to munch on all day long. He recently joked that the secret to his longevity was that “I eat like a six-year-old.”

Could his self-confessed love for munching on UTZ brand potato sticks make Utz Quality Foods, the largest independent privately held snack food brand in the U.S., a fit someday for Kraft Heinz?

© 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.

Categories
BNSF

BNSF Battles Oil Refiners Over $1,000 Tank Car Surcharge

(BRK.A), (BRK.B)

A lawsuit brought by AFPM, a trade association representing 400 refining and petrochemical companies, over BNSF Railway’s $1,000 tank car surcharge is the latest round in a battle between keeping costs low in producing crude oil from the Bakken formation and the safety of its transport to refiners.

With the Bakken oil boom, BNSF has become the largest transporter of crude oil in North America, moving some 600,000 barrels of oil per day, but the steep decline in worldwide oil prices has put pressure on Bakken oil producers due to the high cost of production as compared to oil from the Middle East.

The $1,000 per tank car surcharge started January 1, 2015, as BNSF pushed oil producers and refiners to shift to new safer tank cars that decrease the risk of fire in the case of derailment. With each tank car holding up to 34,500 US gallons, the charge adds just under 3 cents per gallon, or $1.26 a barrel.

BNSF’s Limited Options

As a common carrier, Berkshire Hathaway’s BNSF Railway can’t refuse under most circumstances to carry cargo, despite the potential loss or damage presented by the cargo. And, while BNSF’s growing role as a mobile crude oil pipeline has meant billions in new revenue, it also has presented new risks in regards to fire in the event of derailment, collision, or other accidents. In addition to pushing for safer tank cars BNSF has boosted training for both its crews and emergency responders in communities along its routes.

All Crude Oil is Not the Same

Crude Oil from the Bakken formation is classified as “light sweet crude,” a type of crude oil that has high volatility and flammability. The Wall Street Journal reported that “U.S. regulators recently called Bakken crude an imminent hazard because of what they believe is its unusually flammable nature…”

According to The Wall Street Journal, the oil derived from North Dakota’s Bakken shale has an 8 pounds per square inch Reid Vapor Pressure in warmer weather and 12.5 in colder weather. This is significantly higher than oil derived from the Eagle Ford Shale in Texas.

AFPM’s position is that the surcharge on tank cars ignores the root cause of derailments, which they assert is tied to poor track conditions and human error. In a letter to Transportation Secretary Anthony Foxx, AFPM stated that “Any effort to enhance rail safety must begin with addressing track integrity and human factors, which account for sixty percent of derailments. Investment in accident prevention would result in the greatest reduction in the risk of rail incidents.”

In response to the lawsuit, BNSF issued a statement that called the surcharge “consistent with BNSF’s ongoing efforts to ensure the safe transport of crude on our network, including voluntary adoption of enhanced operating practices around crude oil shipments and requesting the federal government to make newer, safer tank cars the new standard for crude-by-rail shipments, replacing the older DOT-111 and non-modified CPC-1232 cars.”

© 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.

Categories
Buffett Successors Todd Combs and Ted Weschler Warren Buffett

Are Ajit Jain and Greg Abel the Successors to Warren Buffett and Charlie Munger?

(BRK.A), (BRK.B)

Despite Warren Buffett being a spry age 84, and Charlie Munger a youthful 91, the question of the successor or successors that will lead Berkshire Hathaway continues to be on analysts’ and commentators’ minds.

“Both the board and I believe we now have the right person to succeed me as CEO — a successor ready to assume the job the day after I die or step down,” Buffett has said.

Now, in his letter published in the 2014 Annual Report, Charlie Munger seems to hint that Ajit Jain or Greg Abel could be in line to provide the leadership that will carry Berkshire forward.

“For instance, Ajit Jain and Greg Abel are proven performers who would probably be under-described as “world-class.” “World-leading” would be the description I would choose. In some important ways, each is a better business executive than Buffett.

And I believe neither Jain nor Abel would (1) leave Berkshire, no matter what someone else offered or (2) desire much change in the Berkshire system.”

While neither Buffett nor Munger has officially revealed the next leader or leaders of Berkshire Hathaway, both Jain and Abel would seem to fit the bill.

