What to Expect From Buffett Acquiring Van Tuyl Dealer Group

In a WardsAuto Megadealer 100 analysis I wrote in May, I predicted major changes would occur this year among the ranking’s top 10.

The following month, No.9 Lithia Motors announced plans to acquire DCH Automotive.

While that deal was surprising to some people, news that Warren Buffett’s publicly traded Berkshire Hathaway investment company plans to acquire the Van Tuyl Group is a shocker. Van Tuyl ranks No.6 on the WardsAuto Megadealer 100.   

In that May analysis, I raised the question whether Van Tuyl still would be a privately held company by next year. I had sensed something was going to happen, but I did not anticipate Warren Buffett’s involvement.

So what does this mean for the industry? What can we expect?

From a dealer’s perspective, this is great news. It not only provides an endorsement of the viability and stability of auto retailing, but it also gives our industry an immediately recognizable and trusted spokesperson in Buffett.

This should take some of the pressure off and air time away from Mike Jackson, CEO of AutoNation, the country’s largest dealership chain.

The other great news for dealers is the additional attention from all those professionals, investors, bankers, tech people and others who reverently follow billionaire Buffett’s moves. He’s considered a visionary investor. If the industry is good enough for him, how can it not be good enough for them?   

I anticipate blue sky and goodwill multiples will increase on the heels of this news, and with good reason.

We have already seen a hot dealership buy-sell market this year. This sure adds that that, and, in turn, will drive up the asking price of stores.

But dealers looking to acquire stores should not lose their heads. They should essentially follow Buffett’s advice and invest sensibly.

His approach is to not meddle with the company’s he acquires, and I expect this to hold true in this case. But I wonder if there is more to the Van Tuyl deal than simply acquiring one of the best-managed dealer groups in the country.

Let’s not forget Buffett has a significant investment in BYD, a major Chinese automaker.

Berkshire Hathaway recently said BYD is poised enter the US. It’s too earlier from our end to consider if this is even a viable end game. But consider the possibilities.

We have seen some foreign automakers struggle to enter the U.S. market.

Whether directly or through a distributor, it costs hundreds of millions of dollars to build a distribution network and infrastructure. A few years ago, Indian automaker Mahindra scratched plans to do business in the U.S.

In addition to the costs, there can be adversity factors relating to dealers, facilities and state franchise laws.

Now, consider that Berkshire will now have a network of 78 dealerships in 10 states. It presents a unique opportunity for a wise investor who happens to hold a major stake in BYD. This idea may be dismissed as overreaching, but maybe not.

The main argument against it is that selling BYD directly through Berkshire Hathaway Automotive would violate state franchise laws.

But Elon Musk has shown with Tesla that this is not entirely the case. Some states have allowed Tesla’s direct-sales approach that bypasses the traditional franchised- dealer system. Other states have allowed Tesla “galleries” that show vehicles but aren’t allowed to sell them. Customers instead place online orders.

In 2011, Musk laughed when a reporter asked if he considered BYD as a potential competitor. The future can only tell if there is a bigger BYD move. What’s pretty certain is that things will get interesting.

Phil Villegas is a principal at Axiom Advisors, a boutique automotive dealership consulting firm specializing in mergers and acquisitions, enterprise management, and litigation support. He can be reached at [email protected] or 786-472-2800.