Chelsey Dulaney & Erik Holm:
Berkshire Hathaway CEO Warren Buffett said Thursday that he expects to buy more dealerships over time. Associated Press
Billionaire investor Warren Buffett has set his sights on the auto market.
His firm Berkshire Hathaway Inc. BRKA +0.63% unveiled plans Thursday to buy Van Tuyl Group, the fifth-largest auto dealership firm in the U.S.
Mr. Buffett, who declined to disclose the deal’s value during an interview with CNBC, said he sees long-term value in auto dealerships—a highly fragmented market that he could help to consolidate.
“I fully expect we’ll buy a lot more dealerships over time” he said. “We will hear, I predict, from hundreds of dealerships in the next year.”
He noted the fundamental demand for cars hasn’t decreased, even as consolidation among dealers has accelerated in recent years. He added the average dealership does more business now than 30 to 40 years ago.
“We’re buying this business for 100 years,” he said.
Shares of auto dealers climbed Thursday in response to Mr. Buffett’s comments. AutoNation Inc., AN +5.23% Sonic Automotive Inc. SAH +2.73% and Lithia Motors Inc. LAD +7.94% were among the top gainers.
Mr. Buffett’s bet on the industry comes at a time when the number of auto dealers is shrinking.
There were 17,665 franchised new-car dealerships in 2013, down from 20,010 in 2009, according to data from the National Automobile Dealers Association. In the same period, dealership sales on average jumped by 55% to $41.3 million, bolstered by a strengthening economy and low interest rates.
Dealership owners like AutoNation, the nation’s largest chain, have posted steady sales gains in recent years. AutoNation said Thursday that its new vehicle sales in September increased 16% from the prior year on strength across all its segments.