First, they would be promoted from inside the company, and thus are steeped in Berkshire’s unique corporate culture.

Secondly, they are both young enough to have long reigns at a company that certainly has no interest in a mandatory retirement age, and each of them would bring essential skill sets to the job.

Both have played important leadership roles heading two of Berkshire’s largest units.

Ajit Jain, as the man who has built Berkshire’s insurance and reinsurance empire, is better equipped than almost anyone in the world to take on the important task of making sure Berkshire’s insurance companies don’t try to grow by taking on undue risk.

Greg Abel, as the head of Berkshire Hathaway Energy, certainly knows about capital allocation. Under his leadership, BHE has grown into one of the world’s largest energy providers and a leader in renewable energy generation. He also sits on the Board of Heinz, and BHE includes Berkshire Hathaway Home Services, Berkshire’s rapidly expanding real estate sales unit. Both of these companies give him additional insight into consumer markets.

As for their ages, Jain is age 63, and Abel is only 52, so they hopefully would have many years to put their stamps on Berkshire.

So which one is it?

Why not both of them?

Well, while Buffett spoke in the singular, he has already stated that his replacement would probably see his various roles filled by several people.

The job of managing Berkshire’s $125 billion and growing stock portfolio will almost certainly fall to Ted Weschler and Todd Combs, who Buffett has been grooming by giving each a multi-billion dollar stock portfolio to manage.

Together, Jain and Abel would also be sounding boards and counter balances for each other in much the same way that Buffett has used Munger.

While Warren Buffett rightly gets the lion’s share of credit for Berkshire’s phenomenal growth, Charlie Munger’s sage advice has often been overlooked by the press.

It certainly hasn’t been overlooked by Buffett.

While the latest buzz comes from Munger, Buffett has repeatedly praised both Jain and Abel.

On Jain, Buffett said “It is impossible to overstate how valuable Ajit [Jain] is to Berkshire. Don’t worry about my health; worry about his.”

On Abel, Buffett has highlighted the impact that he and Mathew Rose (CEO of BNSF) have had on Berkshire, stating “I am also both proud and grateful for what they have accomplished for Berkshire shareholders.”

So, if Ajit Jain and Greg Abel are indeed the future leaders of Berkshire, shareholders can look forward to continued smart and capable leadership.

And we shouldn’t forget BNSF’s executive chairman Mathew Rose, who is only in his mid-fifties. He is certainly a prime contender as well.

© 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.

Categories
Acquisitions

MiTek Industries Acquires M&M Manufacturing

(BRK.A), (BRK.B)

Berkshire Hathaway’s wholly owned MiTek Industries has acquired M&M Manufacturing, which is based in Fort Worth, Texas.

According to a MiTek press release, M&M Manufacturing is one of the country’s largest producers of sheet metal products, primarily servicing the air distribution and ventilation market. M&M provides a comprehensive range of round, rectangular, oval and spiral ductwork, fittings and accessories for residential and commercial construction.

M&M Manufacturing was founded by the Stepp family in Fort Worth, Texas in 1958, as a small sheet metal shop. The is now one of the largest HVAC ductwork and product manufacturers in the United States, with 6 manufacturing facilities producing more than 9,000 different products and employing nearly 800 team members.

M&M’s own extensive growth over the past decade included acquiring the Wilkins Corporation of Little Rock, Arkansas, in 2010. Wilkins manufactures steel duct pipe and fittings for the HVAC industry. M&M also opened a new a manufacturing plant in Austin, Texas, in 2014.

MiTek Industries is a “diversified, global business supplying a wide range of engineered products, proprietary design software, and automated equipment sold into the broad construction and industrial end markets.”

MiTek has been aggressive in its acquisitions, and in 2013 and 2014 acquired Benson Industries, Kova Solutions, Cubic Designs, and Ellis & Watts Global Industries.

© 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.

Categories
Acquisitions Warren Buffett

Berkshire Opens Door to Europe with Acquisition of Devlet Louis Motorradvertriebs

(BRK.A), (BRK.B)

“Capital travels,” notes Warren Buffet, and Buffett’s recent comments that he was looking towards Europe for acquisitions has turned into reality with the purchase of Devlet Louis Motorradvertriebs, a mail-order and retail chain selling motorbike clothing, helmets, leisurewear, add-on parts, and spare parts.

