Wherever Warren Buffett goes, investors follow. Such is the power of the Oracle of Omaha’s reputation. True to form, Berkshire Hathaway’s recent purchase of the Van Tuyl car dealership group has pushed up the share value of large dealership companies. Some of these new investors may simply be front-running Buffett, buying up equity in dealerships they think Berkshire may acquire. But for anyone who thinks now is the best time to buy into car dealerships, a quick reality check may be in order.
Perhaps the biggest reason to think twice before following the Oracle is that the U.S. auto market is returning to its traditionally sustainable sales peak of between 16 million and 17 million units per year. While auto sales have been one of the few bright spots in the retail sector during a slow economic recovery, there’s no reason to think that will last. Much of that growth is due to the expansion of auto credit, particularly through subprime lending and longer loan terms, so there may not be much juice left in the tank for further growth.