Berkshire Hathaway Closes Van Tuyl Buyout, Opens Auto Unit

Berkshire Hathaway Inc. BRK.B has launched its automotive unit following the completion of its acquisition of privately held auto dealer Van Tuyl Group.

Founded in 1955, Van Tuyl Group, the fifth-largest car dealership group in the U.S., owns 81 dealerships.

This investment of Warren Buffett, CEO and chairman of Berkshire Hathaway, in the automotive business reflects his optimism in the industry which should see consolidation, Van Tuyl being marking the beginning. Buffett expressed his desire to scale up his investment in this business by buying more auto dealerships. Also, Buffett cited this as an industry with bright prospects that has he has long stayed far away from.

The auto industry is expected to see a surge in sales driven by an improving economy and employment scenario along with low gas prices. Buffett optimism about the industry reflected in his statement, “This is the beginning of a journey that will have no end.”

Van Tuyl Group had been extended the title of Berkshire Hathaway and has been rechristened as Berkshire Hathaway Automotive. The Berkshire Hathaway tag will allow the unit to enjoy its parent company’s brand value, and garner greater customer appeal.

While the name has been changed, management will be retained. Buffett gives his business managers complete freedom to run their business as they want and will hold onto this practice for Van Tuyl Group too. Larry Van Tuyl will continue to act as the company's chairman while Jeff Rancor, formerly the group's vice president, will become the new chief executive officer.

Buffett’s acquisition of Van Tuyl will be categorized as a bolt-on acquisition and reflects his business strategy to grow inorganically. The company had a $63 billion cash pile as of Dec 31, 2014 and is looking for “elephant deals.” We expect more deals – small and big – to come through as the cash is rolled out.

Berkshire Hathaway carries a Zacks Rank #1 (Strong Buy). Other players with the same Zacks Rank include Allied World Assurance Company Holdings, AG AWH, Endurance Specialty Holdings Ltd. ENH and Arch Capital Group Ltd. ACGL and are worth considering, too.