The acquisition price was just over 400 million euros, according to the Financial Times.

The Hamburg, German-based retailer has 1,600 staff in their Europe-wide mail order business and at 70 retail stores in Germany and Austria. Its online business reaches 25 countries.

Annual revenues are 270 million euros ($308 million).

The deal was done directly with Ute Louis, the widow of company founder Detlev Louis, who sold all her shares to Berkshire.

Like many of Berkshire’s acquisitions, such as carbide metalworking tool manufacturer ISCAR, Berkshire was approached directly by Detlev Louis Motorradvertriebs with the acquisition proposal. Berkshire is an attractive option for owners to cash out without their companies being sold off piecemeal.

High Customer Satisfaction

Devlet Louis Motorradvertriebs has drawn praise for its high customer satisfaction. The readers of Europe’s biggest motorbike magazine, Motorrad, have voted them “Best Brand” in the retail chain category for nine straight years.

Room for Growth

Motorcycles are a very popular form of transportation throughout Europe with 33 million PTWs (Powered Two Wheelers) registered in the 27 EU member states, according to the U.S. Department of Commerce. They project that the number of two-wheeled vehicles will increase to 37 million by 2020.

“Germany is a terrific market, lots of people, lots of buying power, productive, it’s got a legal system we feel very good with, it’s got a regulatory system we feel very good with, it’s got people we feel very good with—and customers,” Warren Buffett explained in an interview in German newspaper Handelsblatt.

Buffett characterized the acquisition as a “door-opener,” and noted that while the 400 million euros size of the acquisition was smaller than Berkshire usually looks for (except for bolt-on acquisitions), this certainly serves notice on European companies that Berkshire has its eye on Europe as it hunts for ways to invest its over $30 billion in cash.

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

© 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.

Categories
Warren Buffett

Berkshire Hathaway Saves Billions With Capital Gains Tax Strategy

(BRK.A), (BRK.B)

Investing in Berkshire Hathaway is often compared to investing in a mutual fund. Yes, Berkshire’s ownership of GEICO, BNSF, McLane, Lubrizol, Berkshire Hathaway Energy, Dairy Queen, Fruit of the Loom, and a host of other companies certainly give it a lot of diversification. Its ownership of the Marmon Group, which alone encompasses 160 separate companies, means that people almost on a daily basis come in contact with Berkshire’s products, often without knowing it.

However, there is an interesting difference between Berkshire Hathaway and a mutual fund, which directly impacts its shareholders. The difference is Berkshire’s ability to avoid capital gains taxes through asset acquisitions.

Berkshire Hathaway, unlike a mutual fund, is all about the buying and owning of whole companies. And while a mutual fund can own a portion of a company, its later sale of appreciated shares in that company generates a capital gain that is passed through to the mutual fund’s shareholders.

It is in this area that Berkshire has demonstrated a key advantage. In 2014 alone, Berkshire avoided capital gain taxes on $2.357 billion of appreciated stock by swapping its shares of appreciated stock for business units to add to its conglomerate.

Berkshire’s acquisition of Graham Holding’s WPLG-TV, Phillips 66’s pipeline-services business, and Procter & Gamble’s Duracell battery unit all enabled it to cash in billions of dollars of appreciated stock without capital gains taxes.

There’s More to the Story

While these acquisitions added new units to Berkshire’s portfolio, they also served as a conduit for bringing in cash tax free, because the companies that were acquired had sizable cash positions on their books.

In the case of Duracell, Berkshire’s $4.7 billion stake in Procter & Gamble came from an original investment in Gillette of only $600 million. In cashing out its position, Berkshire not only gets control of Duracell, but Duracell has been recapitalized by P&G with $1.7 billion in cash. This equivalent of leaving a very large bag of cash in the desk drawer in Duracell’s president’s office, allows Berkshire a transfer of cash that is three times its original investment in Gillette, and the entire $4.7 billion transaction incurs no capital gains taxes.

