PHOENIX — Billionaire Warren Buffett and Berkshire Hathaway Inc. are investing in Arizona’s lucrative auto market with the planned purchase of the Van Tuyl Group, a privately held firm that runs 28 Valley of the Sun dealerships.
The Van Tuyl business, with 78 dealerships spread across 10 states, will be renamed Berkshire Hathaway Automotive.
Buffett, the second-wealthiest American after Microsoft’s Bill Gates, is the chairman and chief executive officer of Berkshire Hathaway, a conglomerate based in Omaha, Nebraska. Most of his wealth, valued this week by Forbes magazine at $67 billion, derives from his Berkshire Hathaway stake.
Van Tuyl is the nation’s fifth-largest dealership and largest private entity with more than $8 billion in annual revenue. Larry Van Tuyl, the company’s chief executive officer, will become chairman, with Jeff Rachor becoming CEO. The company’s headquarters will move from Phoenix to Dallas. The firm has the most dealerships in Texas.
The acquisition announced Thursday comes against the backdrop of strong auto sales and dealership consolidation.
“The big players have gotten bigger, and this is a big play,” said Fred Hubacker, managing director of Conway MacKenzie, an advisory firm based in Detroit.
Van Tuyl’s 28 Arizona dealerships represent nearly 10 percent of the 294 listed on the website of the Arizona Automobile Dealers Association. Of the company’s Valley dealerships, 17 are situated in Phoenix, five each in Scottsdale and Peoria and one in Mesa.
Terms of the transaction, including a selling price, were not disclosed. Buffett told CNBC it would be an all-cash deal.
Arizona has relatively few new-vehicle dealerships, but they tend to generate higher sales and employ more people than the U.S. average. The typical Arizona dealership generated $71.9 million in sales last year compared with $41.3 million for the nation as a whole, according to the National Automobile Dealers Association or NADA. Arizona dealerships placed first nationally in that category.
Arizona dealerships also had the most employees, 98 on average, with the nation’s highest average payroll at $5.23 million. More than 24,000 Arizonans work at dealerships.
Berkshire Hathaway’s purchase of Van Tuyl is scheduled to close in early 2015, following approvals from the major auto manufacturers and various regulatory approvals.
In a statement, Buffett said the Van Tuyl Group “fits perfectly into Berkshire Hathaway from both a financial and cultural viewpoint.” The company, he added, “enjoys excellent relations with the major auto manufacturers and delivers unusually high volumes at its 78 locations.”
The purchase is the first for Berkshire Hathaway in vehicle dealerships. Buffett told CNBC that he planned to buy “a lot more dealerships over time.”
Buffett enjoys a cultlike following among stock-market investors, and that type of statement could put a favorable spin on investing in the auto business.
“It’s a very big vote of confidence,” Hubacker said. “It bodes well for dealerships.”