Similarly, the acquisition of Phillips Specialty Products Inc. from Phillips 66 included approximately $450 million in cash. Berkshire’s acquisition of WPLG-TV, which was part of the unwinding of Berkshire’s position as a shareholder in the Washington Post, also brought to the company roughly $328 million in cash and $444 million Berkshire shares that had been owned by Graham Holdings. In this case, Berkshire avoided substantial capital gains that would have been owed on its original $11 million investment in the Washington Post.

Over the years, Warren Buffett has been shrewd in getting into stock positions that have generated amazing appreciation. Berkshire’s $16 billion stake in Coca Cola, on a cost basis of only $1.29 billion, is just one example. And it should be recognized that his ability to liquidate positions without capital gains consequences has been equally shrewd.

So, the next time you are looking at your end-of-year mutual fund statement and wondering why you have to pay capital gains, even though you didn’t redeem any shares, just think of the tax free acquisitions that have saved Berkshire’s shareholders billions.

© 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.

Categories
Berkshire Hathaway Energy

Berkshire’s NV Energy Doubles its Renewable Energy RFP

(BRK.A), (BRK.B)

NV Energy, a unit of Berkshire Hathaway Energy, has issued a new RFP (Request for Proposals) seeking an additional 100 megawatts of renewable energy resources for its Southern Nevada customers.

NV Energy’s 2014 renewable energy RFP called for adding 100 megawatts of renewable energy, The new RFP combines the 2014 RFP with a new 2015 RFP to bring the total requested renewable energy to 200 megawatts.

The move comes after the Public Utilities Commission of Nevada pushed NV Energy to develop additional renewable energy resources before the expiration of federal energy tax credits and other public-interest benefits.

Fear of Tax Credit Reduction Accelerates Solar Plans

The current solar Investment Tax Credit will plunge from 30% to only 10% for utility-scale solar projects in 2017 unless Congress steps in.

Large scale solar projects have gone mainstream in recent years due in part to favorable tax credits, and Berkshire Hathaway has been a major player.

Among its acquisitions, MidAmerican Energy Holdings Company purchased two large-scale solar photovoltaic power plants from SunPower in 2013.

According to the company, bidders responding to the original 2014 RFP will be provided an opportunity to refresh their original proposals.

NV Energy, Inc., brings energy services to 1.3 million Nevada customers, and its renewable energy sources include 20 geothermal energy plants, nine solar energy projects, six hydro facilities, a large windfarm and a variety of biomass, methane and waste-heat recovery projects.

© 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.

Categories
Berkshire Hathaway Energy

Will Berkshire Bid on Oncor?

(BRK.A), (BRK.B)

Will Berkshire Hathaway Energy enter the bidding for Energy Future Holdings’ electricity transmission business, Oncor?

Oncor is a regulated electric transmission and distribution service provider that serves 10 million customers across Texas. The sixth largest in the U.S., the company is the largest distribution and transmission system in Texas, with approximately 119,000 miles of lines and more than 3 million meters across the state.

Oncor is currently owned by a limited number of investors, including majority owner, Energy Future Holdings Corp., which landed in bankruptcy after amassing $40 billion in debt from a leveraged buy-out engineered by private equity firms KKR & Co. and TPG.

Oncor was originally scheduled to be auctioned in November 2014, but Judge Christopher Sontchi halted the process in order to give creditors more time to negotiate. Judge Sontchi recently okayed the restart of the bidding process, which is now on track for March 2015.

A strong fit for Berkshire?

Berkshire’s interest is no secret. In September 2014, Berkshire Hathaway Energy and several other energy companies, including NextEra Energy, signed confidentiality agreements for the purpose of exploring the acquisition of Oncor.

The acquisition of transmission lines have been high on Berkshire Hathaway Energy’s list of late. In April 2014, the company made a $2.9 billion purchase of Canadian company AltaLink from SNC-Lavalin Group Inc.

Oncor’s price will be substantially larger than AltaLink, with an estimated value in the range of $17.5 billion. This puts it in line with Warren Buffett’s goals to acquire more “elephants” in the $20 billion range.

In June 2014, Buffett noted that Berkshire had already poured $15 billion into acquiring energy companies and he declared “There’s another $15 billion ready to go, as far as I’m concerned.”

Could Oncor fit that bill?

© 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.

Categories
Berkshire Hathaway Automotive

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.